COMMISSION NOTICE —

Guidance on Innovation Procurement

(2021/C 267/01)

DISCLAIMER: The purpose of this Notice is to offer practical guidance on innovation public procurement. It is not legally binding. While the Notice occasionally paraphrases the provisions of EU legislation, it is not meant to add to or diminish the rights and obligations set out in that legislation. Insofar as the Notice could be understood as interpreting EU legislation, it warrants stressing that only the Court of Justice of the European Union is competent to give a legally binding interpretation of EU law. Although the information in this Guide has been carefully checked, the European Commission accepts no liability concerning the specific cases mentioned in it.

TABLE OF CONTENTS

EXECUTIVE SUMMARY 5

1. GETTING ACQUAINTED WITH INNOVATION PROCUREMENT 6

1.1. What is innovation procurement? 6

1.2. Why innovation procurement? 7

1.2.1. Boosting the economic recovery, the green and digital transition and the resilience of the EU 7

1.2.2. Delivering higher quality public service on an optimal budget 8

1.2.3. Addressing an arising need 8

1.2.4. Modernising public services 9

1.2.5. Helping start-ups and innovative SMEs launch and grow 10

1.2.6. Moving markets towards innovation 10

1.3. Why guidance on innovation procurement? 11

2. CREATING A POLICY FRAMEWORK FOR INNOVATION PROCUREMENT 11

2.1. Clear policy mandate 11

2.2. Innovation as means of achieving various policy goals 14

2.3. Setting the level of ambition 15

2.4. Translating ambitions into actions and commitments 16

2.5. Building up capacity 17

2.5.1. Training and assisting people 17

2.5.2. Considering cooperative procurement 18

2.6. Overcoming risk aversion by creating incentives to innovate 22

3. ATTRACTING INNOVATORS 24

3.1. Opening the doors of public procurement also to smaller innovators 24

3.1.1. Engage with the market 24

3.1.2. Reducing the administrative burden 26

3.1.3. Adjusting the selection criteria 26

3.1.4. Using lots 28

3.1.5. Using standards, open data, open interfaces and open source software 29

3.1.6. Designing SME-friendly payment schemes 30

3.2. Develop an ecosystem approach to innovation 30

3.3. Mobilising innovation brokers 31

4. ATTRACTING INNOVATION 33

4.1. Innovation-friendly tools for all types of procedures 33

4.1.1. Needs assessment 33

4.1.2. Preliminary market consultation 35

4.1.3. Using optional fields in the standard forms 38

4.1.4. Technical specifications 38

4.1.4.1. Descriptive requirements 38

4.1.4.2. Functional requirements 39

4.1.5. Variants 40

4.1.6. Award criteria 41

4.1.6.1. Price 41

4.1.6.2. Cost 41

4.1.6.3. Quality 42

4.1.7. Intellectual Property Rights (IPR) management 43

4.1.8. Contract performance 46

4.2. Specific innovation friendly procurement procedures 47

4.2.1. Adjusting ready-to-use innovation – procedures with negotiation 47

4.2.1.1. Competitive procedure with negotiation 48

4.2.1.2. Competitive dialogue 48

4.2.2. Design contests 48

4.2.3. Triggering innovation by procuring Research and Development 49

4.2.3.1. Procurement of research and development services and allocation of intellectual and property rights 49

4.2.3.2. Pre-Commercial procurement 50

4.2.3.3. Procuring research and development supplies 51

4.2.3.4. Innovation partnership 52

5. STATE AID 56

ANNEX I: INTELLECTUAL PROPERTY RIGHTS (IPR) 58

Part I – General aspects relating to IPR 58

Part II – Type of deliverable procured and IPR 60

ANNEX II: SUPPLIER INVITATION TEMPLATES 65

ANNEX III: TEMPLATE QUESTIONNAIRE FOR MEETING THE SUPPLIERS 67

EXECUTIVE SUMMARY

Innovation procurement can improve the economic recovery of the EU after the COVID-19 crisis with better public investment. It is a major tool to foster the transformation of our economy towards a green and digital economy. Adopted in the context of the Communication on ‘A renewed European Agenda for Research and Innovation – Europe’s chance to shape its technological leadership’ and the input to the Leaders’ informal dinner in Sofia on 16 May 2018, this guidance is updated following the adoption of the European SMEs and Industrial Strategies (1) and of the Recovery and Resilience Facility (2). It aims to support public buyers so that they can contribute better to the economic recovery, the twin green and digital transition and to the resilience of the EU.

This guidance document presents in a concise manner the fundamental aspects of innovation procurement: why it is important, who has interest in it and how this process can be done.

The present document reflects the responses received in a prior public consultation. The level of detail has been deliberately chosen so that it reaches the widest professional public (buyers, policy makers and suppliers) and triggers interest in those who never thought of it, those who never felt concerned. Even the most advanced readers will find useful references to the recent initiatives and examples.

The 2014 public procurement directives adjusted the public procurement framework to the needs of public buyers and economic operators arising from technological developments, economic trends and increased societal focus on sustainable public spending.

Innovation procurement offers untapped opportunities for startups and the development of innovative solutions as pointed out by the Commission in its recently adopted SME Strategy and Action Plan on Intellectual Property Rights (3).

Public procurement rules are no longer only concerned with ‘how to buy’ – they provide scope for incentives on ‘what to buy’, without prescribing them. The objective of spending tax-payers’ money well is gaining new dimensions, beyond merely satisfying the primary needs of public entities. With each public purchase, the public opinion is rightly interested to know whether the procured solution is not only formally compliant, but also whether it brings the best added value in terms of quality, cost-efficiency, environmental and social impact and whether it brings opportunities for the suppliers’ market.

Innovation procurement addresses all of the above concerns. It opens the door to higher quality and more efficient solutions that value environmental and social benefits, better cost-effectiveness; and new business opportunities for enterprises. In addition, this guidance should be read in conjunction with the Commission’s 2019 guidance on the participation of third country bidders and goods in the EU public procurement market, which also addresses strategic and innovation procurement (4), and provides public buyers with practical advice on how to deal with third country participation in their public tenders.

This Guidance is therefore designed as follows:

Chapter 1 clarifies the innovation procurement concept, its overarching dimension and added value.

Chapter 2 outlines the policy framework that is necessary to make strategic use of innovation procurement.

Chapter 3 illustrates how to open the doors of public procurement to innovators, including start-ups and innovative SMEs.

Chapter 4 describes how to put public procurement procedures at work to modernize public services with innovative solutions and to create growth and jobs, namely with regard to the management of Intellectual Property Rights (IPR).

Chapter 5 refers to certain criteria that innovation procurement should fulfil to avoid granting State aid to a supplier

Annexes provide practical information to buyers on IPR, and tools to help buyers organise meetings with suppliers.

This Guidance could be a source of inspiration for all actors involved in public procurement:

— public procurement officers

— final users of the procured solutions

— decision-makers and policy makers whose contribution to creating favourable conditions is key

— suppliers who can learn how to compete better with their innovative solutions in public procurement

1. GETTING ACQUAINTED WITH INNOVATION PROCUREMENT

1.1. What is innovation procurement?

Innovation can have multiple meanings (5). This Guidance embraces a wide-ranging view. ‘Innovation procurement’ refers to any procurement that has one or both of the following aspects:

— buying the process of innovation – research and development services – with (partial) outcomes

— buying the outcomes of innovation

The public buyer first describes its need, prompting businesses and researchers to develop innovative products, services or processes, which do not yet exist on the market, to meet the need.

In the second instance, the public buyer, instead of buying off-the-shelf, acts as an early adopter and buys a product, service or process that is new to the market and contains substantially novel characteristics (6).

Such innovation, bringing better performance and added value for various stakeholders, sometimes fits the traditional setting (incremental innovation), but often disorders the old system by creating different actors, flows, values (disruptive innovation) or even requires a more comprehensive transformation, as it addresses unmet needs and calls for structural or organisational reforms (transformative innovation). This guidance attracts attention to the benefits of various forms of innovation and explains how to approach them in the public procurement process.

1.2. Why innovation procurement?

1.2.1. Boosting the economic recovery, the green and digital transition and the resilience of the EU

Public investment and innovation are two essential ways to meet the challenges of the recovery, the green and digital transition and the creation of a more resilient economy in the EU. The new Recovery and Resilience Facility (7) will drive public investment after the COVID crisis, and a large part of this investment will be channelled through public procurement. EU benchmarking shows that Europe is exploiting only half of the potential power of innovation procurement to fuel economic recovery and that there is large underinvestment in particular in the procurement of digital solutions and in R&D procurement, both of which are key for strenghtening the EU’s strategic autonomy and competitiveness (8). Public buyers will need to boost innovation procurement and help businesses to develop innovative solutions in key industrial ecosystems, in particular where public buyers are critical investors. Public buyers will also have to foster the resilience of the European economy by diversifying sources of supply in essential commodities, such as pharmaceutical ingredients as revealed by the COVID-19 pandemic, and by promoting new solutions.

Using the innovative procurement of EU space-based applications by public authorities at national, regional and local levels can greatly contribute to the implementation of the green deal and the digitalization of the interaction between companies/citizens and public administrations. It has also a considerable potential for cross-border cooperation. There are many fields of application for space-based data and services provided by the EU space programme in which procuring innovative solutions is the most effective approach to stimulate digital & green transition as market forces alone would not deliver.

