In this article, we explore public procurement, innovation procurement, strategic importance of public procurement for innovation, the role, and the challenges.
Definition
Public procurement is the process by which government bodies and state-owned entities purchase goods, services, and works using public funds. It is a crucial component of public administration, designed to ensure transparency, accountability, efficiency, and value for money to deliver quality public services and foster public trust. In Nigeria, the Public Procurement Act of 2007 and the Bureau of Public Procurement (BPP) provide the legal and institutional framework for regulating these processes.
The Features of Public Procurement:
Transparency: Processes and criteria for awarding contracts are open, ensuring clarity and public trust.
Fairness & Equality: All bidders are treated impartially, with objective criteria and equal opportunities to participate.
Competition: Open and competitive bidding processes are employed to encourage multiple suppliers, driving down costs and improving quality.
Accountability: The entire process, from bidding to contract execution, is monitored to ensure that public funds are used responsibly.
Value for Money: The primary goal is to obtain the best possible goods and services for the public at the lowest possible cost, which is achieved through competitive processes.
Efficiency: Procurement processes are streamlined to reduce administrative burdens and ensure that resources are used wisely.
Strategic Uses
Policy Alignment: Governments can use their purchasing power to support national policies, such as promoting sustainable products, fostering innovation, or encouraging local businesses.
Social Responsibility: Procurement can be used to advance social objectives like gender equality, labor rights, and environmental protection throughout supply chains.
Regulation & Oversight: Public procurement is governed by specific laws and regulations, and often involves central purchasing bodies and mechanisms for reviewing and auditing procurement activities.
Standardized Documentation: The use of standard bidding documents helps to standardize the process and make it easier for all potential suppliers to understand requirements.
Monitoring & Evaluation: Contracts are monitored throughout their duration to ensure compliance and hold suppliers accountable for their performance.
Innovation Procurement:
Innovation procurement is the practice of public or private organizations purchasing innovative solutions, which can either be the process of developing new technologies (research and development services) or the outcomes of innovation. This approach allows public bodies to influence the market, modernize public services by addressing societal challenges, and support economic growth for innovative businesses, especially SMEs and startups. Key methods include Pre-Commercial Procurement (PCP), where the focus is on R&D, and Public Procurement of Innovative Solutions (PPI), which involves adopting already-developed but not yet widely available innovations.
Strategic Importance of Public Procurement for Innovation:
How Public Procurement Drives Innovation
Creates Lead Markets: By demanding novel solutions, public procurement can create substantial lead markets that make the R&D investments worthwhile for businesses, especially those with limited access to venture capital.
Absorbs Risk: Governments act as early adopters of innovative, unproven technologies, absorbing some of the risk associated with deployment and providing crucial early lessons for innovators to refine their products for broader commercialization.
Influences R&D Investment: The prospect of securing a significant public contract can incentivize firms to invest in new Research and Development (R&D).
Fosters Market Growth: It helps create new markets and ensures the market uptake of innovative products and services that might otherwise fail to reach critical mass.
Broader Economic and Societal Benefits
Boosts Economic Growth: By stimulating innovation and productivity, strategic public procurement contributes to overall economic growth and strengthens the business ecosystem.
Improves Public Services: The procurement of innovative products and services leads to more effective and efficient public services.
Supports SMEs: It provides market opportunities and a platform for innovation for Small and Medium-sized Enterprises (SMEs), supporting their competitiveness and growth.
Achieves Policy Goals: Public procurement can be a strategic tool to achieve broader policy objectives, such as advancing sustainability goals, promoting social values, and ensuring inclusiveness.
Strategic Considerations
A Multi-Dimensional Tool: Governments can use procurement to drive innovation, sustainability, social responsibility, and economic development simultaneously, linking it to the concept of “value for money”.
A Long-Term Investment: Investing in innovation through public procurement is a long-term strategy that strengthens national research and innovation ecosystems and enhances economic resilience.
The Role of Public Procurement in Driving Innovation:
Demand-Side Policy Instrument: PPI leverages the public sector’s purchasing needs to signal demand for new solutions, stimulating investment and creating new markets for innovative products and services.
