IPEC Research

Public Procurement of Innovation: Impacts, Evidence, and Methodological challenges

Public procurement, representing around 12% of GDP in OECD countries, is increasingly recognised as a powerful tool for driving not only innovation but also broader goals like sustainability and economic development.

Authors

Dr. Oishee Kundu

University of Manchester

Prof. Elvira Uyarra

University of Manchester

Public procurement, representing around 12% of GDP in OECD countries, is increasingly recognised as a powerful tool for driving not only innovation but also broader goals like sustainability and economic development.

This research brief synthesises research findings on the impacts of PPI, looking at both theoretical and empirical evidence, as well as methodological challenges in studying its effects.

Public procurement has the potential to shape innovation by:

• Creating demand for new technologies and services (demand-pull effects).
• Facilitating the diffusion of innovations.
• Encouraging firm-level investment in R&D.
• Influencing market structures to support new products and innovations.

Studying PPI involves several complexities, including:

• Defining what constitutes innovation-oriented procurement.
• Establishing clear causality between procurement actions and innovation outcomes.
• Addressing issues related to data access and transparency.

Further research should aim to:

• Improve data collection and linkages.
• Focus on long-term impacts. Explore the effects of PPI across different regions and sectors.

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Public Procurement of Innovation: Impacts, Evidence, and Methodological challenges

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Navigating public sector procurement

Procurement in the public sector can be a challenging landscape, especially when introducing innovative technologies.

At a recent panel discussion co-organised by IPEC and Digital Leaders, experts shared valuable insights on overcoming these challenges and driving successful outcomes.

Effective governance is key to fostering innovation. Elizabeth Vega OBE, Group CEO of Informed Solutions, highlighted that governance should be agile and adaptive, supporting decision-making processes that prioritise outcomes over rigid procedures. This approach encourages transparency and collaboration, as demonstrated by her organisation’s practice of keeping key subcontractors visible to the client. “Governance should be an enabler, not a blocker,” she noted, emphasising the importance of flexibility in governance structures.

A crucial element of innovation is creating a culture where diverse perspectives are welcomed. Elizabeth emphasised the importance of an environment where “people feel safe to express their beliefs in a constructive way,” allowing for respectful yet challenging discussions that can lead to real change. She added, “Innovation thrives where there’s psychological safety, enabling people to question the status quo without fear.”

Demonstrating value through case studies is another essential strategy. Elizabeth noted that while a single case study might not cover all bases, multiple case studies can collectively highlight relevant aspects of a solution, reducing perceived risks and showcasing capabilities to potential clients. “It’s not about one perfect case study; it’s about a portfolio that tells the full story,” she explained.

Flora McFarlane, Head of Growth & Partnerships at VivaCity, shared her approach to overcoming challenges by securing early adopters who are eager to innovate, such as Oxfordshire and TfL. These cornerstone clients played a critical role in validating their technology, making it easier for more risk-averse clients to consider adoption. Flora stressed the importance of understanding procurement teams’ needs and constraints, and working closely with them to navigate obstacles. “We had to be patient and persistent, demonstrating our value in every conversation,” she said, highlighting the importance of perseverance in the public sector landscape.

Darren Kelly, Central Government Capture Lead for UK Public Sector at Amazon Web Services (AWS), highlighted the need for early engagement and education to align procurement teams with the specific solutions being considered. He pointed out, “The procurement manager is an expert in the procurement process and not necessarily an expert on what they’re buying,” underscoring the value of clear communication and collaboration early in the procurement cycle. Darren also stressed, “If you engage early, you get to shape the conversation. It’s all about building trust and educating the buyer about your solution.”

The new Procurement Act 2023 offers opportunities for more flexible frameworks, which could greatly benefit both suppliers and buyers. Darren noted that open frameworks extending up to eight years can provide the flexibility needed to accommodate evolving technologies like AI and cloud services, allowing for new suppliers to be added as needs change. “These longer frameworks allow for a dynamic marketplace that can evolve with technology, rather than being locked into outdated solutions,” he commented.