EXAMPLE SPACE SERVICES Why was an innovative solution considered? Public authorities are an important user of space-based technology, in particular in areas such as: — Public safety (emergency services & disaster relief, search and rescue, firefighting, border management) — Critical infrastructures protection — Public transport (management of public transport, autonomous shuttles, smart cities) — Maritime, aviation, and rail operations run or supervised by public authorities What was done differently? Innovation procurement can therefore be a promising instrument to promote the use of advanced space-based technology and services – providing public authorities with incentives to engage innovative companies as ‘first customers’. In October 2019 EC launched the H2020-SPACE-EGNSS-2020 pilot call on ‘Pre-commercial procurement of EGNSS (EGNOS & Galileo) applications for public authorities’, aiming to develop innovative solutions using EU GNSS technology to tackle issues of public interest for which there is a lack of supply on the market (a typical market failure, due to high technology/market risk perception and monopsony/limited demand). What was the outcome? The selected BROADGNSS project will exploit the unique and advanced features of EGNOS and Galileo Signals in downstream public safety applications, to improve the services of Public Safety and Disaster relief organisation’s (PPDR’s) to Europe’s citizens. Details are available at: https://ec.europa.eu/info/funding-tenders/opportunities/portal/screen/opportunities/topic-details/space-egnss-5-2020

1.2.2. Delivering higher quality public service on an optimal budget

An innovative solution is rarely procured for its innovative character alone. In most cases, an innovative solution becomes interesting for public buyers when it enables similar or even better results at optimised costs.

EXAMPLE INNOVATION DELIVERS GREENER AND CHEAPER ENERGY TO CITIZENS: Combined heat and power plant in Vilnius Why was an innovative solution considered? Gas imports resulted in high heat-related costs for citizens of Vilnius. In addition, the high dependence of the city on gas consumption affected negatively the environment with heavy CO2 emissions. What was done differently? The city decided in 2018 to invest in an innovative, domestic facility for producing green energy and reducing its reliance on gas import and CO2 footprint. The whole procurement project was completed within one year. The CHP plant is composed by a waste incineration facility and two biofuel systems. The largest part of the investment was possible through the help of the EU Structural Funds and a loan from the European Investment Bank (EIB). What was the outcome? Almost 40 % of the citizens can now fulfil their energy demand with reduced CO2 emissions. When the system will operate at full capacity mid-2020, prices for citizens are estimated to drop by 20 %. CO2 emissions can be significantly reduced by about 436 000 tons per year. The innovation contributes to the circular economy thanks to a smooth conversion of waste into energy. Details are available at: https://renewablesnow.com/news/lietuvos-energija-breaks-ground-on-vilnius-chp-scheme-601749/ https://www.euroheat.org/news/vilnius-chp-project-gets-green-light-ec/ https://ec.europa.eu/regional_policy/en/projects/major/lithuania/new-power-plant-boosts-renewable-energy-use-in-vilnius-lithuania https://www.eib.org/attachments/registers/74370788.pdf

1.2.3. Addressing an arising need

In some cases innovation procurement is necessary to respond to unmet needs or new expectations, which are not adequately addressed through the existing solutions on the market.

EXAMPLE INNOVATION RESPONDS TO SOCIAL CHANGE: Motivating students to learn with technology Why was an innovative solution considered? Many children today are more interested in computer games than in maths or science. School and university drop-out rates increase, as the enthusiasm for learning these ‘difficult’' subjects decreases. This affects the next generation of Europeans’ chances of finding good jobs in the increasingly knowledge-based economy. What was done differently? Schools from Halmstad in Sweden, Viladecans in Spain, Magdeburg in Germany and Konnevesi in Finland decided to procure together to address the challenge. They commissioned research and development from seven innovative suppliers and then tested and compared the solutions these suppliers came up with. Out of the seven suppliers, four made it to the prototyping stage and two went on to develop innovative tools, which the schools adopted. They offer a more personalised, gaming-like learning experience to children in primary and secondary schools by continuously analysing behaviour patterns with the help of artificial intelligence. What was the outcome? The participation of over 600 students and 45 teachers across the four countries showed that the new solutions make students 55-75 % more motivated and more successful in learning mathematics, technology, physics and chemistry, as well as more likely to pursue careers in those fields. The solutions have meanwhile been sold to various schools. Kuulammen koulu school in Finland for example, confirmed that the innovative solutions also reduce teachers’ planning and assessment time by 30-40 %, and create savings on learning material for the schools. (1 license costs 10 times less than school books for the entire school). The company that delivered the solution in Finland has meanwhile also attracted venture capital investment and expanded its business to other market segments as well (for training of employees in companies). Details are available at: www.imaile.eu (EU Framework Programme seven co-funded project)

1.2.4. Modernising public services

Innovation procurement can match the way public services are provided to the expectations of the increasingly technophile, environmentally responsible and socially conscious citizen and to improve the public service experience.

EXAMPLE INNOVATION REDUCES THE USE OF CARS BY PUBLIC AUTHORITIES: The Car Fleet Shared Management Platform of the Portuguese Ministry of Health Why was an innovative solution considered? The Portuguese Ministry of Health sought to optimise the route management, reduce environmental impact and overall cost of the car fleet used by all the services under the umbrella of the Ministry and the Portuguese National Health Service institutions. What was done differently? Instead of simply buying new cars, the Ministry of Health rethought the way the car fleet could be deployed. It envisaged an electronic platform where all the information related to the use of the car fleet would be centralised. In 2017, the Shared Management of the Car Fleet Platform of the Ministry of Health (GPFMS) was delivered by an external contractor selected through a public procurement procedure in which the desired outcomes where expressed in terms of functional requirements. What was the outcome? The platform will allow users to share all the available resources (vehicles and routes). This will result in a reduced number of vehicles, the associated costs (such as insurance, fuel and maintenance costs, etc.) and the environmental impact. It will also produce reports on the real-time use of the resources, providing indicators to induce efficient, transparent and conscientious planning, management, use and control of the car fleet. It fits with the objectives of the Commission’s digital and green transition. Details are available at: http://spms.min-saude.pt/2016/05/spms-desenvolve-gestao-partilhada-frota-do-ministerio-da-saude

EXAMPLE INNOVATION RESPONDS TO ENVIRONMENTAL CONCERNS: Protecting the water supply Why was an innovative solution considered? The residual water left over from the production of coins in Austria contained chemicals in excess of the legal limits. What was done differently? Austria’s Federal Procurement Agency launched a three-stage public procurement procedure to find an innovative solution for the Austrian Mint (the entity responsible for coin production). Potential suppliers were invited to provide information about innovation track-record. Precise targets for the water treatment were included in the contract terms. What was the outcome? The selected, easy-to-install vacuum evaporation mechanism filters a wide range of particles including metal, galvanic, photo, print, pharmaceutical and food, which makes it suitable for use in a variety of industries. In addition, the Austrian Mint’s need of fresh water has been reduced by 97 %, saving 4 million litres of water per year. Details are available at: http://ec.europa.eu/environment/gpp/pdf/news_alert/Issue58_Case_Study117_BBG_Austria.pdf

1.2.5. Helping start-ups and innovative SMEs launch and grow

At the level of the EU, the purchasing power of public buyers accounts for around 14 % of the GDP (9). In many parts of Europe, it represents a considerable share of local economies. This means that public buyers can encourage innovation among established market players, but also provide vital opportunities to SMEs and new innovative companies who may have solutions to unmet needs but face difficulties in bringing them to the market.

By acting as a lead customer, public buyers can provide innovative companies with an opportunity to test their new solutions under real-life conditions. Moreover, by becoming their customer and thus increasing their turnover, contracting authorities might encourage other investors – both public and private – to invest in their activities. Finally, by using digital platforms widely, public buyers can give more opportunities to economic operators – SMEs, start-ups – to develop or propose innovative solutions and facilitate cross-border access to public procurement markets (10).

1.2.6. Moving markets towards innovation

When a product is not readily available on the market or when only poor quality products are on offer, the public buyers’ purchasing power can spur the market towards innovation.

EXAMPLE INNOVATION RESPONDS TO PUBLIC CONCERNS: Healthier patient care in hospitals Why was an innovative solution considered? The Swedish city of Örebro wanted to procure catheters free from harmful PVC substances. Although the market did not offer them on a wide basis, the city decided to launch a call for tenders anyway. At that time, only one supplier could respond to the call. What was done differently? Despite the challenges, the city succeeded in procuring the desired catheters. What was the outcome? Eight years down the line, all suppliers offered a PVC-free product.

1.3. Why guidance on innovation procurement?

Public buyers’ main objective is to secure the most stable and reliable procurement outcome. They usually tend to reduce risks by:

i. seeking established economic operators with flawless reputations, tax histories and substantial turnovers and

ii. requesting standard solutions that have proven to be reliable.

In this context, it may be difficult to build a case for innovative products and services involving an increased margin of risk despite the fact that the decision to buy innovation brings clear benefits to the public buyer. These benefits – be they savings, solutions to new needs or better answers to old needs – have to be clearly identified, described in a detailed and transparent way, set as targets and measured objectively. Legal, budgetary and reputational risks should be anticipated and mitigated. This Guidance aims at providing the initial impulse and ideas for public procurement policy makers to take up this challenge.

Together with various partners, the European Commission has already issued a number of guidance materials on this topic and these documents remain valid reference. (11) Building on previous experience and responding to the repeated calls from stakeholders, this Guidance elaborates on more detailed practical considerations; it focuses on certain unexplored aspects of the tools proposed by the EU rules and it brings them into a wider perspective, including in the context of the EU-wide support for start-ups and innovative SMEs.

This Guidance therefore aims at:

— providing arguments for building a business case for innovation procurement,

— suggesting actions that provide the necessary support for innovative projects,

— helping to navigate around uncertainties based on an explanation of the EU legal framework for public procurement as applied to innovative procedures as well as real-life examples.

Examples mentioned in this guidance prove that ideas advanced herein should be feasible in all Member States as the core public procurement rules originate from the same Public Procurement Directives.