Market Creation: By acting as an early adopter of innovative solutions that are not yet widely available commercially, public bodies can help establish and develop new markets for these technologies and services.
Risk Absorption: Public sector adoption helps de-risk novel technologies for innovators and firms, providing crucial lessons and feedback to refine products and strategies before a large-scale commercial launch.
Societal Problem Solving: PPI empowers public managers to find and implement new, cutting-edge solutions to critical societal challenges and emerging needs.
Public Sector Modernization: It encourages public organizations to modernize their services and operations by adopting new technologies and innovative processes.
Catalyst for Innovation: PPI serves as a strategic tool to spur R&D, encourage new business models, and stimulate innovative practices within the supplying sectors.
Economic and Strategic Impact: Given that public procurement can represent a significant portion of a nation’s GDP, PPI has the potential to drive overall economic growth, productivity, and job creation.
A public organization identifies a need that cannot be met by currently available products or services.
It then uses its procurement processes to solicit proposals for new or improved solutions.
The government acts as an early adopter, purchasing these innovative solutions to test and refine them.
This early market engagement provides valuable feedback to innovators and encourages further R&D investment.
Benefits of Innovation-Driven Public Procurement
- Economic Growth and Competitiveness
By supporting early-stage innovations and scaling them through procurement, governments stimulate the creation of new markets, enhance industrial competitiveness, and contribute to job creation
- Improved Public Services
Innovative solutions can lead to more efficient, user-centric, and responsive public services. Examples include AI-enabled healthcare diagnostics, smart traffic management systems, and paperless government platforms.
- Sustainability and Green Innovation
Green public procurement can stimulate the development and uptake of environmentally friendly technologies, such as energy-efficient buildings, low-emission vehicles, and circular economy solutions.
- Social Inclusion and Accessibility
Innovation in public services can improve accessibility for marginalized or vulnerable populations, whether through inclusive digital platforms or adaptive technologies in education and mobility.
The Challenges of Public Procurement for Innovation:
Strict Regulations: Public procurement is subject to extensive laws and regulations, which can limit flexibility and stifle innovative approaches.
Compliance: Meeting complex legal and regulatory requirements can be a significant burden for innovation-focused procurement activities.
Capacity & Skills Gaps
Lack of Expertise: Public procurers often lack the specialized knowledge and skills to design and evaluate tenders for innovative solutions.
Staff Competence: Inexperienced or inadequately trained personnel in procurement functions can hinder effective implementation of innovation.
Limited Resources: A lack of financial and human resources within public organizations is a critical barrier to implementing new innovative approaches.
Market & Collaboration Issues
Supplier Reluctance: Suppliers may be hesitant to invest in research and development for public sector contracts if they fear insufficient returns or a lack of clear market demand.
Over-specified Tenders: Tenders that specify exact solutions rather than outcomes, or that are over-specified, can discourage innovative proposals from suppliers.
Lack of Interaction: There is often insufficient early engagement and interaction between public buyers and potential suppliers, which hinders the co-creation of solutions and the identification of market capabilities.
Risk & Resistance
Risk Aversion: Public procurers can be risk-averse, making them reluctant to adopt new, untested solutions, especially from novel suppliers.
Organizational Resistance: Resistance to change and a lack of support from within public organizations can impede the adoption of innovative procurement practices.
Addressing the Challenges
Develop Flexible Frameworks: Create more flexible legal and regulatory frameworks that can adapt to the needs of innovation.
Build Capacity: Invest in training and capacity building for public procurers to enhance their expertise in innovative procurement methods.
Improve Market Interaction: Foster early and ongoing dialogue between procurers and potential suppliers to better understand market capabilities and define clear societal needs.
Focus on Outcomes: Shift from specifying exact products to defining desired outcomes, allowing suppliers more flexibility to propose innovative solutions.
Create Incentives: Develop clearer incentive structures for contractors, similar to those in the private sector, to motivate innovation and successful project completion.
Conclusion
Public procurement has shifted from a cost-focused activity to a strategic tool that can drive innovation, support startups, and address societal challenges. When used effectively, it influences markets and fosters economic and social progress. To realize its full potential, governments must adopt a new mindset, invest in skills, embrace risk, and encourage collaboration.