Legal insights from Jenny Beresford-Jones and Shailee Howard from Mills & Reeve, added another layer of strategic advice. Jenny stressed the importance of staying updated with legal changes to gain a strategic advantage, while Shailee highlighted the value of not just meeting legal requirements but strategically planning engagement with the procurement process to maximise opportunities for innovation. Shailee noted, “Understanding the legal landscape isn’t just about compliance; it’s about leveraging the rules to create better opportunities.”

The discussion also touched on the delicate balance between innovation and alignment with organisational goals. Elizabeth suggested techniques such as empowering individuals to speak up, building skills alongside implementing solutions, and maintaining regular touchpoints to monitor cultural and emotional alignment, not just compliance metrics. She summed up by saying, “It’s about ensuring that innovation aligns not just with the letter of the law but with the spirit of the organisation’s mission.”

In summary, the panellists underscored the importance of building long-term relationships, understanding the unique dynamics of public sector procurement, and consistently demonstrating value through transparent and flexible approaches. As Rikesh Shah, Head of IPEC, summed up, the key to success lies in understanding the service owner’s problems, building lasting relationships, and focusing on creating long-term value over many years through innovation.

IPEC is currently partnering with four local authorities, addressing some of the key industry challenges and helping them find solutions through innovative procurement strategies. We are keen to hear from local authorities about some of the challenges they are currently facing as they look ahead into the next year. Reach out to us at ipec@cp.catapult.org.uk

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7 Tips for Delivering Innovation in Local Government

A roundtable on July 17th discussed overcoming financial, data, and cultural barriers in local government to drive innovation through procurement, emphasising collaboration and leadership.

I recently had the opportunity to participate in a roundtable on July 17th, where leaders from local government and the digital transformation sector came together to discuss the challenges and opportunities of driving innovation through procurement.

The roundtable featured perspectives from the Ministry of Housing, Communities and Local Government (MHCLG), the Greater London Authority, Scottish Local Government, and the Innovation Procurement Empowerment Centre (IPEC). Each brought unique insights on digital transformation and public sector innovation.

It was agreed that local authorities face significant challenges, such as addressing climate emergencies, navigating health and social care issues, managing financial pressures, and meeting the demand for more citizen-centric approaches. These challenges underscore the need for innovation through partnerships and bringing in external expertise. However, procuring these relationships is fraught with challenge, often held back by a risk-averse culture, limited budgets, and fragmented approaches.

Contrary to its intended role in safeguarding public funds, procurement processes were highlighted as obstacles to innovation. According to research, only 23% of tenders receive more than one bid (Tussell), and just 5% of suppliers (CBI) found it easy to innovate within the public sector. An independent study commissioned by IPEC revealed that only 14% of respondents viewed public procurement as an enabler for innovation. While these statistics paint a challenging picture, they also highlight opportunities for the public sector to reshape markets through innovative procurement, especially as technology advances and barriers to entry decrease.

Challenges in local government innovation

The roundtable  identified key challenges for local governments in fostering innovation:

• 1. Outdated systems: Local government systems need modernisation to become more resilient and capable of adopting new technologies. While exploring shared services and joint procurement can lead to economies of scale and better resource utilisation, it was generally felt that it was questionable as to how successful shared services have been to date.
• 2. Financial constraints: Severe budget limitations hinder local governments’ ability to innovate and effectively serve citizens. Additionally, local governments struggle to attract and retain skilled personnel, often losing out to the private sector for top talent.
• 3. Data management: It was agreed that good data would be at the heart of any future innovation of local government services and here again Local Authorities are really struggling as data-sharing practices are often inefficient and, in many cases, manual. Establishing proper data standards and achieving seamless data sharing across local authorities are critical to overcoming this challenge.
• 4. Leadership and culture: Leadership is key to driving change. Local government leaders must foster a culture that embraces experimentation and accepts failure as part of the innovation process. This shift is necessary to move away from cost-based decision-making and towards value-driven procurement.

The roundtable concluded with a consensus on the need for a culture of experimentation and leveraging advanced technologies, such as AI, to transform services. However, this change will require a fundamental shift in how local authorities approach innovation and partnerships with the private sector, facilitated by significantly improved procurement practices.