2. CREATING A POLICY FRAMEWORK FOR INNOVATION PROCUREMENT

Innovation procurement is an opportunity for public buyers, citizens and businesses. A comprehensive policy framework that provides vision, strategy and appropriate means is essential for turning this opportunity into reality. The following paragraphs outline the main components of a policy framework for innovation procurement.

2.1. Clear policy mandate

A clear policy vision provided at political level to the institutions and the professionals involved in strategic procurement makes a difference, as it provides them the necessary mandate to act. When accompanied by a clear communication campaign and supported by a long-term budgetary commitment, the policy vision has greater chances to succeed.

EXAMPLE THE SWEDISH NATIONAL INNOVATION COUNCIL The Swedish National Innovation Council brings together government ministers with innovation-related portfolios and experts. It is chaired by the Prime Minister. This forum allows for a discussion on innovation at the highest level, which helps to consolidate the government approach. For example, it has helped to clarify the use of functional criteria in public procurement. Details are available at: http://www.government.se/government-policy/national-innovation-council

The strategic potential of innovation procurement is immense, especially in supporting technological development in and by the public sector. Industries that depend on sales to the public sector can be motivated to innovate and adopt new technologies through public demand. Social sectors such as health care, water treatment, district heating, roads and railways almost exclusively depend on expressions of public demand. In these cases, public procurement is a clear vehicle for voicing that demand and for driving technological progress.

EXAMPLE INNOVATION HELPS MEET ENVIRONMENTAL TARGETS AT MUNICIPAL LEVEL: Copenhagen’s environmental targets met with innovative technologies Why was an innovative solution considered? Having set the ambitious target of becoming carbon neutral by 2025, Copenhagen is currently transforming how it manages energy. One key requirement for achieving this target is a substantial reduction of the energy consumption from street lighting. For this purpose, nearly 20 000 street lanterns needed replacing. The City of Copenhagen’s lighting objectives were as to: — Replace the high-pressure sodium lamps on Copenhagen’s residential roads, larger streets and highways with an efficient custom designed LED lantern, — Achieve substantial energy and CO2 savings to help the city achieve its target of being carbon neutral by 2025, — Improve the quality of street lighting to increase security and comfort, — Integrate lighting control with traffic density data to adapt lighting levels according to road use in the future, — Create a central management system for the effective management and control of street lighting What was done differently? The contracting authority opted for a competitive dialogue procedure. The evaluation criteria were balanced: price 25 %, task performance and organization 25 %, lighting solution 20 %, energy and environmental qualities 30 %. The procedure took 16 months until the signature of the contract. What was the outcome? With the change to LED lamps the energy consumption has been reduced by 57 % reducing both the carbon footprint and maintenance costs (1,6 million EUR annually, for an investment of 26 million EUR). Details are available at: http://spice-project.eu http://spice-project.eu/wp-content/uploads/sites/14/2017/08/Copenhagen_Street_Light.pdf

It is important to recognise that, along with numerous advantages, innovation procurement also entails risks and costs. It requires a cultural shift not only among the public buyers themselves, but also in the entire ecosystem: among the economic operators, political authorities, auditors, and even the academia. In this context, a clear policy statement is essential to address risk aversion and possible additional costs arising from blocking innovation.

EXAMPLE INVOLVEMENT OF ELECTED OFFICIALS: The Public Procurement Board of the City of Paris Why was an innovative solution considered? The city of Paris wanted to strengthen its strategic approach to public procurement and implement it more efficiently as well as involve the (elected) members of its Council more. What was done differently? In 2016, the Council of Paris set-up the Public Procurement Board (Commission d’anticipation des achats). It is composed of 10 members representing all political groups on the Council of Paris. The Board discusses upcoming public procurement projects and the way to implement the strategic approach in specific procedures. This way the elected representatives can receive information, exchange opinions and contribute at an early stage, well before the procedures are launched. What was the outcome? Thanks to the greater involvement of all political groups at an early stage, the strategic approach to public procurement has gained greater legitimacy. It is also constantly refined in the light of the in-depth exchanges taking place in the meeting of the Board. Specific public procurement procedures take greater account of strategic considerations. This inclusive approach and greater involvement of the politicians also led to a shortening in the duration of public procurement procedures (1 to 3 months shorter than before the setting up of the Board).

A powerful way of expressing strong policy mandate is through targets, i.e. defining a percentage of the public purchases that has to be dedicated to innovation procurement. Although this approach may not work in all settings and has its challenges, in particular as regards definition, measurement and accountability, it can create strong institutional incentives for overcoming administrative inertia and risk aversion.

TARGETS AROUND THE WORLD AND IN EUROPE Authorities around the world have set targets to direct a percentage of their public procurement budgets to research and development and innovation. For example, the US strives to spend at least 500 million US dollars (~2,5 % of GDP) on research and development procurements, while South Korea aims to spend 5 % of its public procurement resources on developing and 20 % on deploying innovative solutions. In Europe, there are national and regional targets. Typically, between 2-5 % of public procurement is dedicated to the update of innovation. Some local authorities have set higher targets. For example, the City of Ghent has reserved 10 % of its information and communications technology procurement budget for research and development and innovation. The Scale-up Europe Manifesto recommends minimum targets of 3 % for pre-commercial procurement and 20 % for public procurement of innovative solutions. Ghent target: https://www.digipolis.be/sites/default/files/20140929_DO_charter%20pdf.pdf National/regional targets across EU: https://ec.europa.eu/digital-single-market/en/news/innovation-procurement-initiatives-around-europe Scale Up Europe manifesto: http://scaleupeuropemanifesto.eu The ERAC Opinion: http://data.consilium.europa.eu/doc/document/ST-1209-2015-INIT/en/pdf The study on benchmarking national policy frameworks and expenditure on innovation procurement (that gives an overview of targets used across Europe) is available at: https://ec.europa.eu/digital-single-market/en/news/study-benchmarking-strategic-use-public-procurement-stimulating-innovation-digital-economy

INNOVATION FRIENDLINESS OF NATIONAL POLICY FRAMEWORKS – STUDY

Benchmarking results show how far Europe has already progressed in rolling out national policy frameworks for innovation procurement. The overall innovation policy framework across Europe is only working at just above one fourth of its potential power.

Globally, it can be observed that innovation procurement is not yet a strategic priority in many countries. Incentives and capacity-building structures are also insufficient to support public buyers in implementing innovation procurement.

However, it has been established that Member States that are at the forefront of innovation in general have also put in place a policy framework for innovation procurement. Therefore, strengthening investment in the development of a more strategic policy framework for public procurement of innovation in Europe could contribute to increase the competitiveness of the European economy.

Graph 1

Europe wide benchmarking of national innovation procurement policy frameworks

Souce: Study on benchmarking national policy frameworks and expenditure on innovation procurement referred in the above box.

2.2. Innovation as means of achieving various policy goals

Innovation is both a key driver of sustainable growth, recovery and resilience to which public buying power can substantially contribute, and an important means of enhancing value for money of public services for which government bears responsibility.

In addition, the policy vision has to be clear about linkages between other policy objectives and innovation procurement, e.g. strenghtening resilience of the economy, reducing environmental footprint, increasing energy efficiency, addressing climate change, sustainable healthcare for the ageing population, facilitating the access of start-ups and SMEs to the market, life-cycle cost reduction, modernising public service delivery, etc.

EXAMPLE INNOVATION HELPS IMPLEMENT ENVIRONMENTAL AND HEALTH POLICIES: A fresh approach to cooling down a Polish hospital Why was an innovative solution considered? Climate change has made heat-waves more common in Poland. The hospital in Sucha Beskidzka was one of many Polish hospitals in which the impact of high room temperatures on staff and patients’ well-being as well as medical equipment were of increasing concern. The Ministry of Public Health responded by requiring all healthcare providers to install ‘sun-blocking equipment in patients’’ rooms that are exposed to excessive sunlight. But air-conditioning patients’ rooms in the summer months strained the budget of the Sucha Beskidzka hospital. What was done differently? Rather than buying more of the same, the hospital asked the market for available solutions within a technical dialogue. Then, using functional criteria (temperature reduction of 2°C) instead of prescribing a specific solution in an open procedure, it procured a healthier and more sustainable solution: the building’s facade was equipped with solar panels, which provide shade without darkening the rooms. Using a whole-lifecycle-costing model was crucial for a procurement outcome that benefited the hospital patients, staff and management. What was the outcome? The temperature inside the hospital dropped by 10 % even as the outside temperatures increased by 20 %. The solar panels also supply 5 % of the hospital’s electricity needs, which compensates for the initial investment. This example shows the significant role that public procurement and innovation can have to meet the challenges of the recovery and the green transition. Details are available at: http://www.ecoquip.eu/procurement-projects/cost-effective-and-low-carbon-solutions-to-maintain-the-thermal-comfort-of-patients.html http://eafip.eu/wp-content/uploads/2016/11/2_M.Kautsch.pdf

2.3. Setting the level of ambition

‘Start small, scale up fast’ is the motto for innovation procurement. The experience can be challenging and is perhaps best introduced as a step-by-step learning process. In other words, the many changes – from cultural to procedural – required for innovation procurement need not be made all at once. Designing a successful project involving innovation could even be organised from the bottom up, by starting to focus on simple, practical problems.

The starting point could be the identification of a number of themes (e.g. environment/climate change, health, etc.) on which to focus that would benefit from an innovative approach. The focus could be to start with those sectors and projects in which innovation can be implemented more easily and where it can make the biggest difference. Starting small will build credibility and confidence and eventually be a magnet for bigger projects.

The EU rules provide public buyers with a set of tools that fit well with the various possible levels of ambition. These will be presented in Chapter 4.

