Craig Elder, Partner and Danny O’Brien, Associate from Browne Jacobson LLP, highlight both innovation in procurement and procuring innovation
The public sector spends around £300 million a year on goods and services. This represents a third of all public expenditure. As a result, effective use of the procurement regime is key to delivering value and ensuring that services are sufficiently agile and flexible. This is particularly the case in the technology sector, where the pace of change is even more intense, and the need to innovate is the most obvious.
The importance of innovation is recognised by the UK Government in its policy document UK Innovation Strategy: leading the future by creating it, seeing it as the “lifeblood of business” and, by extrapolation, vital to the future prosperity of the UK. The document sees procurement as a vital component of innovation and notes that, by inspiring confidence in the market and making the public sector the leading customer for innovation, long-term investment in technology can be incentivised.
Specific guidance has also been developed for artificial intelligence (AI) procurements, which underscores the role that the Government sees for procurement at the very cutting edge of technology. AI, along with cloud computing and the Internet of Things (IoT), are likely to underpin an increasing proportion of public service delivery as we move through this decade.
Against this backdrop, we need to understand the:
- Key changes to the regulatory landscape that we can expect as the UK replaces EU-based regulations on public procurement with domestic procurement law and;
- Implications of these changes for delivery of innovative products and services.
Can procurement processes support innovation?
It has long been a complaint of some UK technology businesses that current procurement approaches represent a major missed opportunity to drive technological change, create effective markets for innovation and incentivise investment in research and development.
The need to confine procurements to specific, detailed processes, and customers’ (understandable) concerns about legal challenge if they depart from the regulations, may indeed stifle creativity and create a culture of low appetite for risk and experimentation.
For example, one of the most familiar aspects of the current procurement regime is tension between the flexibility offered by competitive processes, which allow negotiations with bidders, and the simplicity afforded by the more straightforward procedures.
“The public sector spends around £300 million a year on goods and services. This represents a third of all public expenditure.”
Competitive processes can be unappealing to the market, and indeed buyers, for all but the largest procurements given the relatively high transactional costs involved. Conversely, the simpler processes can result in legal risk to buyers if negotiations are ultimately required to deliver the best deal.
Challenging the existing procurement culture is, of course, an easier thing to say than do, and the Government concedes that it will take time. As an example of a practical measure, the Green Paper on procurement reform (Green Paper) proposes a radical simplification of process into:
- A flexible, competitive process, allowing negotiations and an innovative approach;
- An open procedure for “off the shelf” procurements and;
- A limited tendering procedure for use in cases such as extreme urgency.
The Government hopes that this relaxation of procedural requirements and easing of the distinction, arguably artificial, between competed and “standard” procurement processes, will play a role in freeing public sector bodies to explore more pioneering approaches. Responding to concerns that flexible, competitive processes could lead to a diffuse approach to procurement, with resulting uncertainty and concern over increased risks of challenge, the Government’s response to the Green paper (Response) promises detailed guidance to ensure consistency.
It will be interesting to see whether the balance between a flexible approach, and reasonable levels of transparency for suppliers and risk mitigation for customers, can successfully be struck.
Focus on principles & the need for proportionality
Providers’ common concerns about customers’ approaches to procurement include:
- Onerous submission requirements which are costly and resource-intensive;
- A lack of genuine dialogue, often driven by understandable concerns about equal treatment and the need to follow a strict process and;
- Low levels of constructive market engagement – again, perhaps fuelled by a legitimate wish to protect the integrity of the transaction.
It is no surprise that small-medium enterprises (SMEs), and other less well-resourced suppliers without access to the full apparatus of a professional bid team, are disproportionately affected by these approaches. By discouraging the participation of agile suppliers, procurement can constrain innovation.
As a result, the market may welcome the Green Paper’s proposed focus on principles, such as fair treatment and value for money, rather than a detailed process. However, the Response has largely dropped a commitment to an overriding principle of proportionality, which will instead be incorporated into specific parts of the regulations, for example, in relation to timescales.
Those looking for flexible procurements which support innovation may see this as a disappointing outcome unless the new regime genuinely embeds proportionality and, crucially, gives customers the guidance and comfort they need in order to avail themselves of any wider latitude offered to them.
Modification of contracts
Few things are as certain as change, particularly in the technology sector. But the current procurement regime can result in buyers and suppliers wrestling with uncertainty, and potential legal risk, when contemplating changes to existing contracts.
The Response maintains the Government’s ambition to maintain the core rules, but also make them more transparent and adds a potential “safe harbour” which offers shelter from challenges to modifications in some cases.
Customers and existing suppliers may welcome this greater protection and ability to adopt a flexible approach to the services delivered but, of course, it is a double-edged sword. Suppliers (and in particular new entrants) will not wish to be frozen out of the market by, for example, successive contract variations which replace new procurements and limit new participants’ opportunities to participate.
No procurement regime can deliver innovation in and of itself, but it can, perhaps, “get out of the way” and allow customers and suppliers to do so. The extent to which this happens may hinge on whether customers feel emboldened to take advantage of any new freedoms in practice.