7 tips for digital leaders in local government

From the discussion, I took away seven tips for digital leaders in local government:

• 1. Know when you’re wrong: Recognise when a strategy isn’t working and be willing to pivot. For example, when Transport for London (TfL) realised that withholding data was counterproductive, they opened it up, leading to innovative uses by third parties.
• 2. Avoid hype: Stay critical of new technologies and solutions. Evaluate them against your existing needs to determine if they genuinely offer new and beneficial capabilities.
• 3. Foster a culture of experimentation: Encourage your team to try new things and view failure as a learning opportunity and part of the innovation process. This approach can lead to breakthroughs that wouldn’t occur in a risk-averse environment.
• 4. Emphasise transparency: Make procurement processes transparent and collaborative. This builds trust and attracts more innovative solutions from the market. The work of LOTI in London and CivTech in Scotland are excellent examples of what can be achieved.
• 5. Think beyond borders: Work towards seamless data sharing across local government boundaries. Residents and businesses expect consistent services, which can only be achieved through better data interoperability.
• 6. Invest in upskilling: Ensure your team has the skills needed to compete with the private sector. This may involve investing in training and development programs.
• 7. Standardise where possible: While customisation may sometimes be necessary, standardisation across local government can lead to efficiencies and cost savings. Find the right balance for your organisation.

I hope these strategies and tips can help local government leaders drive meaningful innovation and create more efficient, citizen-centric public services. One thing is clear: leadership will be essential to making it happen.

IPEC Research

IPEC Research Symposium

As part of our work to realise the opportunities arising from over £300 billion annual UK public procurement spend, this week we participated in the first IPEC Research Symposium, organised by the Innovation Procurement Empowerment Centre at the amazing Alliance Manchester Business School.

This brought together academics from leading universities across the UK – Manchester, Birmingham, Bath, Cardiff, Stirling, Nottingham, Oxford, Lancaster – and Autonomous University of Madrid. 30 speakers, researchers and policy leads convened to share evidence and ideas to boost the impact of innovation procurement.  

The Innovation Procurement Empowerment Centre (IPEC) is a major initiative of Connected Places Catapult and a key plank of our work is to develop research capacity in this critical area. We have entered a long-term partnership with the Universities of Birmingham City-REDI and the Manchester Institute of Innovation Research (University of Manchester), gathering evidence to build the case for doing procurement differently. It will generate tools for policy development and support public and private sectors in implementing innovation through procurement, driving investment and better outcomes.  

The Public Procurement as a Catalyst for Innovation workshop explored the impacts, measurement, and best practices of innovation procurement. Key themes that emerged include:

• The growing importance of evidencing how public procurement can drive innovation and address major challenges, while achieving efficiency and value for money. Academics from the University of Manchester presented research using advanced data analysis techniques like network analysis and AI language models to quantify the impact of innovation procurement on firm productivity and gain insights into complex public sector supply chains.
• The importance of taking a holistic, systems approach to procurement that considers the broader ecosystem of buyers, suppliers, and stakeholders. Research using administrative data from TED and Contract Finder in the UK demonstrated the value of clever data analysis in unlocking insights from existing procurement data sources.
• The potential for innovation procurement to drive positive local economic and social outcomes, such as supporting local businesses, creating jobs, and advancing sustainability goals. Examples included research conducted by researchers at City-REDI (University of Birmingham) on retrofitting social housing and the Catapult’s West Midlands Diatomic project.
• The need for cultural change, capacity building, and sharing of best practices to fully realise the potential of innovation procurement. While the new UK Procurement Act presents opportunities, challenges remain around data quality, skills, and embedding innovation across the commissioning lifecycle.
• The importance of collaborating across academia, government, and industry to build the evidence base for innovation procurement, champion success stories, and co-create practical tools and guidance. IPEC’s “Art of the Possible” report and ongoing research partnerships exemplify this approach.

Participants left energised to build on the momentum and partnerships from the workshop to position public procurement as a key catalyst for innovation and public good. Key next steps include improving data infrastructure, developing case studies and practical guidance, and fostering communities of practice to accelerate learning and adoption of innovation procurement practices.