EXAMPLE SOLUTIONS FOR ALL LEVELS OF AMBITION: Model environmental criteria of the Swedish Public Procurement Agency Why was an innovative solution considered? In Sweden, the national policies for environment, energy and transport endorse innovation procurement as a strategic priority. However, practical implementation on the ground of those political ambitions requires specific guidance, model criteria and template documents. But one size does not always fit all. What was done differently? The Swedish Public Procurement Agency has organised innovation-related environmental criteria for public procurement procedures into three levels: Basic, Advanced and Spearhead (e.g. hydrogen cars are currently categorised as a Spearhead solution). The criteria and levels are agreed upon in a set of meetings between all the relevant stakeholders: public buyers from the local, regional and national level, manufacturers, car dealers, taxi and courier companies, etc. They are updated regularly, according to technological progress in each field. Once there is agreement on a criterion, the Agency develops a corresponding legal text that can stand up in court and can be copied-and-pasted by each public buyer in tender specifications for their procurements. The criteria are voluntary and free to use. What was the outcome? This approach has triggered the deployment and market diffusion of innovative solutions in energy-intensive sectors, such as white goods, public transport or heating, helping to reduce Sweden's dependency on nuclear energy by 15 %. Details are available at: https://www.upphandlingsmyndigheten.se/en/sustainable-public-procurement/sustainable-procurement-criteria For a specific case study see: http://www.ecomotion.us/results/pdfs/108es.pdf

2.4. Translating ambitions into actions and commitments

To ensure that ambitions are translated into action on the ground, it is important to build a strategic policy framework together with an action plan for innovation procurement. The policy framework typically spells out the policy objectives and priorities, including definitions, indicators, roles and responsibilities. An action plan commits to a number of clearly defined actions, actors, tools, resources, budgets, expected results and implementation timeline. Stakeholder engagement is a key aspect in building the action plan to ensure that there is commitment of all parties involved.

In Europe, as evidenced by the above-referred benchmarking study, four Member States (Austria, Belgium, Finland, and the Netherlands) have adopted a dedicated action plan for innovation procurement and five others (Denmark, Estonia, Greece, France, and Sweden) have included specific objectives and concrete measures on innovation procurement in wider national strategies or programmes, often with a dedicated budget and with a clear commitment of key actors.

EXAMPLE TURNING VISION INTO ACTION: The Austrian federal strategy for research, technology and innovation Why was an innovative solution considered? Since 2011 ‘Innovation promoting public procurement’ has been a priority within the Austrian federal strategy for research, technology and innovation. What was done differently? An action plan has been adopted to put the strategy into practice and to reinforce synergies with other policy domains. The Federal Procurement Agency acts as the central Austrian competence centre for innovation procurement offering training, documentation, assistance and small grants to Austrian public buyers to prepare pre-commercial procurement or public procurement of innovative solutions. SMEs can obtain a financial guarantee, which facilitates their access to tenders. In 2014, a monitoring system was setup to measure annual expenditure on innovation procurement in Austria. Details are available at: http://www.ioeb.at https://era.gv.at/object/document/2177

Innovation procurement does not take place in isolation from other policies. It can flourish better when it is supported by other sectorial and horizontal policies that enable innovation. Specific actions on innovation procurement can be foreseen in policy frameworks and action plans for specific sectors (e.g. security, health, climate change, etc.) and for other horizontal enabling policies (e.g. research and innovation, taxation, etc.).

2.5. Building up capacity

Innovation procurement requires undertaking a number of specific activities that cannot be improvised. Regardless of the level of ambition, they will require some time, money and expertise. Specialised training (2.5.1), cooperative procurement (2.5.2) and fostering a generally entrepreneurial culture can help to build the necessary capacity for innovation procurement at a manageable cost.

12 Member States have created national competence centres on innovation procurement that provide a one-stop-shop to raise awareness, coordinate capacity-building activities and assist public buyers in the implementation of innovation procurements (12).

COMPETENCE CENTRES The European Commission funds networking activities among national competence centres through the European network of national competence centres on innovation procurement –Procure2Innovate project. https://procure2innovate.eu https://ec.europa.eu/digital-single-market/en/eu-funded-projects

Professional bodies and trade associations can provide similar support in terms of manuals, guidance materials, template documents, draft evaluation criteria or measurement methodologies. Given their detailed market knowledge, transmitting their expertise to public buyers will enable the latter to define the needs and draft the technical specifications in the most state-of-the-art fashion (13).

2.5.1. Training and assisting people

Professionalism (14) is one of the key factors of success. Some of the most successful examples of innovation procurement, such as those found in Barcelona, Lombardy, Austria or Sweden, combined a strong policy mandate that puts innovation at the heart of local economic policies with highly motivated and professional staff.

In order to successfully engage in innovation procurement, a public buyer should tap into knowledge and skills in areas, which include:

— Knowledge: — market and stakeholders engagement — relevant products or services

— Basic skills: — relevant legal framework — negotiation — contract management

— Innovation specific skills: — risk assessment — intellectual property rights (IPR) management — policy entrepreneurship

This capacity can be built through internal training, targeted recruitment, by relying on external experts and consultants or pooling expertise with other public buyers. Even at a lower level of ambition, good knowledge of the market and the capacity to use the basic tools offered by the EU rules, such as the Most Economically Advantageous Tender (MEAT) criteria or functional requirements will help.

This learning process does not concern the public buyers alone. Companies, especially start-ups and innovative SMEs, also need to gradually engage in the innovation-centred business processes with the public sector and become acquainted with specific administrative practices.

EXAMPLE PROFESSIONALISATION OF PUBLIC PROCUREMENT: Barcelona City Council’s staff training Why was an innovative solution considered? Innovation procurement requires skill and knowledge. What is done differently? Barcelona City Council, in cooperation with the European Institute for Public Administration (EIPA), organises a training programme on innovation procurement for city managers, civil servants, consultants, enterprises and legal advisers. This Public Procurement for Innovation and Pre-Commercial Procurement in Cities programme offers hands-on information on how to become a top city in promoting innovation from the demand side. Details are available at: http://seminars.eipa.eu/en/activities09/show/&tid=6141 http://formacio.eapc.gencat.cat/infoactivitats/AppJava/DetalleActividad.do?codi=10251&ambit=1&edicio=1&any=2017

EXAMPLE INTERNATIONAL EXPERIENCE SHARING The European Commission has co-financed the creation of an online platform for sharing experience of innovation procurement. The platform is operated by ICLEI. Through a procurement forum and resource centre, it helps public buyers, policy makers, researchers and other stakeholders harness the power of innovation procurement. Details are available at: www.innovation-procurement.org

2.5.2. Considering cooperative procurement

The term cooperative procurement encompasses various modalities of cooperation between public buyers.

Establishing or mandating dedicated entities, such as central purchasing bodies (CPBs), associations of cities, European Research Infrastructure Consortia (ERICs) (15), Joint Undertakings (JUs) (16) or European Grouping of Territorial Cooperation (EGTCs) (17), to perform cooperative procurement on a regular basis is the most structured means of cooperation. Central purchasing bodies are institutions that manage the public procurement process for other public buyers. Central governments may choose to establish central purchasing bodies at the national level, while local authorities can do the same at theirs. They can also be created by public buyers within a specific sector.

CENTRAL PURCHASING BODIES (CPBs) CPBs are becoming a key element of the organisation of public procurement in the EU Member States. Many CPBs have been established across Europe and operate at different levels (central (18) regional (19) and sectoral (20)). There are around 50 CPBs that award more than 15 contracts each year and as many as 200 that award between 5 and 15 contracts. More information is available at: https://ec.europa.eu/growth/content/public-buyers-save-money-cooperative-procurement-0_en

Cooperative procurement in general and using permanent structures for this in particular has several features that facilitate innovation procurement:

— They make it easier to engage professional staff that has the expertise to articulate specialised and complex needs, to engage with the market in a structured way and design procedures that will lead to innovation,

— They bring about economies of scale which are necessary to create first markets for innovative products and services,

— They enable innovative solutions to have greater impact as each solution can be deployed by different public buyers.

However, it is important to note that cooperative procurement as such needs to make sure it does not close the public procurement market to individualised or customised products by standardising too much.

Cooperative procurement can also take less structured forms, such as public buyers’ networks and associations of public buyers that join forces on an ad-hoc basis to implement a specific innovation procurement together, organise exchanges of good practices and mutual learning.

EXAMPLE JOINING FORCES ON HIGH PERFORMANCE COMPUTING PROCUREMENT: From an ad hoc buyers group to a dedicated procurement entity Why was an innovative solution considered? High Performance Computing (HPC) is used in a number of areas within the public sector, including cybersecurity, energy, climate change and health, as it makes it possible to develop, test and implement particularly complex applications. What was done differently? In 2017, leading supercomputing centres from France, Italy, Spain and Germany formed an ad hoc buyers group to execute a joint public procurement of innovative solutions. The public buyers coordinated their roadmaps for providing more energy efficient HPC resources across Europe. What is the expected outcome? The total planned budget for this first joint procurement of innovative HPC solutions is 73 million EUR. The first deployments have led to a significant improvement in the HPC infrastructure. The good collaboration paved the path for a further EUR 1 billion-worth of joint investments in Europe via the EUROHPC Joint Undertaking, a dedicated entity that was setup by between the EU and Member States to carry out HPC procurements across Europe in the future in a coordinated way, which was signed January 2018. Details are available at: https://ec.europa.eu/digital-single-market/en/news/european-procurement-cooperation-delivers-more-powerful-and-energy-efficient-supercomputers https://www.ppi4hpc.eu https://eurohpc-ju.europa.eu/

EXAMPLE THE ‘BIG BUYERS’ INITIATIVE: Public procurement of innovative goods and services in specific areas Meeting the needs of big buyers Why was an innovative solution considered? The main aim of this pilot initiative was to increase the uptake of innovation procurement in Europe through partnerships with public buyers. ICLEI run the pilot initiative together with EUROCITIES on behalf of European Commission’s DG Internal Market, Industry, Entreprenership and SMEs (DG GROW) as they managed the secretariat of the project. In the pilot, three subgroups were identified by big buyers (mainly large cities, but also utilities or CPBs) as areas to focus on: zero emission construction sites, heavy duty electric vehicles, and ‘circular’ construction material. What was done differently? As an example, the participants in the heavy duty electric vehicles subgroup (Amsterdam, Budapest, Helsinki, Lisbon, Malmoe, Oslo, Paris, Porto, Rotterdam, Belgian Post, and Stavenger) have: (i) joined forces to jointly prepare their engagement with suppliers; and (ii) shared information for tender preparation (planning, tender documents, award criteria, results of pilot initiatives regarding emission-free vehicles, etc.). What is the expected outcome? The objective is to draft a common statement of demand and agree on a number of issues and technical/ legal criteria for the public procurement call. This call will concern the development of heavy duty (waste trucks, street cleaning, heavy delivery) electric vehicles, currently not available on the market. Collaboration between big buyers is expected to help stimulate the market for innovative products. A similar approach is followed in the other subgroups. Details are available at: http://www.bigbuyers.eu/

Moreover, the benefits of cooperative procurement can be reaped by individual public buyers with sufficient purchasing power, such as major cities or big utility companies. These public buyers are natural candidates for innovation procurement, as they have the capacity to identify and test innovative goods and services before buying in bulk as a mainstream product.

