Launch of Buying Into the Future report

I’m delighted to be speaking on Friday at the launch of the Buying into the Future report by PUBLIC. I will be part of a panel on ‘How can Government do more to buy from startups and innovators?’ with Tanya Filer, Digital State Lead - Bennet Institute for Public Policy and Robyn Scott CEO of Apolitical.

The event will be held on Bird & Bird London Office from 09:00 to 12:30 and registration is free.

Thoughts on the UK Government £20 million pot for Govtech

Yesterday's budget announcement included a nice £20 million pot for GovTech projects:

GovTech Fund – The Budget commits up to £20 million over 3 years, starting in 2018‑19, of R&D NPIF funding for a GovTech Fund. Public bodies will be able to access this fund to support procurement of innovative products through the Small Business Research Initiative (SBRI), run by Innovate UK. 

What can the Government do with this? If I were Innovate UK I would be setting up an incubator/accelerator programme for startups to develop solutions based on the new innovation partnership procedure so that both R&D and procurement can be tied together. Take a small percentage of each company going through the programme and ensure the state has a stake in their future, a bit like Mariana Mazzucato has suggested in the Entrepreneurial State.

In fact, I pitched literally this idea to the Welsh Government and Nesta back in 2014 but no dice.

That would be my preferred option but I can think of a simpler alternative based on pure design competitions or challenges which have been done a little bit all over the place with varying degrees of success. Those however hit the skids when it comes down to bridging the gap between the R&D bit and public procurement.

A further alternative would be to look at what CityMart is doing these days with their platform which they call the world's largest directory of solutions for city governments. CityMart were an early horse in the city public procurement challenges.

Personally I quite like that responsibility for the money will sit with Innovate UK and outside traditional procurement hands. Why? Because innovation in procurement needs to be tackled coming from innovation and not from procurement. It needs to be understood as "special" (ie, 'different') from regular or day to day procurement. If you think otherwise, just look at the 'success' of the innovation partnerships so far...

Procurement and innovation working together in development of driverless cars

Another example how public procurement (connected) innovation can lead to the development of significant new areas of business, this time for the development of driverless cars:

There was federal money at the inception of the self-driving vehicle, the same government largesse lurking in the origin stories of the internet, global-positioning system technology and alternative energy. Darpa has pursued the same mission since the Sputnik era: Make key investments in breakthrough technologies to promote national security.

The autonomous-vehicle challenges were designed to bring out into the world technology that had been under development for decades in labs. There was military urgency at the time. The U.S. was fighting wars in Afghanistan and Iraq, and scores of soldiers were being killed by roadside bombs. Driverless vehicles could save lives on the front lines.

An initial competition, the Darpa Grand Challenge of 2004, asked robotic cars to travel roughly 140 miles across the Mojave Desert. Carnegie Mellon’s entrant, a Hummer named “Sandstorm,” managed to travel the farthest—a whopping seven miles. At a follow-up event, in 2005, Stanford University came in first place, and Carnegie Mellon’s contenders placed second and third. Each university team included dozens of students and professors, as well as corporate sponsors.

I said public procurement connected and not procurement derived (or demand led) innovation because there is no more than a fleeting relationship between these two since the programme was sponsored by the Pentagon's DARPA which aims to develop new military technologies. This shows that perhaps those two do not really need to be connected as it is implied by approaches such as the innovation partnership and that the market likes these type of competitions as pump priming exercises.

That idea, however, does no good to address the shortcomings put forward by Mariana Mazzucato on the Entrepreneurial State. But what is the counterfactual here? Would participants have taken part if it implied some sort of IP licensing arrangement or a stake in the business (assuming one existed at the time)? Would a state intervention of such type deterred participation in the first place?

Food for thought.

Will the UK move towards USA style set-asides for SMEs in procurement?

Far from the rosy picture painted by PM May and others, the US federal government’s set-aside programme is permanently criticised for the opacity of its direct and indirect costs to the tax payer [very clearly, see [AG Sakallaris, ‘Questioning the Sacred Cow: Reexamining the Justifi cations for Small Business Set Asides’ (2006–2007) 36 Public Contract Law Journal 685; and K Loader, ‘The Challenge of Competitive Procurement: Value for Money versus Small Business Support’ (2007) 27 Public Money and Management 307].

The system has clear explicit costs in terms of its administration and the litigation ensuing classifications of businesses as small or not (or innovative or not) in the first place. Additionally, and simply put, the main implicit cost of a small business set-aside programme, be it for innovative enterprises or of a general nature, is that it reduces competition for public contracts, and the reduction of competition resulting from this artificial division of the market comes at a cost in terms of potential higher contract prices as well as reduced incentives for innovation for non-small businesses [generally, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 60-77]. Thus, this is a very expensive system to run and, in a scenario of ever stronger competing pressures for public funds, legitimate questions can be raised about its desirability.

As I have been saying since the word "innovation" showed up 44 times on Directive 2014/24/EU (up from a grand total of 0 in Directive 2004/18/EC), it is now not much more than a simple buzzword: a receptacle of sorts unto which any and all of us can project whatever we mean by innovation.

