Rationale

1. Public Procurement of Innovative solutions (PPI)Lieve Bos(lieve.bos AT ec.europa.eu)European CommissionDG CONNECT F2 unit (“Innovation”)

2. Rationale • Health care • Climate Change • Sustainability • Security • Efficiency of public services • … • Public sector is faced with important challenges. Often public sector transformations require innovative solutions, and forward looking public procurement strategies are needed • Sometimes solutions are near to the market and commercial end-solution can be procured (PPI), sometimes no commercial solution near to the market and still new R&D needed (PCP) • However, public procurement as driver for innovation from demand side is underutilised in EU versus other parts of the world

3. Underutilisation demand driven innovation Public expenditure is 47% of EU-25 GDP, but 20 times less is spent on R&D procurement in EU (~2,5 Bn€) versus US (~50Bn€) Lack of procurers driving R&D to their needs and getting familiar with emerging innovations, also slows down uptake of innovations after Possibilities to apply PCP and PPI using Structural Funds, H2020, Connecting Europe Facility and national procurement resources Normally functioning market: 2,5% of ‘innovator’ type customers (PCP) Who invest in R&D with suppliers 16% of ‘early adopters’ (PPI) ICT public procurement market in EU: 0,5% of ‘innovator’ clients (PCP) 5% of ‘early adopters’ of new tech in e-gov (PPI) RTD expenditure as % of GDP Market Share % 3,5 3 100% 2,5 2 75% 1,5 1 PPI CEF 50% 0,5 PPI SF, H2020 PCP SF, H2020 0 25% EU US R&D Procurement Basic +applied R&D funding Innovators 2,5% Early Adopters 13,5% Early Majority 34% Late Majority 34% Laggards 16% 3

4. PCP and PPI complementary • Smart PCP/PPI combination enabling: • Price/quality products that better fit public sector needs • Better take-up/Wider commercialisation of R&D results • Price/quality products that better fit public sector needs • Earlier customer feedback for companies developing solutions • Better take-up/Wider commercialisation of R&D results Public Procurement of Innovative Solutions (PPI) R&D / Pre-commercial Procurement (PCP) Phase 0 Curiosity Driven Research Phase 1 Solution design Phase 4 Deployment of commercial end-products Diffusion of newly developed products / services Phase 2 Prototype development Phase 3 Original development and testing of ltd volume of first products Supplier A Supplier B Supplier B Supplier B Supplier(s) A,B,C,D and/or X Supplier C Supplier C Supplier D Supplier D Supplier D (COM/2007/799 & SEC/2007/1668) Also normally multiple sourcing here to keep competition going

5. PCP Pre-Commercial Procurement • When • Challenge requires R&D to get new solutions developed. Problem clear, but pros / cons of several potential competing solutions not compared / validated yet. No commitment to deploy (PPI) yet. • What • Public sector buys R&D to steer development of solutions to its needs, gather knowledge about pros / cons of alternative solutions, to avoid supplier lock-in later (create competitive supply base) • How • Public sector buys R&D from several suppliers in parallel (comparing alternative solution approaches), in form of competition evaluating progress after critical milestones (design, prototyping, test phase), risks & benefits of R&D (e.g. IPRs) shared with suppliers to maximise incentives for wide commercialisation

6. PPI – Public Procurement of Innovative Solutions • When • Challenge requires solution which is almost on the market or already on the market in small quantity but not meeting public sector requirements for large scale deployment yet. No R&D involved (R&D already done, or no R&D needed to solve problem) • What • Public sector acts as launching customer / early adopter / first buyer for innovative products and services that are newly arriving on the market (not widely commercially available yet) • How • Public sector acts as facilitator establishing a buyers group with critical mass that triggers industry to scale up its production chain to bring products on the market with desired quality / price ratio within a specific time. After potentially a test and/or certification, the buyers group purchases a significant volume of products.

7. PPI Examples Low carbon healthcare PPI started 2006 Introducing more energy efficient LEDs in over 20 hospitals in 8 EU countries: • 30% energy consumption saving • 88% maintenance savings Result: Total cost savings enable hospitals to take in 10% more patients For more info:http://lowcarbon-healthcare.eu/ UK brand name for PPI = FCP=Forward Commitment Procurement Swedish environmental/energy efficiency PPIs NUTEK/STEM facilitating establishment of buyers groups for market introduction of innovations e.g.: • heating-ventilation-cooling-lighting of buildings • public transportation (hydrogen busses) • white appliances (washing machines, fridges) • wind energy Result: Reduced the SE dependency on nuclear energy with 15% through PPIs in combination with product certification/labeling, take-up subsidies & tax incentives SE brand name for PPI = teknikupphandling = Technology procurement

8. EC support to PCP &PPI • Today • DG CNECT and ENTR (security) are piloting EC support to joint cross-border PCPs done by min 3 public procurers from 3# MS/AC • FP7 CP-CSA grant, co-financing up to 75% of the cost of the procured R&D + up to 100% of the costs for preparing/coordinating/evaluating joint PCP • DG ENTR and ENV are piloting EC support to joint/coordinated cross-border PPIs. DG CNECT proposes similar in CIP PSP WP2013 (€10 Mio for PPIs in ICT for health/active ageing, done by min 3 public procurers from 3# MS/AC) • CIP grant, co-financing up to 20% of the cost of the innovative solutions procured / deployed + up to 100% of the costs for preparing/coordinating/ evaluating PPI • Horizon 2020 proposal (2014…) • PCP & PPI new funding instruments available across entire H2020 • EC can co-finance PCPs/PPIs carried out by grant beneficiaries • EC or EU funding bodies (e.g. agencies) can carry out PCPs/PPIs on their own behalf or jointly with Member States