EXAMPLE EHPPA (EUROPEAN HEALTH PUBLIC PROCUREMENT ALLIANCE): What is EHPPA? EHPPA is an alliance of non profit procurement organisations. It aims to pool expertise, improve performance, and provide its members with a strategic position in the European health procurement market. Founded in 2012, EHPPA is a registered association under French law, with headquarters in Paris. What did EHPPA make to accelerate the purchase of innovation? On 28 and 29 September 2017, CCI France International and EHPPA organised the first ‘EHPPA Days’, a European forum for the procurement of health innovation, in Paris. The objective of this event was to put healthcare public buyers (e.g. central purchasing bodies, hospitals, etc.) in touch with innovative French and European suppliers, as well as to obtain information on the different purchasing practices of each European country. Who attended? It was attended by start-ups, SMEs, middle-market companies, and French and European suppliers offering innovative solutions in every branch of the healthcare sector. These branches included: pharmacy, pathology, biomedical engineering, patient management, medical equipment, biotech, e-health and digital support, accommodation, infrastructure & technical services, energy and sustainable development, and telecommunication and IT services. The report for EHPPA Days 2017: http://www.ehppa.com/Ressources/FCK/files/EHPPA%20Days%202017%20-%20Web%20REPORT.pdf Similar initiatives: https://beneluxa.org/ https://www.euractiv.com/section/health-consumers/news/southern-eu-states-present-unified-front-in-drug-talks/

EXAMPLE JOINING FORCES FOR A STRUCTURED INNOVATION ORIENTED ACTION: The Norwegian National Suppliers Development Programme Why was an innovative solution considered? Many innovative public procurement processes undertaken by individual public buyers produce good solutions, but stop after the piloting or prototyping stage because a single buyer does not represent sufficient demand. What was done differently? The Norwegian National Suppliers Development Programme works systematically to get public buyers with similar interests (e.g., reaching a particular policy target for climate or health) and with similar needs to join forces from the outset and challenge the market together to deliver a solution that will enable them to reach their common target. The joint projects offer potential suppliers predictability, clarity, and – critically – the volume needed for commercialisation and serial production. What was the outcome? In one joint project, the Development Programme has worked with the largest public buyers in the country that initiate and oversee construction projects, including building new schools, kindergartens, universities, hospitals, and government buildings. Their common challenge was to come up with more sustainable building processes and thus contribute to Norway’s commitments under the Paris Climate Change Agreement. With the Development Programme’s support, they issued a joint challenge to the market to deliver zero-emission construction sites, with respect to machinery. They disclosed their combined building budget for the next five years to demonstrate to the potential suppliers the potential size of the market. Technology development, which would not have been possible without the market volume, is underway. Details are available at: http://innovativeanskaffelser.no/about

2.6. Overcoming risk aversion by creating incentives to innovate

It is important to acknowledge the fact that doing innovation procurement entails risk, e.g. of unsuccessful delivery of the product or service, of a mismatch between the expected results and the delivered solution, etc. Public buyers are often sceptical about additional risk in their procurement procedures because they manage public money. Moreover, not being subject to the market pressure as economic operators, the risk arising from procurement of innovative solutions is more difficult to justify. This is why these concerns should be given attention in the design of innovation procurement projects. Overcoming risk aversion is a matter of changing the motivation for public buyers using financial and non-financial incentives.

Non-financial, behavioural incentives include for example rewarding good practices (e.g. via national innovation procurement prizes), setting innovation procurement as an objective in the yearly career objectives of procurement officials or managers (e.g. by setting Key Performance Indicators), providing improved promotion opportunities for public buyers that successfully implement innovation procurements that modernize public services faster. Another possibility is to focus on the impact that innovation procurement can have on their constituencies.

INNOVATION PROCUREMENT AWARDS Every year, the German innovation procurement competence center KOINNO honors exemplary innovation procurements of German public buyers with the ‘Innovation creates advantage’ prize, awarded under the auspices of the German Federal Ministry for Economic Affairs and Energy. Similarly, Procura+ European Sustainable Procurement Network awards annual prizes for sustainable and for innovative procurements. Short description of all praised projects is available on their website, explaining the most important features of the innovative approach. Details are available at: https://www.koinno-bmwi.de/koinno/innovationspreis http://www.procuraplus.org/awards

Financing is often a key decision factor for starting innovation procurement, especially when the level of ambition is high in terms of innovation. In order to justify the decision to direct public procurement budgets towards innovation, it is important that public buyers make a good business case clearly demonstrating that the expected benefits of the innovative solutions (e.g. quality/ efficiency improvements, cost reductions over life-cycle, etc.) outweigh the required investment costs. Evidence of potential benefits of new technologies is thus important for the public buyer in formulating the business case to make the investment decision. Certification of innovative solutions helps reassure public buyers that new technologies can deliver on their promises.

In addition, there are a number of sources of funding that provide financial incentives for public buyers to engage in innovation procurement. Specific funding may cover many of the additional costs associated with innovation procurement, e.g. the cost of preparing and managing the procurement, preliminary market consultation, negotiations, research and development (e.g. prototyping, testing and certification), mobilising specific technical or legal expertise, adapting administrative procedures, etc. It may also compensate for the intangible costs of cultural shift and change of habits.

NATIONAL AND REGIONAL INNOVATION PROCUREMENT SUPPORT SCHEMES 14 EU Member States have set up national or regional innovation procurement support schemes. These typically provide some funding to public buyers for preparing and/or implementing innovation procurements to offset some of the risks involved with innovative solutions. For example, Finland’s innovative procurement program has already supported over 70 innovation procurements. The Italian region of Lombardy has included pre-commercial procurement and public procurement of innovative solutions as a political objective in its regional law and allocated funding to organise regular calls to collect innovation needs from public buyers in the region for which new procurements are then started. Details are available at: https://ec.europa.eu/digital-single-market/en/news/innovation-procurement-initiatives-around-europe http://www.regione.lombardia.it/wps/portal/istituzionale/HP/DettaglioRedazionale/servizi-e-informazioni/imprese/ricerca-e-innovazione-per-le-imprese/appalti-pre-commerciali

EU FUNDING SCHEMES The EU supports innovation procurement through various funding programmes. The EU’s main program for research and innovation, Horizon 2020, regularly funds calls for coordination and support actions (that finance coordination and networking activities to prepare future innovation procurements), calls for pre-commercial procurements (PCP) actions (that co-finance also the costs to procure research, development and testing of innovative solutions) and calls for public procurement of innovation solutions (PPI) actions (that co-finance also the costs to procure and deploy innovative solutions). An overview of all innovation procurements funded so far can be found here: https://ec.europa.eu/digital-single-market/en/eu-funded-projects More information on Horizon 2020 support for innovation procurement: http://ec.europa.eu/research/participants/docs/h2020-funding-guide/cross-cutting-issues/innovation-procurement_en.htm https://ec.europa.eu/digital-single-market/en/innovation-procurement The EU's programme for supporting small and medium sized enterprises (SMEs) – COSME (https://ec.europa.eu/easme/en/cosme) funds innovative projects involving SMEs. EU Member States and their regions can also co-finance innovation procurements, including pre-commercial procurements, from the European Structural and Investment Funds (ESIF) in the context of their smart specialisation strategies. See the dedicated guide that explains how innovation procurement can be used in ESIF also in synergy with Horizon 2020 funding: http://ec.europa.eu/regional_policy/sources/docgener/guides/synergy/synergies_en.pdf. For examples of innovation procurement projects financed by ESIF see: http://ec.europa.eu/regional_policy/sources/good_practices/GP_fiche_30.pdf.

EXAMPLE LITHUANIA'S ESIF FUNDED INNOVATION PROCUREMENT SUPPORT PROGRAM 21 pre-commercial procurements (PCPs) have already started and 13 are about to start in 2020 in Lithuania following regular calls of the government's PCP support program since 2016. The support program is co-financed by ESIF. Regular calls invite Lithuanian public buyers to submit fresh ideas for new pre-commercial procurement projects. Details are available at: https://www.interregeurope.eu/ecoris3/news/news-article/1607/the-start-of-pre-commercial-procurement-in-lithuania

Risk management mechanisms, such as loan, insurance or guarantee schemes could also be explored. Indeed, insurance or guarantee mechanisms intended to offset the risks of innovation for public buyers have already been tested, especially to cover potential damage in case of failure of the implementation of the solution. This system contributes to reduce the risk borne by the buyer, which would have the effect of creating a climate of trust among stakeholders.

