Innovative Public Technology Procurement –Problems, Issues & Recommendations

1. Innovative Public Technology Procurement –Problems, Issues & Recommendations This presentation reports on the results of two recent EU projects dealing with “best practices” in innovative public procurement. The primary source cited here is a comparative analysis of four case studies conducted for one of these projects: Innovative Utilities. To validate this analysis, we also refer to further cases from the other project: Innovation and Public Procurement. The concluding discussion addresses recommendations for ‘best practice’ and policy implications. Innovative Public Technology Procurement –Problems, Issues & Recommendations Leif Hommen

2. Innovative Utilities Cases TeleNor’s Maritime Radio Project (Norway) Developing a Direct Operational Control (DOC) communications system for maritime coast radio stations. Norway’s Public Safety Radio Project (Pilot) Developing a shared digital mobile radio network for emergency response and preparedness organisations. OPUS Project (Belgium, Greece & Italy) Introducing e-procurement systems at selected sites in the health-care sector. Technical Component of the Innovative Utilities Project (International) Developing a secure, web-based, anti-fraud information system for telecommunications operators and other utilities providers.

3. Selected Innovation and Public Procurement Cases

4. Analysis: An Inductive Procedure Within-Case Analysis: - Identifying key problems and solutions in each case. - Categorising issues in innovative public procurement. - Applying the combined set of issues to all cases. Cross-Case Analysis - Comparisons across all cases. - Comparisons by type of case.

5. Issues in Innovative Public Procurement Institutional and Regulatory Issues Regulatory Restrictions General Regulation – the EC Procurement Directives Specific Regulation - sector-specific regulatory frameworks Governance Arrangements -- inter-governmental relations, industrial relations, etc Inter-Organisational Issues Financial Risk Technological Risk Organisational (or Intra-Organisational) Issues Articulation of Demand User-Producer Interaction -- Division of Labour,Communication, Specification Phasing

6. The General Pattern across Cases Institutional and Regulatory Issues: Relatively few problems of this kind arose. Problems with the general regulation of public procurement were very rare – and only minor Serious problems occurred more frequently with respect to both: specific sectoral regulation and governance arrangements

7. Inter-Organisational Issues: Problems of this kind occurred in all cases. Both “financial” and “technological” risk are inherent features of innovative public procurement. “Financial risk” had a lower profile, overall, than did “technological risk”. This is perhaps due to wide adoption of ‘standard measures’ for the first type of risk – and not the second.

8. Organisational (or Intra-Organisational) Issues: There was a fairly high incidence of major problems related to issues in this category. This was especially the case with ‘demand articulation’ and ‘phasing’. For both these kinds of problems, the main source of difficulty appeared to be that procuring organisations lacked either or both: relevant organisational capabilities and managerial or technical competence.

9. Variation by Type of Case Types of Innovative Public Procurement We can distinguish three different types of innovative public procurement by referring to different categories of “societal need”: Cases from the Innovative Utilities project represented each of these three types: • Direct Procurement: Based on needs intrinsic to the procuring organisation. - TeleNor’s Maritime Radio Project • Cooperative Procurement: Based on shared needs, congeneric to multiple users. - Norway’s Public Safety Radio Project (Pilot) - Opus Project (e-procurement in healthcare) • Catalytic Procurement: Based on needs extrinsic to the procuring organisation – i.e., of other users. - Technical Component of the Innovative Utilities Project

10. Relating ‘Issues’ and ‘Types’ Some specific kinds of issues appeared to be more strongly associated with certain types of innovative public technology procurement than with others. These issues were: Governance Arrangements Technological Risk and Articulation of Demand.

11. Governance Major governance problems occurred only in cases of co-operative procurement: Norway’s Public Safety Radio project - ‘inter-governmental’ conflicts the OPUS project (introduction of e-procurement in health-care) - labour relations issues Both cases dealt with large scale projects in which multiple organisations were involved on the “demand” side and which had far-reaching implications for a wide range of stakeholder groups. Specific findings clearly show how “sectional interests” can affect the conduct of innovative public technology procurement and shape its outcomes.