That is not to say, however, that innovation does not have its place in public procurement or that the State should not reap the benefits of innovation, but that can be done better as part of an industrial policy and disconnected from procurement. That the State prefers to give grants or loans to companies instead of investing in them has nothing to do with procurement and how innovative it is. The fact that corporate tax rates have been coming down (thus reducing the compensation accrued by the State on the far side) has also nothing to do with procurement.

Even within procurement one does not have to throw the baby with the bath water so that the State benefits directly from innovation. After all there is a shiny new procedure with "innovation" in its name that is currently sitting idle in the procurement shelves. How many times has the innovation partnership been used in the UK? None, other than in speeches justifying why the Directive 2014/24/EU needed to desperately be transposed quickly so that contracting authorities could use the new tools provided.

Hey, here's an idea to have more innovation in procurement: set up innovation partnerships so that the State invests in the companies in the process in addition to developing the products/services needed that will be procured in the end of the partnership. Allocate money and resources into it and walk the proverbial walk.

Even then, the more we shoehorn (industrial?) policies like innovation, social, environmental into procurement the more we move into compliance territory, making procurement unwieldy, difficult and expensive for all parties involved. But those potential outcomes, of course, do not get a mention on Prime-Ministerial speeches. 

How far can SME friendly policies go in public procurement?

I co-authored a blogpost with Albert published on Almacen de Derecho about a proposed policy by Ciudadanos to support innovative SMEs in Spain. Here's an excerpt:

Ciudadanos, one of Spain’s recently emerged nation-wide political parties, recently submitted a non-legislative proposal to the Spanish Parliament with the aim of reserving 3% of public contracts tendered in Spain to Small and Medium Enterprises (SMEs) that are ‘legally certified’ as innovative. The aim of their proposal is to develop and apply research & development and innovation (R&D&I) projects for the provision of public services. Ciudadanos is also proposing for the innovation of solutions to be evaluated in all public tenders, that contracting authorities differentiate the award of contracts concerning ‘high technological value’ solutions, and that contracting authorities retain the possibility of mandating the subcontracting of specific parts of the tendered contracts to ‘innovative SMEs’.

Many thanks to Jesus Alfaro for the kind invitation/prodding to write the post. Here's the Spanish version if you're so inclined.

 

Links I Liked [Public Procurement]

1. EU rules save British tax payer money, politicians and newspapers complain. Seriously, go and read the link. The Telegraph is particularly disingenuous by slamming EU rules for "lowest price criteria" in the lead, before quoting someone in the process with this: “The award criteria looked at the whole life cost of vehicles rather than just the purchase price; taking into account ongoing costs such as fuel usage and servicing to ensure police forces get the best value for money." So much for lowest price.

There are other pearls in the article: "But there was controversy when 1965 the Hampshire and Isle of Wight Constabulary put an order for Volvo estate cars from Sweden. That was followed by a decision by Thames Valley police to order BMW cars in 1972." The irony, of course, is that the UK joined the then EEC in 1973.. Hat tip to @RalphGrahn.

2. Renua presents its ideas for public procurement in Ireland. More here. It is great to see a centrist party giving importance to procurement and chiding away from easy, populist musings about the topic. Note: I modestly contributed to their policy document.

3. How much measuring is too much? Not really connected with public procurement (except in the part related to the professionalisation of the workforce) but Accenture and Deloitte have reviewed their annual performance reviews for staff. One has to be careful with what he measures...

4. Speaking of which... Is procurement focus probably stymying innovation, asks Stephen Ashcroft. Applicable to both private and public procurement alike.

5.  The US Digital Service makes it to Hacker News and Y Combinator. A ringing endorsement to the US Digital Service by the leading startup accelerator programme in the world. Although the work Central Government is making in the UK to improve the accessibility and friendliness of their websites and its work is seen from the US as a benchmark (including the Crown Commercial Service), I find the US Digital Service much more ambitious and interesting in the long run. It is one thing to improve the output, another completely different to change the processes. There is a freshness to US Digital Service lacking elsewhere. Plus, it is simply more modern and forward looking than anything we have here in Europe. If you do not believe me, read their Playbook.

Edit: I forgot to mention the UK's Government Digital Service which, unfortunately, appears to be imploding.

Links I Liked [Public Procurement]

1. PPP/PFI risks (in Spanish). I would add to the list information asymmetry and regulator capture. Very good points nonetheless.

2. Damages and re-tendering awarded in Woods Building Services vs Milton Keynes Council [2015] EWHC 2172 (TCC). Interestingly enough although Judge Coulson recognised that the decision should be set aside and there was a loss of profit, the damages awarded did not cover loss of profit as the contract is to be re-tendered. Apparently the claimant did not request in its claim for the contract to be awarded to it. Fascinating. Full decision here.

3. UK public procurement rules 'hinder digital purchases'.  "A bad carpenter blames his tools."

4. Borisbus is now known as the Roastmaster. My first impression upon reading this piece was to rail against the whole idea and how it was conceived. The more nuanced part of my brain counter argued that failure is part of the price of innovation and for the most part hybrid diesel/electrical bus fleets are still under development. Having said that, the door opening on the back is a gimmick that has nothing to do with innovation as do the small windows on the top or the lack of proper ventilation. That is just poor design, sorry.

5. The new World Bank Procurement Framework has been approved. Here we go into uncharted territory. Or maybe not as there is a lot in there based on European experience.