LEVERAGING FINANCIAL INSTRUMENTS TO REDUCE RISK The European Investment Bank (EIB) and and European Investment Fund (EIF) provide, with the support of the Horizon 2020 Access to Risk Finance work programme, two types of financial instruments to reduce the risk of innovation procurements for both public buyers and companies (in particular also for start-ups and SMEs). Under ‘ Innovfin large projects/science ’, the EIB provides loans for individual or groups of public buyers to start pre-commercial procurements and public procurements of innovative solutions. This enables the buyers to overcome the financial difficulty of investing up front in something innovative that will only pay itself back later. Indeed, the pay-back period of the loan can be set so that the public buyer only has to start paying back the loan once the innovation starts delivering actual quality and cost improvements for the buyer. The loan can also relieve difficulties of synchronising financial resouces for starting a cooperative procurement, because a loan can enable all members of the group to start procuring together immediately, while enabling each of them to pay back their part with different individual timescales. In light of ‘ Innovfin for innovators ’, the EIB and EIF can help companies that are involved in pre-commercial procurements and public procurements of innovative solutions to gain easier access to loans, guarantees, counter-guarantees, hybrid, mezzanine and equity finance to grow their business during an innovation procurement in view of wider commercialisation of solutions. Details are available at: Innovfin large projects/science: https://www.eib.org/en/products/blending/innovfin/products/science.htm Innovfin for innovators: https://www.eib.org/en/products/blending/innovfin/index.htm

3. ATTRACTING INNOVATORS

Attracting innovators, in particular high-tech start-ups and innovative SMEs, is one of the main challenges of innovation procurement. In some sectors, these companies strongly rely on public buyers for uptake of their innovative solutions (21), while the public buyers may need their innovation potential to provide state-of-the-art public services. At the same time, start-ups and SMEs often lack the robust capacities and performance track record usually required by public buyers.

Public buyers can consider two major avenues: adapting the procurement procedure to these innovators (3.1) and mobilising innovation brokers (3.3).

3.1. Opening the doors of public procurement also to smaller innovators

Under the Treaty principles all innovation procurements, above or below the public procurement thresholds, have to be open to economic operators of all sizes. Nevertheless, innovation procurements attract more interest of small innovative companies rather than regular procurements for off-the-shelf products. The EU public procurement rules in 2014 have enabled public buyers to design procedures that are adapted not only to large companies but also to smaller innovative suppliers.

3.1.1. Engage with the market

The first step towards receiving an innovator’s offer is simple: engage with them. This dauntingly simple approach addresses two problems: a lack of awareness among companies about public contracts; and a lack of trust. Speaking to an economic operator directly can resolve both of these problems. Just like with sales pitches, speaking directly can even convince an otherwise sceptical company to do business with public buyers.

The means of communication could be an email or a call to pre-identified companies. It could also be through networking and handing out information at trade fairs. The communication may be minimalistic and low-effort (e.g. sending a web link to a procurement notice to some companies or industry associations) or elaborate (e.g. a presentation of the procurement documents at a trade fair, webinar or social media campaign). In countries with low levels of trust in public procurement, such contacts also play an important role of putting a human face on a procedure and increasing the confidence of companies that the contract will be awarded on the basis of fair competition.

However, to avoid discrimination and unequal treatment, public buyers are also subject to restrictions on the means through which they share information with suppliers. To ensure open and effective competition, no potential supplier may be granted exclusive or preferential access to documents or information. Public buyers must also sufficiently document any oral communication they have with business (22).

EXAMPLE A PROACTIVE APPROACH TO PROCUREMENT: Life-saving telemedicine in the intensive care units of European hospitals Why was an innovative solution considered? Hospitals in the Netherlands, Spain, Belgium and Finland sought the development of a highly interoperable telemedicine platform for tele-detection and tele-care of Intensive Care Unit -patients at increased risk of dying from sepsis. What was done differently? The hospitals started promoting the upcoming procurement as soon as possible by publishing a prior information notice (PIN) in TED and by collecting information from potential bidders through a preliminary market consultation that was conducted as a series of physical meetings complemented by an online questionnaire. This approach gave the public buyers a wide-ranging insight into the current state of play. It confirmed that the budget foreseen for the procurement was adequate and revealed what additional information to challenge. Promotion for the procurement started via the THALEA (23) website and via posts on other health, IT and innovation procurement websites, fora and newsletters. The buyers also promoted the PIN and the contract notice at trade fairs in the health and IT sector. Targeted mailings informed industry associations, chamber of commerce, Horizon 2020 programme national contact points for the health and IT sector, and companies known to be active in the field. Promotion was reinforced via social media to reach in particular also SMEs e.g. via the Start-up Europe, EU SME instrument, the EU Digital Single Market and the EU health twitter accounts. What was the outcome? The pre-commercial procurement attracted bids not only from large companies but also from smaller innovators, including start-ups. The result of the procurement is that two start-ups and one large player successfully delivered novel algorithms and improved risk-detection solutions. They provide earlier diagnosis and improve the efficiency of the intensive care unit significantly. This resulted in a 25 % reduction in sepsis mortality. It also shortened the lengths of hospital stays by 20-50 %. The hospitals have enlarged the buyers group for a follow-up procurement to deploy these type of innovative solutions more widely across Europe. They have launched a new open market consultation for this procurement to promote the new upcoming call for tender to innovators and to stay up-to-date on the latest developments in the state-of-the-art. Details are available at: http://www.thalea-pcp.eu/market-consultation http://www.thalea-pcp.eu/thalea-2-ppi-overview http://ted.europa.eu/TED/notice/udl?uri=TED:NOTICE:69348-2018:TEXT:EN:HTML

3.1.2. Reducing the administrative burden

Bureaucratic burden often deters SMEs and start-ups from participating in public procurement procedures. Depending on the Member State and contracting authority, they have to provide administrative certificates evidencing their legal standing, economic and financial capacity along with their offer for verifying the exclusion and selection criteria.

The updated EU rules simplified these requirements. Now, tenderers can provide a self-declaration indicating whether they fulfil all administrative prerequisites. In addition, they provide certificates confirming their self-declaration only if their tender is evaluated as the best one. It makes more business sense to assemble certificates just before signing the contract than at the beginning of a procedure.

With the electronic version of this self-declaration – the European Single Procurement Document (ESPD) (24) – the process is even simpler. The ESPD allows the reuse of data so that tenderers can apply more quickly. This is a significant simplification for both public buyers and tenderers.

ESPD services are running in most Member States (25). The ESPD is a ready-made list of possible elements of the self-declaration that can be required for the participation in public procedures. For each procedure, public buyers select the relevant requirements, to which the tenderer has to respond.

In more integrated e-procurement and e-government system (26), electronic links between the ESPD and the state owned electronic registers generating the relevant certificates are encouraged to implement the once-only principle. Under this principle, public buyers can access the necessary evidence directly. This relieves the tenderer from the submission of information that the Member States already have within their systems. Together with the eCertis (27) service, which is a mapping service of evidence of all European countries, this is possible in a cross-border context.

THE EUROPEAN SINGLE PROCUREMENT DOCUMENT (ESPD) SERVICES: Finland demonstrates its simplification potential ESPD services are currently delivered all over Europe. Some offer basic functionalities such as evidence of fulfillment of exclusion criteria (taxes and social benefits paid, etc.). However, there is a growing number of services connecting ESPD to national databases and other added value services. These can include storing of company profiles to reduce administrative burden for authorities and suppliers. In Finland, the central eTendering service was connected to eight national databases during the implementation of the ESPD service. Authorities now directly access information provided by suppliers that will be stored in a company profile for easy reuse. In addition, the lead supplier can invite consortium members and subcontractors to fill out the ESPD directly from the eTendering platform. This makes the participation of SMEs in larger public procurement projects much easier. Details are available at: https://ec.europa.eu/tools/espd www.hanki-palvelu.fi

3.1.3. Adjusting the selection criteria

Public buyers will often require economic operators to prove they have the financial and/or economic capacity to carry out a contract. This is usually part of a due diligence approach to mitigate any risk of a contractor going into liquidation during a contract term and affecting supplies to the public service. Usually, public buyers seek information on annual accounts and turnover levels for this purpose.

At times, important financial requirements were sought from economic operators to demonstrate this capacity. For example, the required minimum turnover level is often several times higher than the value of the contract in question. Such a requirement does not necessarily ensure good performance of the contract. It also excludes all potential tenderers with lower turnover, which might have the necessary capacity and – even more importantly – a better solution.

Under the new rules, public buyers can no longer require turnover more than twice the estimated contract value, unless duly justified by specific circumstances (28). This rule facilitates the participation of start-ups and innovative SMEs which are more likely to have been recently established and have a relatively low turnover.

