R&D and Innovation in public procurement in Europe CONFERENCE How to stimulate Innovation and R&D through Public Procurement Reyjkavik, 15 November 2007 Prof. Lena J. Tsipouri National and Kapodistrian University of Athens and CFS 1
Outline of the presentation 1. Introductory remarks: theory, practice and methodology 2. The institutional set up in Europe 3. Best, Good (and all range of) practices 4. Lessons learned 2
Some basic theoretical issues The market is not perfect; there are market failures Risk, scale, externalities, appropriability and insufficient interaction are major reasons for market failure Lead markets in general and public (technology?) procurement constitute an increasingly investigated instrument to correct market failures If not adequately designed and implemented public intervention may substitute market failure with government failure. 3
Some practical observations The USA and Japan have pursued active technology procurement policies for decades (DARPA and MITI/METI) In Europe there is increasing interest, rhetoric and cases of interest but no generalised policy (and there are good reasons for that) In sectoral terms it is mainly transport, ICT, energy and Green procurement that are gaining momentum (special case: health sector) 4
Methodological remarks: How to stimulate Innovation and R&D through Public Procurement Stimulate demand for off-the-shelf high tech products (the market will do the rest; e.g. Swedish environmentally-friendly cars) Procure technology, not products (users and producers co-develop a non-proven technology; this can take the form of development or adaptation) 5
Some basic theoretical issues (2) The increasingly relevant notion of Lead Markets Lead market is a new market with potential to expand geographically (and otherwise) and create aboveaverage rents. Lead users play an important and active role not only in pulling (demand-pull) innovation but in the innovation process itself. Under certain circumstances public sector actors are well placed to play the role of lead users One main policy instrument to create lead markets is technology procurement, namely public purchasing of good or services not yet available in the markets, whereby the user co-develops the product/service with the producer 6
Public Technology Procurement: what does user-producer interaction mean The problems: asymmetric information (intended or unintended) and a risk to be shared (how?) Information on needs Suppliers Information on technology (Sophisticated?) Users 7
What is technology procurement? A public policy perspective Technology procurement is an instrument to promote new technology. Technology procurement can be seen as a complement to market forces. There is a whole series of examples of how technology procurement has given very good results with the assistance of aggregated knowledge and aggregated purchase volumes. Some of the key factors for a successful result of technology procurement are: choice of right technology and market for the project; well conducted preparations; a well conducted risk analysis; good project management; an implementing organisation that has high credibility and works actively to build trust; and an implementing organisation and buyer group that show commitment throughout the technology procurement process. (NUTEK) 8
The institutional set up in Europe Public procurement constitutes 14-16% of European GDP, hence it has a huge potential of intervention Competition rules are the cornerstone of public policy: interventions raising suspicions of protectionism are prohibited Procurement is governed by European Directives, and the member states have to comply 9
The institutional set up in Europe (2) The basic Directives (2004 amendments): Basic efficiency and transborder competition argument, but specification of five different procedures the open procedure, the restricted procedure, the competitive dialogue, the negotiated procedure and the design contest. The exceptions Energy Services directive (the ESCO Directive) and the Ecodesign Directive The Lisbon Process (2000) 10
The institutional set up in Europe (3): country profiles regarding technology procurement In the UK policies are more explicit and actively pursed In the Nordic countries there is tradition and culture enabling technology procurement In come other countries there are individual efforts to enhance it (Italy, Belgium, Ireland, the Netherlands, Germany) 11
The institutional set up in Europe (4): Selected drivers There are apparently some actors or lobby groups, who are important innovative procurement drivers, such as the industry and the Economic Chamber in Austria or a special Council in the Netherlands, Danish Society of Engineers, German voices from industry The relevant role of professionalism, skills and training; formal training is now introduced in some countries Provisions for exceptions in the standard procedures related to technology, management or otherwise 12
The institutional set up in Europe (5): Results are independent of the mode of organisation Centralised (Austria, Germany, France, Denmark, Spain. Greece) Decentralised (Netherlands, Finland, Norway, Sweden, Belgium, Ireland) Mixed (USA, UK) But in fact this feature is irrelevant, because economies of scale and innovative features can appear (or not) in both systems through cooperations and coordination 13
Some practices Individual European Practices Trains: TGV, AGV, Pendolino, X2000 High Voltage Direct Current (how ASEA became world leader) Telecommunications (Nokia, Swedish cluster) Transborder Cooperation Galileo (?) GSM (Standard setting rather than procurement) 14
More practices Germany: New lighting systems: Modern technologies for energy efficiency City of Heidelberg: Innovative telecommunication equipment of a municipality to increase service quality and effectiveness Austria: Electronic File Management [ELAK] Norway: Procurement of Maritime Radio System Regional Authority for the Zaanstreek, the Netherlands: set of functional definitions for the service and a general cost-cutting target UK: Procurement of Variable Message Signage for UK Motorway Network Italy, Consip: Energy Saving Procurement The Netherlands: Procurement of Public Key Infrastructure 15
Interesting practices OGC is concerned to make principal financial officers aware of the possible alternatives to public procurement In Ireland the Government Supplies Agency uses elaborate criteria for selecting firms that could be modified to include innovation considerations Austria: "Check it" Kriterienkatalog zur umweltfreundlichen Beschaffung (2000) (criteria for sustainable procurement) The Netherlands are now working on new public procurement legislation that will go beyond European directives Sweden: green public procurement (GPP): sustainable production and business opportunities from future market demands for sustainable products, techniques and production processes (EKU tool); energy saving in cooperation with the IAEA 16 The French Minitel (?).
Can the overall impact be measured? Major difficulties compared to the classical economic efficiency arguments Employment creation? Profit/income generation? Capacity building? Competitiveness of individual firms? Competitiveness of clusters/regions/countries? 17
Lessons learned: public technology procurement may work The issue: Raise ambitions Raise the probability of success Information on needs Suppliers with long term strategies Sophisticated persistent buyers Suppliers investing less Information on technology The others 18
Lessons learned Barriers Embedded culture: Procure the products which cover demand most economically Legal framework constraints, or fear of legal constraints Risk of formal filing of protest The sanction/reward model for the public service 19
Lessons learned: raise the probability of success with five typical stages of technology procurement 1. Identifying the requirements and user readiness 2. Market intelligence 3. Tendering process 4. Assessing tenders and awarding contracts 5. Managing contract delivery 20
Lessons learned 1. Design carefully all five stages of an effective technology procurement 2. Create a culture otherwise public servants see major counterincentives in it 3. Train, train, train all stakeholders to see the benefits and dangers of public technology procurement 21
Lessons learned Some general conclusions The issue of innovative procurement is maturing in many European countries and beyond There is no correlation between an explicit statement of innovation and policy effectiveness (e.g. Japan, Norway) Political commitment, professional training and preferably lobbying from the industry are important ingredients of success Innovative procurement is not inevitably related to protectionism and international collaborations can enhance it. 22
Some concrete recommendations To spread technology procurement as a working method, experience-broadening and knowledge-building seminars should be held for procurement officers and their managers. These seminars should, for example, deal with technology procurement as an instrument and working method and give examples of good and bad technology procurements. Combine instruments: For example use research funds for the drafting of specifications Describe and market the advantages for the manufacturers Check potential for buyers cooperation 23
Thank you for your attention Lena Tsipouri tsipouri@econ.uoa.gr 24