9. Wp2013 calls in FP7/CIP EC co-financing for Cross-border PCPs & PPIs in ICT sector • €32,5 M of EC support for cross-border PCPs in FP7-ICT-2013 • An open call for joint PCPs addressing any area of public interest (CP-CSA for PCP grants) • Objective 11.1, Call 10: Proposals for joint PCPs can relate to for example public sector needs for new ICT solutions in healthcare, inclusion, e-government, transport, energy efficiency, environment, security, education etc (€4M: 1 project) • Targeted calls for joint PCPs in specific areas of public interest (CP-CSA for PCP grants) • Objective 5.1.(d), Call 10 - Personalised Health - Active Ageing (€8M) • up to 1 on personalised care for co-morbid patients • up to 2 on mobile ehealth services • Objective 11.3, Call 10 - High quality cloud computing for public sector needs (€10M: 1 project) • Objective 11.2, Call 11 - More efficient, affordable digital preservation (€5M: up to 2 projects) • Objective 8.2, Call 11 - Technology enhanced learning (min €5,5M) • €10 M of EC support for cross-border PPIs in CIP-ICT PSP-2013 (EC proposal) • Targeted calls for cross border PPIs in specific areas of public interest (PPI pilot grant) • Objective 3.2 – ICT for health and active ageing • €5M for one or more projects in ehealth, • €5M for one or more projects in ICT for active ageing Call deadlines: call 10 (15 Jan 2013), call 11 (16 April 2013) Call opens January 2013: Call deadline May 2013 (tbc)

10. How to use ECPPI support? Example PPI pilot grant • Example: up to €5M PPI pilot grant (example €1,5 & 3Mgrant) • Max 30% up to €1 Mio for coordination costs - 100% funded (€500K-1M in example) • Remaining €1-2 Mio = EC contribution to the ICT solutions procured / deployed through one joint or several coordinated PPIs based on jointly defined specs • Reimbursement rate 20% for public and private contracting authorities -> value total amount of PPI procurements by all procurers in consortium = €5-10 Mio Public Procurement of Innovative Solutions (PPI) One Joint or several coordinated (jointly defined tender specs) PPI call for tenders Phase 4 Deployment of commercial end-products Early adoption of new to the market products / services P1 P10 Preparation Joint or coordinated PPIs P2 Procurer 1 buying e.g. €2 Mio solutions from supplier A … Procurer 2 buying e.g. €1,5 Mio solutions from supplier B P4 P3 Procurer 3 buying e.g. €5 Mio solutions from supplier D Consortia of public procurers e.g. P1->P10 (min 3) Procurer 4 buying e.g. €0,5 Mio solutions from supplier E … … Procurer 10 buying e.g. €1 Mio solutions from supplier X

11. PPI modalities CIP PSP WP2013 EC proposal • Buyers group of min 3 procurers (min 2 public bodies) from 3 # countries + other stakeholders (except potential suppliers) • Preparation phase • Definition joint requirements, open market consultation • Early announcement PPI procurement (OJEU) • Optional: verification of market readiness of solutions via testing / certification / labelling of solutions • Implementation phase • Buyers group executes 1 Joint procurement or several separate but coordinated procurements of innovative solutions • Tender publication in OJEU, best value for money (not just lowest price) • Evaluation of procured solutions (after min 6 months deployment/operation) • Funding regime • 100% of coordination costs for preparation, management & evaluation of PPI (max 30% of total grant, max 1 €M) • 20% of total joint or coordinated PPI procurement price • PPI cannot cover procurement of R&D (complementarity with PCP)

12. Piloting/testing in PPI Versus in pilot As/Bs • Testing is optional in PPI (as it could be, that testing has already happened before in other R&D project etc.), but if it happens: • Testing in PPI is done for a group of first buyers that is committed to deploy when testing proves market is able to deliver solutions at predefined performance/price requirements • Compared to testing in grants, testing in PPIs avoids conflict of interest situations at deployment / procurement stage • According to public procurement rules, public procurers can only dialogue/engage with industry in open, transparent, non-discriminatory way (giving all suppliers on Internal Market equal chance to interact with the procurer in preparation of a procurement) • In collaborative pilot grants that group industry and public procurer participants, procurers engage only with a 'preferred' set of suppliers that is not selected in objective non-discriminatory way, based on best value for money criteria… • Suppliers that were in FP7 or CIP R&D/piloting grants together with procurers report being excluded from follow-up procurements for deployment (e.g. Phillips position on H2020), and ask for public sector related piloting / testing in H2020 to be carried out in a procurement iso grant context. Procurers confirm low interest in current CIP pilots because of same conflict of interest situation (Feb 2012 European Parliament PPI event).

13. Background info PCP website: Info on calls, EU funded projects, background docs, FAQs, PCP initiatives in Member States and Associated Countries etc http://cordis.europa.eu/fp7/ict/pcp/home_en.html Info about link with PPI: PCP website provides also info on PPI and link with PCP (see e.g. FAQs, MS initiatives, link to CNECT PPI calls as soon as CIP PSP WP2013 is published in January 2013) Info about PCP/PPI initiatives in MS and AC http://cordis.europa.eu/fp7/ict/pcp/msinitiatives_en.html