EXAMPLE CREATING OPPORTUNITIES FOR SMES: Drones and personal protective equipment for forest firefighting in Bulgaria and Serbia Why an innovative solution was considered? The towns of Kula in Bulgaria and Boljevac in Serbia wanted to buy specialized vehicles, surveillance drones and personalised protective equipment to fight forest fires. As in this domain innovative SMEs can deliver good quality solutions, the public buyers wanted to make sure the procurement would be accessible to them. What was done differently? Both towns issued similar calls for tenders. The required minimum turnover under the financial capacity criteria was equal to the value of their offer (not more). The average annual turnover of the tenderer over the past three years with closed accounts had to exceed the value of their offer. As the buyers also divided the contract into lots – the total contract value was split over the different lots – vehicle, drone and protective equipment – the financial capacity requirement was doable for SMEs. What was the outcome? This approach enabled SMEs to win the contracts for innovative equipment. Details are available at: http://obshtina-kula.com/bg/?p=1915 http://ted.europa.eu/udl?uri=TED:NOTICE:222939-2017:TEXT:EN:HTML&src=0 (for Kula) http://ted.europa.eu/udl?uri=TED:NOTICE:433112-2017:TEXT:EN:HTML&src=0&ticket=ST-28215527-OcEvhL2HhcgUNWcpu88X7fxW924VOOHEzNzxKwtt9AEmKozNQ9Ffi8e7wyLKl0NjYuXOTNYeuacOZtTzn5lzVzXG-PHslUMVSXYC6iO06UxAkYy-4J10I8LIWSzTszVd8YtfzXCoSHCMGZ8cHeoDwhWfIqLC http://ted.europa.eu/udl?uri=TED:NOTICE:99979-2018:TEXT:EN:HTML&src=0 (for Boljevac) (co-financed by Interreg-IPA Cross–Border Programme Bulgaria-Serbia)

To prove their technical abilities to carry out the public contract in question, economic operators are often required to provide a list of works carried out, supplies delivered, or services performed in the past. This list must often be accompanied by certificates of satisfactory execution or other details. This requirement poses a challenge for start-ups, which have just been established and have not yet had time to build references. This approach might therefore exclude them from participating in some public procurement procedures, although the start-up might well have the necessary abilities to perform the contract – maybe even with a more innovative technical solution.

Public buyers have the option to request other evidence from economic operators as a means of proof (29). Depending on the contract, the economic operator may provide the educational and professional qualifications of the service provider or contractor or those of the undertaking’s managerial staff or an indication of the supply chain management and tracking systems that the economic operator will be able to use when performing the contract. Means of proof that do not require a bidder to have been in business for many years, also enable start-ups to compete for the contract.

3.1.4. Using lots

Dividing public contracts into lots is another way to attract innovators. The size of each lot can be commensurate with the operational capacities of start-ups and innovative SMEs. Using lots is also a way to reduce supplier lock-in, even in cases with predominantly large suppliers. In these cases, the public buyer can set interoperability and/or open standards requirements to interconnect different blocks of a system that vendors provide in different lots. In this respect, the contract entered into with the supplier should set out rules on the future use of any new intellectual property right resulting from the project.

Under the new EU rules, public buyers are expected to consider lots in all public contracts (30). In practice, they have to find the right balance between two considerations: on the one hand, using lots to facilitate the participation of smaller innovative suppliers and foster the move to more open, interoperable solutions and on the other hand, minimising their own administrative burden by contracting with a single contractor who will take care of all tasks.

EXAMPLE OPPORTUNITIES FOR SMES WITHIN LARGER PROJECTS: Future-proof traffic management centres for England and the Netherlands Why was an innovative solution considered? The Dutch and English road authorities, Rijkswaterstaat and Highways England, wanted to move towards an open modular software platform for their next generation of traffic management centres. The objective was to remove supplier lock-in and pave the way for smaller innovative companies to provide new innovative services. What was done differently? To achieve their objective the public buyers launched two joint procurement procedures that ran in parallel: 1) a public procurement to replace their custom made software platform with a new one with open interfaces 2) a pre-commercial procurement to develop new innovative traffic management modules to run on top of the new open platform. To ensure sufficient vendor competition and interoperability between the different modules, the public buyers split the pre-commercial procurement in lots per module What was the outcome? The first procurement created healthy competition between existing larger vendors to open up the underlying software platform. With the second research and development procurement, more SMEs entered this market, including SMEs that were not active in the domain of traffic management before. This resulted in excellent new modules for: i) advanced distributed network management that reduce traffic jams and CO2 emissions, ii) prediction and prevention of road accidents that increase road safety and iii) cooperative intelligent transport systems that facilitate the introduction of smart cars and other technological innovations. In addition, this approach based on this open modular architecture was benchmarked to create 20 % cost savings. Details are available at: http://charmprogramme.com

3.1.5. Using standards, open data, open interfaces and open source software

Standards, open data, open interfaces and open source software are another way to open up markets. They can create room for smaller innovators to play a role in large projects or to enable smaller innovators to win contracts on their own and grow their business. The contracts should however set out the rules on access to pre-existing intellectual property rights necessary to complete the innovation process and access to the new intellectual property rights created by the innovation process.

EXAMPLE PROCURING AN OPEN INNOVATION PROCESS: A smart grid for the ‘City of Light’ Why was an innovative solution considered? The City of Eindhoven in the Netherlands wished to improve the quality of life in the city and enhance its reputation as the ‘City of Light’. What was done differently? Instead of acquiring a specific product or solution, the municipality procured an open innovation process. This new approach was based on a Roadmap projecting the City’s ambitions until 2030. It was driven by an ongoing cooperation between a service provider, citizens, research institutions and the municipality. At its core, users were involved within a ‘living lab’ to capture and respond to changes that the buyer could not anticipate at the outset. The procurement process consisted of a market consultation, a competitive dialogue (in three consecutive rounds, with three pre-selected consortia), a tender phase and a pre-award phase to validate the winning bid. ‘Innovative power’, including views, strategy and experience with the implementation of open innovation, was among the selection criteria. The selection process relied on a ‘Best Value’ methodology. What was the outcome? The selected supplier developed a linked, smartly designed ‘open’ system of lighting systems in public space. It is used (or may be used) to perform multiple services by various other innovative suppliers, including start-ups and innovative SMEs for continuous innovation. Details are available at: https://www.jouwlichtop040.nl

EXAMPLE EMPOWERING START-UPS FOR GROWTH: Preserving cultural heritage in innovative open-source digital archives Why was an innovative solution considered? National cultural institutions, audio-visual archives, public libraries and local heritage institutions from Sweden, Belgium, Ireland, the Netherlands, Germany, Spain, Estonia and Greece all wanted to address the same challenge: improving the quality of digital files that preserve cultural content for the long-term future to prevent degeneration of data storage quality over time. What was done differently? Together they procured research and development from several companies to build new standardised open-source tools that will help the archivists ensure that all files conform to the requirements that make them fit for long-term preservation. What was the outcome? The contracted vendors were small innovative companies, mostly start-ups. Out of the six companies taking part in the procurement, three successfully developed innovative tools that (i) reduce costs; (ii) improve the accuracy and overall quality of digitisation and long-term preservation of the cultural content. Heritage institutions in other parts of the world, including the USA, use some of the most advanced solutions developed by the successful start-ups. Details are available at: http://www.preforma-project.eu

3.1.6. Designing SME-friendly payment schemes

Start-ups and innovative SMEs need early and regular payments, as they lack the financial buffers of larger companies. Public buyers can envisage various payment schemes depending on whether an SME is a direct contractor or a subcontractor.

In the case of a direct contractor, advance payments could be a decisive factor in enabling SME participation.

In the case of a subcontractor, Member States may require that public buyers make direct payment to subcontractors. With such a shorter payment chain, subcontractors, e.g. start-ups and innovative SMEs, will be paid earlier. They will also avoid the risk of late payment due to any shortcoming by the main contractor.

Where direct payments are not the most appropriate option, subcontractors can be supported in other ways, such as by incentivising the main contractors to shorten the payment periods.

FUELLING START-UPS WITH TIMELY PAYMENTS Providing advanced payments The City of Paris noticed that the usual payment schemes with small interim payments and a large final payment at the end of the procurement were a barrier to SME participation. In order to enable start-ups ad innovative SMEs to participate in public tenders, the City of Paris increased advance payments from 5 to 20 % in 2017. Details are available at: https://www.paris.fr/professionnels/l-entreprise-au-quotidien/achats-et-marches-publics-3526#la-politique-fournisseur_1 Discouraging late payment According to the Spanish Code of Public Contracts, contracting authorities can list, amongst the criteria for assessing the financial capacity, the average payment period towards subcontractors. In 2016, the City of Madrid included in the contract for waste collection a penalty for non-payment to subcontractors, which could amount to 50 % of the amount owed. Details are available at: https://www.boe.es/legislacion/codigos/codigo.php?id=031_Codigo_de_Contratos_del_Sector_Publico&modo=1

3.2. Develop an ecosystem approach to innovation

What is an ecosystem in innovation?

The ecosystem of innovation consists of business participants, start-ups, academia, technical and support services, and the individuals that drive innovation. Each of these plays a significant role in creating value in the larger ecosystem by transforming new ideas into reality through access to financial investment. The ecosystem of innovation creates an active flow of information and resources for ideas to transform into reality. Through these ecosystems, innovators and entrepreneurs develop and launch solutions to solve real-world problems faster than would be the case without the ecosystem. This process creates expertise in new areas, helps to diversify the economy, and allows businesses to meet their customers where they are.

What is an ecosystem approach to innovation?

The goals of an ecosystem approach are to identify and interact with the key innovators – start-ups, innovators, and academics, and engage them to help develop innovation capabilities.

What does this mean for public buyers?

Ecosystem of innovation give the public buyer a better vision of several issues: where will the next generation of ideas and concepts come from? How interesting are the innovative developments? At what stage in the development of innovation is it relevant to participate? What value could the innovative solution create over existing solutions? Who are the emerging players in the ecosystem to watch for in the context of supplier market intelligence?

The public purchaser should forge links with ecosystems of innovation: clusters, incubators, innovation agencies or living labs, (at local, regional, national or even European level) and learn to work with them. Another good practice for getting to know the players in a specific ecosystem can be the use of hackathon (31).

Through these activities, the public buyer will be able to better identify innovators and initiate valuable co-creation collaboration, assess the readiness of a new product and identify the costs of applying the innovative technologies.

