Innovation hampered by ‘risk averse’ public authorities


Tapping into Europe's multi-billion euro public procurement market will be a central component of the EU's forthcoming research and innovation plan, but risk aversion in the public sector remains a major barrier to change.

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.

Fergus Harradence of the UK Department for Business, Innovation and Skills said public authorities are playing a crucial role in improving the design, insulation and energy use of buildings.

He said public services occupy large numbers of buildings across Europe and have a significant carbon footprint.

"Public procurement can be a driver of adopting innovation in areas like construction. How we buy and what we buy can have an important influence on the market," Harradence said.

He acknowledged that it can be challenging to overcome the risk-averse culture in some parts of the public sector, where staff err on the side of avoiding mistakes rather than risk being associated with a failed project.

Mika Lautanala from Tekes, the Finnish research funding agency, said focusing even a small slice of public procurement spending on innovation could make a huge difference.

He said authorities should prioritise innovative solutions rather than choosing the bid with the lowest price.

Lautanala also told the conference that it may be necessary to fund several projects in order to have an impact on the market and change the habits of contractors.

Alvaro Oliveira, of the Preco project in Portugal, said engaging the public is essential if the aim is to instill durable changes in behaviour. He said "living labs", which involve the public and private sectors as well as citizens in decision-making, help to build trust.

"We need to involve users from the very beginning of the process. This can be achieved when motivated citizens are part innovative co-creation," he said.

Richard Julian, who helped develop a supply chain for organic products in school canteens in Lille, France, said creating demand for green products can have a "rebound effect" on local consumption.

He said the city of Lille, which produces 11,000 meals per day, used its purchasing power to foster a market for organic and locally-produced fruit and vegetables, which has helped increase organic production in the city and surrounding areas.

Public procurement accounts for 17% of GDP in Europe – a staggering €2,000 billion a year. This figure dwarfs any of the public support and funding measures available, such as the Framework Programme for Research (FP7) which has as budget of €54 billion over seven years.  

Steering this pot of funds towards the broader goal of making Europe more innovative has already been proposed in the past (EURACTIV 03/04/06) but the idea has gained momentum with the publication of an expert report on innovation (EURACTIV 14/10/09) and the appointment of an EU commissioner for innovation (EURACTIV 10/01/10).

However, there are drawbacks to prioritising innovation over cost-effectiveness. Critics warn that the public purse could end up funding the development of innovative products and also become the main customer in areas like health and mass transport.

  • September 2010: European Commission to publish research and innovation plan.

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