The construction, healthcare and communication technology sectors are among the areas where public authorities can have a major influence on market developments because they are often the largest single purchaser.
Experts and policymakers at a conference in Brussels agreed that public procurement should be used to promote innovation, but there were concerns that the culture in the public sector is not well suited to commissioning innovative projects.
John Connaughton, a UK-based management consultant working on public procurement projects, said the process of winning government contracts can be lengthy and often favours established firms rather than dynamic start-ups.
"There is a culture of risk aversion, which leads public procurers to play it safe. Innovation is often filtered out at the pre-qualification stage," he said, adding that bigger companies who tick all the boxes on health and safety standards tend to win out over SMEs.
"Innovation doesn't come without risk – you have to be prepared and willing to fail from time to time," said Connaughton.
EU trailing China on innovative procurement
The European Commission says it wants the public services to drive innovation using procurement, and urges authorities to become more innovative themselves.
The EU's SME envoy, Françoise Le Bail, said public procurement should be harnessed to address the major societal problems facing Europe – energy, climate and demography. "But these challenges will not be overcome without innovation in our public services," Le Bail said.
Public services will need more support and guidance from Brussels on how to use public procurement as a "powerful lever" to encourage innovation, she said.
Le Bail called for procurement experts in public services to be given better support in sharing knowledge and developing expertise. "We need to give more value to the job of public purchasers, as has been the case in the private sector over the past decade," she said.
The SME envoy noted that China has set a target of dedicating a massive 40% of its public procurement spending for innovative projects, while the US is aiming to spend 15%.
A Commission-sponsored panel of experts recommended last year that a target of 1% of public procurement funds be earmarked for innovation, while the European Research Area Board (ERAB) wants that upped to 2%.
"Here in Europe we have what seems to me to be an extremely low level of public procurement targeted at innovation. Nonetheless, public procurement is worth €2,000 billion to the EU economy so even 1% of that could be €20 billion per year," said Le Bail.
The EU executive will publish a new research and innovation strategy in September, which is expected to lay out a detailed plan for using public sector purchasing power to foster innovation.