EXAMPLE WORKSHOP ORGANISED BY THE FRENCH MINISTRY OF TRANSPORT WITH PUBLIC BUYERS AND ACTORS FROM THE ECOSYSTEM OF INNOVATION IN THE MOBILITY SECTOR (JANUARY 2020): The French Ministry of Transport organised a training workshop in a living lab bringing together several local authorities of different sizes (from cities with more than 2 million inhabitants to more than 30 000 inhabitants), large companies managing mobility infrastructure (such as public transport), start-ups and technical specialists in transport. Organising this workshop in a living lab allowed buyers to be connected to actors of innovation in the mobility sector. The aim of the event was to organise a collaborative effort between all the participants to firstly revise the technical specifications for purchasing a carpool application and then, build innovative technical specifications allowing innovative companies to submit a bid. This workshop was instructive for both companies, who were able to better understand the legal framework of public procurement, and public purchasers, who could consider how to make a project more open to innovation. For example, the buyers prepared a dashboard to determine the results expected by an innovative solution. The buyers also suggested that the specifications could include a short video summary presenting the key points of the request. Details are available at: https://www.francemobilites.fr/ https://www.liberte.paris/

3.3. Mobilising innovation brokers

The links between start-ups offering innovative solutions and innovative SMEs, on the one side, and public buyers, on the other side, are often weak and do not arise spontaneously. Innovation brokers can help to build or strengthen them.

Innovation broker can be any institution with the capacity and purpose to match nascent innovation with a need on the demand side. The broker can be part of the overall innovation life cycle and a driving force behind the innovation procurement. It can be actively engaged in funnelling ideas from potential suppliers of innovation to networks of potential public buyers of innovation, be it cities, hospitals, civil protection authorities or any other relevant public buyer. Inversely, it can communicate to the relevant industry the needs of the public buyers. Innovation brokers can also facilitate the preparation of innovative ideas for specific public procurement procedures.

Their tasks may include:

— Advising public buyers on how to define their needs that could potentially be satisfied through innovation procurement

— Organising public buyers interested in innovation procurement into networks to share knowledge, exchange good practice and communicate to the market (e.g. market consultation, joint commitment for future innovation procurement)

— Identifying promising innovative solutions that are suitable for matching the needs of the public buyers. Typically, such solutions have potential for commercialisation and scaling up of disruptive rather than incremental innovation

Depending on their business model, they can also facilitate access to funding and help manage intellectual property rights.

Innovation brokers should not act as sellers of unsolicited proposals to the public buyers, nor are they substitutes for public buyers. Public buyers remain responsible that the whole procedure – engaging with the market before the procurement and executing the procurement itself (32) – is open, transparent and non-discriminatory.

EXAMPLE INNOVATION BROKERING IN EUROPE: TekesMatch in Finland A recent Finnish innovation, TekesMatch, is a ‘semantic matching’ software that will match investors and innovators within minutes. This task used to take 3 weeks, before this innovative tool was put to use. TekesMatch was invented with the help of a design contest and a hackathon. Facilitating investment with this type of software opens up vast possibilities for start-ups to grow. Details are available at: http://www.aalto.fi/en/current/news/2017-03-06/ https://www.twobirds.com/en/news/press-releases/2017/finland/tekesmatch Austrian matchmaking platform The mission of the Competence Centre on Procurement Innovation in Austria (IÖB-Servicestelle) is to ‘build a bridge between public buyers and suppliers’. To facilitate this mission, IÖB-Servicestelle successfully launched a digital platform which is increasingly used by public buyers as part of their regular market research activities. The platform offers information, including the contact details, on a wide range of different innovative products and services, which are evaluated by independent experts and ready for use in the public sector. The platform also gives public buyers the option of publicising their latest challenges in order to consult the market on new ideas and concepts. In 2018, more than 100 innovative solutions in product categories such as IT, energy, mobility, facility management or health listed on the platform, enabling suppliers to get in touch with public buyers. Since then, over a dozen public buyers have published the challenges they face in fields including automation, marketing & PR, sensor technology and facility management. These public buyers have received more than 230 different ideas from the market through the platform. Details are available at: www.innovationspartnerschaft.at European innovation brokers pilot project (33) The project aims to create a model for an innovation procurement broker that will bring together contracting authorities, suppliers of innovation (with a special focus on SMEs and start-ups), investors and researchers to facilitate the procurement of innovative goods and services. To explore the creation of an innovation procurement broker, a call for proposals was launched in 2018. A consortium of seven different entities (two innovation agencies, a network, a specialist procurement consultancy and a contracting authority) was formed. As a result, five IPB networks are tested in five different Member States (Spain, Demark, Ireland, Germany and Austria). This should help identify which type of organisation and method are best placed to undertake an innovation broker scheme. The two-year project ended in August 2020. The results are the development and implementation of an innovation broker business model, but also the creation of business opportunities for SMEs with public buyers in the Member States concerned. A total of eight innovative purchasing projects will be launched, mainly on sustainable innovation. Details are available at: https://innovation-procurement.org/innobrokers/

4. ATTRACTING INNOVATION

Once the door is open to all kinds of potential innovators, public buyers can focus on attracting innovation within each public procurement procedure.

Many tools can be incorporated into any public procurement procedure, including the widely used open and restricted procedures (4.1). Alternative public procurement procedures can also specifically cater for innovation, such as negotiated procedure with competition, competitive dialogue, design contest, innovation partnership or the pre-commercial procurement approach (4.2).

The choice of procedure and technical specifications belongs to public buyers. Ultimately, successful innovation will depend on their decisions. What follows is not a one-size-fits-all prescription. It is rather a flexible toolbox to inspire new approaches made possible under the EU rules.

4.1. Innovation-friendly tools for all types of procedures

This section describes options that are available to all public procurement projects. A relatively small investment in preparing and organising the procurement procedure in an innovation-friendly way is sufficient to start seeing benefits for both the public buyer and the supplier market.

4.1.1. Needs assessment

Before drafting technical specifications, public buyers should perform a wide-ranging needs assessment in order to define the problem to solve. This step may seem superfluous, as the purpose of the public procurement procedure is usually obvious. In fact, this is the crucial moment when innovation uptake may originate. Instead of simply replacing outdated equipment with more of the same or renewing expired service contracts, the public buyer carries out a functional analysis of the needs of the organisation and its partners/users and identifies any problems or areas for improvement. This analysis will reveal whether the equipment and services used until now are (still) the most appropriate ones.

EXAMPLE LISTENING TO THE USERS OF PUBLIC SERVICES: Tallinn’s smart port Why was an innovative solution considered? To tackle the challenge of managing increasing traffic, the Tallinn Port Authority in Estonia wanted to purchase a new electronic check-in system for both passenger and cargo vehicles. What was done differently? To identify its needs, the public buyer conducted forty interviews with passengers, six interviews with drivers, four interviews with representatives of ferry operators, two interviews with stevedore service providers and four interviews with employees of the Port. What was the outcome? The assessment of the users’ needs allowed the public buyer to procure an innovative solution that addresses the whole travel process for cars and lorries, from online pre-registration to check-in and a fully-automated traffic management which directs vehicles onto the ship. Details are available: http://www.portoftallinn.com/smart-port

EXAMPLE ASSESSING THE ACTUAL NEEDS INSTEAD OF BUYING MORE OF THE SAME: Malta’s move to cloud computing Why was an innovative solution considered? At the end of the life of a data storage device, public buyers typically tender for another public supply contract for a similar data server. This might not be the best way of addressing the current needs, which may be different from the past. What was done differently? The Maltese government is moving towards cloud-based infrastructure to optimise government data storage. Public buyers assess their data storage needs in terms of capacity, security, access conditions for different categories of users (e.g. in-house v. teleworking), mobility, etc. They can also consider alternative solutions, such as a shared datacentre with other administrations or cloud solutions. In addition to cost savings on hardware and maintenance costs, cloud-based data storage also improves data portability and thus the mobility of workers. Details are available at: https://procurement.mita.gov.mt/open-calls/t04717-on-premise-private-cloud-enabling-infrastructure-and-software (Project co-financed by the European Structural Funds)

The definition of needs requires sufficient distance from the current solution to assess it with maximum impartiality. It is important to keep an open mind about introducing modifications or replacing the existing solutions altogether. In some cases, a deep organisational change may be required, especially if workflows have been automated. In practice, the needs assessment may lead to considering a different type of contract than the existing one with the incumbent, i.e. instead of supply contract, a service contract or a mixed (supply and service) contract may be more appropriate for the new technologies or processes.

In order to allow new trends or exploit technological advantages that public buyers are not aware of yet, they can also screen the market (34). Public buyers might discover new, innovative solutions to provide public services, to increase service levels or add additional functions through the use of new technologies. Thus, public buyers can tailor their needs based on a thorough understanding of the market, which also enables them to incorporate innovate solutions into the procurement process.

To increase objectivity, needs assessment can also be performed based on a public service contract by specialised external entities or potential suppliers who have the necessary expertise. In order to avoid preferential treatment, all information exchanged should be published or communicated to other potential tenders (35). Optimised cost and increased efficiency of the public service should balance the cost of such service.

4.1.2. Preliminary market consultation

The main purpose of the preliminary market consultation is to check the state of play before launching a procurement procedure. Procuring innovation requires good preparation on the part of the public buyer. To gain better insight into the relevant market, public buyers can communicate with potential suppliers in prior market consultations. They can use these to gather information, in particular on price structure and market capabilities. Suitable innovative solutions may already exist, or could result from adapting or combining existing ones. The market may also be able to develop an innovative solution on time, provided it has the opportunity to do so.

A proper preliminary market consultation can help overcome a recurring problem observed in the application of procurement rules, i.e. the absence of, or little prior, market research, resulting in non-realistic or outdated specifications.

A preliminary market consultation can take various forms. In some cases, public buyers might already have a good understanding and overview of the market, and so just need some minor clarifications or updates, whereas in other cases, extensive research might be necessary to gain the necessary knowledge to launch a procurement procedure. Therefore, there is not a one-size-fits-all a