Public Procurement for Innovation as a tool for stimulating sustainable innovation - a cross country analysis

Abstract

This thesis aims at determining the main barriers for using Public Procurement for Innovation (PPI) as an approach to induce sustainable innovation in a national context. In order to do this, this thesis firstly examines the link between sustainability goals and innovation. It is concluded that, in order to change production and consumption patterns, innovation policy should aim at implementing approaches and instruments that induce sustainable development – thus effectively integrating the two goals of enhancing the innovativeness of a country and working towards a more sustainable society. Demand-driven innovation, and specifically Public Procurement for Innovation (PPI) seems to hold significant potential to reach this goal. However, as innovation policy traditionally focused on supply-driven innovation, this remains an underexplored field. Furthermore, the scope and status quo of different PPI schemes is largely unknown, which makes it difficult to determine the barriers to use PPI to induce sustainable innovation.

Therefore, this research examines three countries’ PPI schemes in the context of their own innovation policy. The Netherlands, Sweden and the UK are all considered to be frontrunners in using demand-driven innovation and PPI. In order to provide context for the comparison and to determine the most important actors who influence the PPI policy, the innovation system approach is used. Through an examination of demand-oriented innovation policy theory, the PPI schemes are firstly categorised in terms of their PPI form and the rationales behind them, after which a capacity framework for successful innovation procurement is presented. This capacity framework is linked to several system failures that the PPI policy attempts to address – so as to establish a link between strong and weak points of the policy, and a solution to the system failures. The capacities that are identified in the framework are: coordination capacity, link with private demand, coping with complexity and procurement discourse, activating and enabling the procurement chain, and creating and maintaining a supporting innovation procurement culture.

For all three countries, the development of innovation policy and the national innovation system is described. Secondly, through an examination of policy documents, scientific literature and in-depth interviews with a number of key actors, the PPI schemes of the three countries are reconstructed using a policy reconstruction method. Thirdly, some empirical evidence is provided in the shape of formal evaluations of practice and the revision of flagship cases. Finally, the strengths and weaknesses of each country’s PPI schemes are determined using the capacity framework, after which conclusions are drawn regarding the PPI schemes’ ability to solve the system failures. In the comparative analysis, the main differences and similarities between the three countries are set forth. Then, the PPI approaches are compared in terms of their forms and rationales. Lastly, the countries’ strengths and weaknesses are compared, using the capacity framework again. It can be concluded that PPI has large potential to solve the system failures and as such facilitate innovation, especially in the environmental field or as a complementary asset to sustainable procurement. Ideally, a pre-commercial procurement scheme should aim at the development of R&D (especially through targeting SMEs), while a central procurement scheme should aim at integrating the innovation rationale throughout the government. Furthermore, sustainable procurement should be supplemented or integrated with innovation procurement, as both can enhance each other.

The barriers for using PPI to induce sustainable innovation are found within all the capacities, although the capacity to create and maintain a supporting innovation procurement culture is least developed in all three countries: many existing rules as well as a lack of financial stimuli hamper the process. Furthermore, the capacity to activate and enable the procurement chain is also not very developed; although tender processes are increasingly based on functionalities rather than designs and a structure in which procurers have knowledge of the (future) needs of the public service is being developed, the incentive structure for procurers remains based on the lowest-cost rationale, and procurers are not sufficiently trained on an operative level. The capacity to cope with complexity and procurement discourse is moderately addressed, although the ambition level is not very high in all three countries. The coordination capacity is medium; most countries provide their departments with information and coordinate the policy from within the innovation department, but the commitment of other departments is mostly not sufficiently guaranteed. Lastly, the link with private demand is insufficient in all three countries, with the exception of sectoral PPI approaches in Sweden.