Public Procurement and Innovation

Public procurement promotes innovation, where effective innovation systems and new solutions are essential factors keeping a high competition environment and future productivity growth (Konkurrensverket, 2014; The Norwegian

Government, 2018). Innovation strategies within the business environment must be up to date to cope with continuous development, upcoming challenges, and exposure to increased competition (Georghiou et al., 2014). Edquist and Zabala-Iturriagagoitia (2012) argue that procurement for innovation can contribute to increasing the satisfaction of human needs and societal issues. Increased focus on finding innovative solutions within waste collection services is conducted through the increased use of technology aiming for more cost-effective collection

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performance and route planning (Faccio et al., 2011). People argue that efforts for innovative solutions may have positive effects on social benefits but needs the financial support of doing so. However, studies emphasize that innovative solutions could be achieved in parallel with financial yields (Nidumolu et al., 2009). The authors argue that innovative actions such as environmentally friendly efforts will reduce costs while it generates revenue concerning new products and aim for sustainability can achieve competitive advantages.

The increased focus on innovation and efficiency in public procurement are especially founded due to the new establishment of EU directives (European Commission, 2018b). The tendering process has a significant impact on

innovative solutions and effectiveness, in combination with how municipalities manage their waste management undertakings (NCA, 2016). The report

continuously argues a lack of neutrality as an issue that will affect the entry of new small, medium-sized firms in the market and thereby reduce the willingness to invest in research and development. The issue regarding lack of neutrality has its starting point within the municipalities conflicting roles concerning, waste management, their exclusive rights to municipal waste, and advantages of municipal undertakings.

European policymakers emphasize public procurement as an instrument to

stimulate innovation (Hommen, 2009; Georghiou et al., 2014; Uyarra & Flanagan, 2010). Various definitions of innovation exist, however, a broad description of innovation serves “a product, service or process that is novel to the buying organization” (Edler and Yeow, 2016, p. 414). The authors investigate the intermediation between supply and demand, by using public procurement of innovation and the link between different actors with complementary skills.

Continuously, they state how intelligent- and tailored intermediation can tackle some of the well-known procedural- and capability failures in the process of public procurement of innovation (Edler and Yeow, 2016; Gadde and Håkansson, 1994).

The fundamental activity related to innovation occur through public purchasers´

make or buy decisions, either they demand goods or services that do not yet exists to trigger innovation, or they respond to it by selecting goods or services with innovative characteristics (Georghiou et al., 2014; Edler and Yeow, 2015; Edquist

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et al., 2000). Additionally, an important aspect influencing innovation is the buyer-supplier relationship (Gadde & Håkansson, 1994). Hommen (2009) mentions a lack in literature and research enlightening strategic perspectives conducting particular attention related to the complete context when discussing public procurement of innovation. It is further argued that limited perspectives induce that national authorities which practicing specific models and specified principles of the procurement process are unable to approach strategies coping the aspects of variety and change in long-term processes, such as the development of new technologies. Accordingly, Matthews (2005) questioning the uniformity and consistency among governments arguing that settled guidelines, regulations and following a generally accepted code in carrying out one mission, hardly can be considered as innovative.

Georghiou et al. (2014) analyze the use of public procurement for innovation by applying policy interventions throughout the procurement process and finally provides a taxonomy of procurement policies and the events involved.

Accordingly, the authors divide the procurement cycle into four parts; (1) framework conditions, (2) organization and capabilities, (3) identification,

specification and signalizing of needs, and (4) Incentivizing innovative solutions.

Under current legislation and the phases of a formal procurement process, the authors argue for several practices favoring innovation, by first include undertakings foresight activities, and then using a technical dialogue between purchasers and suppliers and finally writing specifications in functional terms. By describing the performance rather than the route, it allows variants of

specifications to be considered, and the evaluation will be based on the whole lifecycle costs instead of the cheapest bid (Duren & Dorée, 2008).

A crucial factor required to be stated in conjunction with innovation is occurring risks (European Commission, 2010). The report concretizes the importance of risk management and discusses the issue concerning the identification of actual costs for authorities to cope these risks. For the purpose of public procurement, a risk is identified as “measurable uncertainty for something to happen that decreases the utility of an outcome of an activity or reduces the achievement of certain goals”

(European Commission, 2010 p. 54). The report written by the European Commission regarding risks seeks to both identify current procurement risks related to innovative products or services and provide suggested risk management

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practices to cope with these risks. Various types of risks were identified connected to public procurement of innovation, such as technical, organizational and

societal, financial, market, and turbulence risks. One suggestion for public procurement to improve its impact on innovation and cope with future competition challenges is to cure the risk aversion among buyers and society (European Commission, 2010). A reduction of risk aversion among buyers and society is essential as risk aversion transforms into an obstacle for new solutions (Holt & Laury, 2002). Formal contracts are often used to reduce risks between buyer and supplier (Tate et al., 2009 cited in Broekhuis & Scholten, 2018).