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.

Links I Liked [Public Procurement]

1. Public Works Slowdown Following Implementation of the New Italian Public Procurement Code.

2. Public Procurement Single Market scoreboard for 2015 is out. I think Albert has criticised the scoreboard in the past, but there is a measurement I find quite interesting - procedures with a single bidder. The figures for some countries like Poland and Hungary are really telling, but it would be important to know as well what is the percentage of procedures without transparency where that is happening.

3. World Bank Public Procurement Benchmarking: Behind the Numbers. More here.

4. UK’s Ministry of Defence No Closer to Winning the War on Procurement Waste.

5. Public Procurement Trade-offs: Commerciality Versus Corruption. Peter Smith raises some important and obvious points about trade-offs in public procurement. Beware the siren's call for more "negotiations".

Links I Liked [Public Procurement]

1. Company Owned by Former Kotayk Governor Wins 34 Million AMD in "Non-Bid" State Contracts. Oh the joys of lack of transparency and competition.

2. Agency connected to Conservative Party donor receives £3.9m Treasury contracts.

3. Public Procurement Trade-Offs Should Be Acknowledged and Addressed, Not Ignored. Agreed and I have been saying the same for years. Anyone wants to talk about social considerations in procurement?

4. How the GDS is iterating on Digital Outcomes and Specialists.

5. Only a quarter of councils have social value commissioning policy. See 3 above. The Social Value Act is working as intended - social clauses have to be considered, not used. The fact they are not being used more indicates they imply tradeoffs proponents are not willing to address or acknowledge. If there were no tradeoffs they would simply be used a lot more.

Public Contracts Regulations 2015 - Regulation 68

Regulation 68 - Life-cycle costing

Regulation 68 brings the possibility of contracting authorities using life-cycle costing in their procurement exercises to determine the best bid. By life-cycle costing it is meant the incorporation of costs into the awarding models that are usually not included in the assessment. In other words, it means basically internalising costs that are usually externalised by not being taken into equation. As it stands it appears to be devilish difficult to use properly in practice. Albert's excellent tirade (which I mostly agree with) is here.

The logic of life-cycle costing is to take into account all the costs related to the product that is being procured irrespective of that cost being borne by the contracting authority or a third party. As such, contracting authorities using life-cycle costing should, on the one hand assess the direct costs related to the acquisition, use and maintenance and disposal and on the other hand, assess the indirect costs as well with the externalities said product generates, provided their monetary value can be assessed (paragraphs 1(a)(b) and 2).

The rest of the Regulation is devoted to introduce checks and balances on how life cycle costing can be used on a non-discriminatory way, with the mandatory requirement of EU calculation methods/standards to be followed (paragraph 5), the need to inform economic operators at the start of the procedure that life cycle costing is being used and how it is being used (paragraph 4) and specific requirements that this methodology needs to follow (paragraph 3). All these seem sensible, at least until we try to apply it in practice.

I remember having a discussion with Abby Semple about life cycle costing in general a couple of years ago and although she is not (as far as I can tell) a huge fan of how life cycle costing ended up in Directive 2014/24/EU and now on the Regulations, my take was even less positive. I am all for including into the measurement exercise of what constitutes the best bid all that can be included and is reasonably standardised across different bidders. It effectively means that as long as we can boil it down to some sort of index/unit measurement structure I am fine with it. Price? Check. Quality? Check (if done well...). Fuel consumption? Check. Recycling/disposing costs? Check. Pollution? It depends...

As Albert mentioned, problems arise when we incorporate externalities that are not necessarily connected with the contract being performed as these become vaguer and vaguer and more and more difficult to measure. Let's talk about production for example. Should include only the energy spent in producing the actual good being procured? Or should we include the externalities of the machines that produced the good (and for the sake of argument) were produced in China using coal? After all these are environmental externalities that can theoretically be relevant for what is being procured. Where do we draw the line on life cycle costing? And what about we apply the same logic of life cycle costing to justify social considerations in public procurement?

My agenda in procurement has always been to make it simpler and simple as possible. Each new variable increases complexity exponentially (why was lowest price so common for so long? It was easy to use and benchmark...) Between adding options that bring complexity or not bringing those options in to reduce complexity, I tend to prefer the latter. For me that is precisely the problem with life cycle costing: it brings a lot of complexity to the process and this complexity will affect contracting authorities when i) drafting the procurement documents and ii) when trying to assess bids. For suppliers this means added complexity because they will have to know more about their products/processes and make that information available to the contracting authority.

Furthermore, I cannot really square the circle between the added complexity of life cycle costing and making procurement easier. And the more difficult procurement is, the more likely SMEs will either not take part or be unsuccessful. So between (widespread) life cycle costing  and SME participation, pick one.

At this moment in time, life cycle costing adds entropy into the system and makes life more difficult for stakeholders taking part in procurement (apart from expert consultants that is). Feel free to prove me wrong.