12. Technological Risk Technological risk appeared to have an especially high profile in cases of co-operative procurement. It constituted a major problem in the case of Norway’s Public Safety Radio project. It did not in the case of OPUS – but mainly due to modest technological innovation. However, technological risk also posed a serious problem in other types of project, suggesting that technological risk may vary primarily according to the degree of technological complexity and therefore the uncertainty of the project. Nevertheless, additional evidence from the Innovation and Public Procurement cases also indicated that: In “Cooperative” procurement cases, with multiple actors on the “demand side”, it appears to be especially likely that responsibilities and procedures for managing technological risk may be poorly defined.

13. Articulation of Demand Articulation of demand constituted a serious problem only in cases of “Cooperative Procurement” Norway’s Public Safety Radio project the OPUS project in healthcare and “Catalytic Procurement” the technical component of the Innovative Utilities project One explanation for this association is the greater number of organisations involved on the “demand side”. Under such conditions, there is greater complexity of demand articulation, as indicated by time and co-ordination requirements, Both “Co-operative Procurement” and “Catalytic Procurement” may involve more complex patterns of interaction and more complicated processes of interactive learning on the “demand” side than does “Direct Procurement”.

14. Recommendations to Procuring Organisations Institutional and Regulatory Issues General Regulation Acquire and mobilise administrative and legal expertise in public procurement, including thorough knowledge of the regulatory framework and how it may be used. Specific Regulation Form sectoral networks to explore and advance possible solutions to regulatory problems. Governance Arrangements Secure high-level political commitment, to ensure effective dispute resolution Develop strategies to gain the support and cooperation of important “stakeholders”. Define managerial roles and responsibilities clearly, to ensure coherence and integrity.

15. Inter-Organisational Issues Financial Risk Adopt appropriate strategies for sharing risks with suppliers Assess risks properly and accurately. Pursue a general strategy to limit risks. Technological Risk Develop strong technological competence on the part of the buyer(s). Rely upon highly competent legal and administrative expertise. Specify and implement roles, responsibilities, and procedures to assess and mitigate risks. Conduct an extensive search for potential suppliers, based on clear and rigorous criteria. Engage in extended consultation and negotiation procedures with potential suppliers. Identify and implement appropriate IPR ownership and licensing options. Design tenders that “spread” risk

16. Organisational (or Intra-Organisational) Issues Articulation of Demand Collaborate with organisations possessing high levels of “market power”. Collaborate with organisations possessing strong technological and other specialist competence. Develop technological competence through preliminary activities – e.g., “market intelligence”. Continue competence development through coordinated collaboration amongst buyer organisations. Combine complementary forms of expertise by integrating procurement and technical personnel. Employ performance standards as a means of meeting requirements for technical knowledge. Use demand aggregation as a means of amplifying the market power of separate public organisations.

17. User-Producer Interaction Develop adequate staff competence and organisational capabilities by combining relevant varieties of professional expertise within effective “teams” or project organisations. Develop effective structures for communication, both internally and externally. Implement organisational learning through: utilisation of prior knowledge integration of specialised functions extended technology selection procedures collaboration amongst buyer organisations and knowledge integration by a central project group. Use technological standards to provide a framework for competence development. Develop “tight” functional specifications providing sufficient latitude for innovation by suppliers.

18. Phasing Adopt a gradual approach where organisational capabilities are not initially well developed Practice careful “timing”. Avoid premature finalisation of project planning. Secure initial sponsorship by an influential “lead user” to ensure initial adoption of, and experimentation with, an unproven technology. Recognise the need for diverse kinds of specialist competence – including not only technical but also legal, economic, and administrative expertise – and the requirement for effective project organisation. Adopt an ‘organisational learning’ strategy.

19. Policy Implications Few measures are required to make the EC Directives on Public Procurement more conducive to innovation. However, implementation of the Directives remains problematic. Factors to be addressed by policy include the following: sectoral regulation that impedes innovation external governance arrangements that undermine innovative projects approaches to financial and technological risk that discourage innovation and the lack of key organisational capabilities and managerial and technical competences on the part of public sector organisations.