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Procuring the future

Procuring the future

🕔01.Mar 2018

Local procurement multipliers deliver inclusivity, competitive collaboration, new products and new IP – but too often current public procurement is failing to deliver the innovations required for sustainable growth, writes Beverley Nielsen.

According to the West Midlands Combined Authority (WMCA) £34.6bn of public money is spent each year in the area. Within local government services are procured for social care – adult and children’s services, within the NHS, in education, on waste collection, recycling, energy from waste and landfill, as well as public transport and highways management.

But in spite of these huge sums of public money being spent here, fewer than 30% of SMEs and medium-sized businesses forming part of the IDEA Institute Growth Panel at end 2017 had ever been involved in any sort of public procurement.

These companies felt the processes used were overly complex, and that even though in 86% of cases their businesses fulfilled relevant criteria, they still were not gaining contracts, indicating tremendous opportunities for greater UK procurement along with the potential for far greater multiplier impact on local communities.

With much talk about moving to a ‘circular economy’ it seems we have a long way to go before local procurement becomes a rule of thumb in the public sector, despite much good work to encourage local registers.

EU procurement processes have been blamed for many years, but the EU itself and Scotland have been leading the way in Pre-Competitive Procurement (PCP) as a way of encouraging innovation in local government procurement. A report produced in 2016 by Local Government Association, and written and chaired by Malcolm Harbour CB, highlights the numerous reasons for greater focus on this process:

– meeting citizen’s expectations and driving greater social value
— creating the basis for innovative cultures (rather than a perceived risk free ‘status quo’)
— moving to outcomes-based procurement
— driving innovation by ‘market-making’ and ‘market shaping’
— establishing technology contests between suppliers based on a solid definition of unmet needs
— establishing innovation partnerships to bridge the gap between ideas – R&D and commercial contract stages — and encouraging collaboration and partnership working
— Managing IP – to ensure that any IP developed sits with the contractors, but must be licensed for use within local government
— widening the technology supplier participation net to include far greater numbers of SMEs and Medium-sized companies

They stressed that Public Contracts Regulations of 2015 did not inhibit innovative practices across local government, highlighting that the main issues to overcome were those of cultural change, procedure and process.

Public procurement was not perceived as a coherent, dynamic and effective policy instrument for encouraging innovative solutions. Too few councils had recognised ‘innovation champions’ and even where market-making expertise existed within economic development teams it had not been integrated into public procurement teams. They highlighted the expertise and leadership within the Small Business Research Initiative (SBRI) run by Innovate UK.

The Encouraging Innovation in Local Government Innovation report stated:

Strong ‘top down’ leadership is needed to overcome risk aversion, reject the comfort of existing solutions and embrace innovative opportunities.

Last week the IDEA Institute welcomed Tim Hurst, CEO, Wave Energy Scotland, (WES), to speak to our Growth Panel about how the Scottish government had tackled this issue by building on these principles to deliver an integrated PCP process.

WES, a public sector organisation, was set up by the Scottish government with the objective of developing a commercially viable wave energy offering in Scotland. This followed the near collapse of the whole wave energy sector in 2014.

Companies had been ‘pushed too hard as the investors funding them sought to get returns and products to market as quickly as possible’.  The technology had not, however, developed at the pace required and investors had withdrawn.  There had been a clear need to maintain the technology development process as well as the confidence required to achieve commercialisation.

Tim Hurst observed:

The government grant funding in place at the time was inappropriate as there was no private sector investment to match it. The large companies previously involved had had their fingers burnt.

The previous system had proved unworkable. There had been around five main companies all working on separate things. All developing different components for different products and technologies, with little incentive to engage with shared supply chain specialists and no continuity of funding.

They ended up chasing the money and with no ‘joined up’ approach.

Wave Energy Scotland stepped in to find technology solutions to problems where no existing solutions had yet been identified. The Pre-Competitive Procurement process had been found to be a means of achieving this.

WES developed various stages or ‘Technology Gates’ drawing on identified Technology Readiness Levels with defined parameters. SBRI had run their programme and Innovate UK remained an important source of knowledge. They issued an ‘Open Innovation Call’ specifying technical requirements asking companies to bid in, offering up to 100% grant funding on offer. They had started in 2015, had run three programmes to-date, with the fourth launched in 2018. Over 171 companies had been involved with the programme and £25m spent purely on R&D activities. Tim Hurst stated:

The Pre-Competitive Procurement process has pushed technology providers and stretched their technological ambitions through the competitive element. Previously they were quite conservative in their ambitions.

By identifying specific tasks the technology developers had to bring in partners so consortia had been developed. Although it was a competitive process it had forced considerable collaboration too.

There is the issue of upfront grant costs required. Specialists are needed to oversee the process with some real in depth understanding of the market shape – now and into the future – and knowledge or insight of the technologies. Administrators are required.

In considering the issues raised through Pre-Competitive Procurement compared to current procurement practice, businesses making up in the West Midlands Growth Panel made a range of observations.

Mike Leonard, CEO, Building Alliance stated:

Our current public procurement model is shrouded in red tape and designed to favour large businesses that can afford to employ professional bid writers and tick all the boxes. Despite reassurances to the contrary best price almost always beats best value and as result we have seen a “race to the bottom” across the public sector services in general, but in particular where  services our provided by private companies

On the back of Brexit and Devolution we have the opportunity to reconstruct our procurement process in the West Midland’s and focus on the circular economy, local employment and the much neglected SME companies who the innovators and developers of future talent and who are at the heart of our economy.

We should abandon long-term frameworks that ring fence the opportunity for a few large companies and replace them with dynamic procurement frameworks that are SME friendly and allow us to access talent and great value rather than the lowest price.

We must also eradicate the practice where big business uses sub-contractors to fund their cash flow through very unfair payment terms.

The long term interests of the consumer are all too often forgotten due to the short term nature of politics and big business where re-election and shareholder value are the primary drivers. This is resulting in a lack of strategic investment and short term fixes to long term problems.

Beverley Nielsen is Associate Professor and Director of IDEA, the Institute for Design & Economic Acceleration, at Birmingham City University. She was the Liberal Democrat candidate for West Midlands Mayor in 2017.

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