News 06 October 2021 News from SKAO
Innovation partnerships stimulates sustainable innovators
Contracting authorities in the Netherlands spent no less than €85 billion on products, works and services in 2019. This purchasing power can help enormously in achieving sustainable goals. Especially given Europe has had a unique tool to drive new sustainable solutions since 2014: the Innovation Partnership. Although applicable in the Netherlands since 2016, it is not yet widely used. Why is that, what are its strengths and where are its limitations? This article investigates the method with the help of Dutch pioneers and experts.
The EU and the Dutch government emphasise the importance of sustainable and innovative procurement and their own responsibility in this regard. And rightly so, because the total procurement volume of Dutch public authorities amounted to €85 billion in 2019. At European level that is €2 trillion, divided among 250,000 local and national governments. With 15% of Dutch procurement, Dutch governments are responsible for 18% of the climate footprint, 9% of land use and 23% of raw material use.
Great potential for improvement
Many Dutch government organisations therefore have strong ambitions to make their procurement more sustainable, but evaluations show that there is still much room for improvement. For example, a recent study on circular procurement of roads and office furniture in 2017 and 2018 showed that circular procurement is often applied to these two product groups, but is not yet as effective as it could be. Partly for this reason, the EU procurement directives were amended in 2014: social objectives such as sustainability and innovation were added to the main objective, ensuring fair competition. In the Netherlands, these changes were incorporated into the 2016 Public Procurement Act. Various existing procedures such as the Competitive Dialogue have been amended to increase dialogue and cooperation between the client and the contractor. An entirely new procedure has also been added to stimulate innovation cooperation between public and private parties: the Innovation Partnership.
Previously, an obstacle was that a contracting authority could commission a research and development (R&D) project, but could not purchase the result directly as a new tender round had to be organised before the R&D result could be purchased. This has the effect that companies fear that their R&D result will be picked up and realised by a competitor in that second round. What do companies do then? Keep their cards close to their chest and invest no more than necessary. And yet investments are desperately needed - all the more so because such innovations are necessary as solutions to social issues, an area in which the market does not spontaneously take the initiative.
The Innovation Partnership aims to solve this blockage: if the solution does not yet exist, a contracting authority may award an R&D contract and purchase the development result without issuing a new tender in between. To prevent lock-in and to develop several solutions at the same time, the client can start with more contractors and parties can drop out along the way. The other features of the innovation partnership are clearly described by the Dutch Public Procurement Expertise Centre’s (PIANOo).
The strength of the Innovation Partnership is that the contractor(s) and the customer enter into intensive R&D cooperation. The contractor can assume that their solution, if successful, will actually be purchased from them. This 'purchase guarantee' reinforces the contractor's motivation to successfully develop the innovation and to invest in it. In order to spread risks and innovate more quickly, the client can work with several contractors at the same time and encourage the exchange of knowledge and synergies between them. The power of the Innovation Partnership is greatest when several clients with a similar innovation challenge combine their efforts. This stimulates the speed at which the outcome can be upscaled and thus the willingness of the contractor(s) to invest.
An attractive solution then? This conclusion is confirmed by the pioneers who have already applied the Innovation Partnership in the Netherlands.
One example is the Water Board Hoogheemraadschap De Stichtse Rijnlanden (HDSR), one of 21 Dutch local water boards, responsible for flood prevention and water treatment in parts of the provinces of Utrecht and South Holland. The HDSR is using an innovation partnership to reinforce the dyke on the river Lek between Amerongen and Schoonhoven. This is a 55km stretch, divided into six sections. Led by contract manager Waldo Molendijk, three contractors have been selected to work with HDSR in a single project team on innovative and sustainable solutions for the Lek dyke. The solutions will be applied to the entire dyke and, if the results are favourable, each contractor will reinforce two sections.
An important advantage of the Innovation Partnership is that the parties do not work in silos, with six separate projects, project leaders, contractors, solutions and equipment pools. Instead, the parties work together from the start, aimed at sharing knowledge and using a single pool of emission-free equipment for the entire Lek dyke. "The Innovation Partnership is a powerful instrument for driving sustainable innovations," says Molendijk. "It is particularly suitable for tasks that require new solutions and where there is a series of projects. Then the innovations can be applied on a large scale and the innovation partners know that their investments will pay off after a good development phase."
Erik Vendel, Head of Innovation and Market at RWS (Dutch Infrastructure Agency), is also positive about sustainable innovative procurement. RWS has gained experience with new methods, such as the Buyer Groups, the Open Learning Environment and the Small Business Innovation Research (SBIR) Circular Viaducts project. The approach motivates parties to realise innovations in which RWS, as client, pays for feasibility studies and prototypes. An Innovation Partnership aimed at emission-free coastline maintenance is also running. To make this sector CO2 neutral, emission-free equipment is needed instead of dredging with diesel ships and aggregates. "Our team wants to become the best in guiding and implementing SBIR and Innovation Partnership," said Vendel. "In doing so, we want to move from one-off pilots to pre-development and upscaling of proven innovations. This is a matter of urgency."
Government Property Agency
Another pioneer is the Government Property Agency (Rijksvastgoedbedrijf, RVB). The RVB has invited start-ups to think of ways to use office space better and thus more sustainably, in such a way that it is good for individual employees and for the organisation as a whole. Innovation manager Martine de Vaan worked closely with fellow government service providers on this assignment. The RVB joined the government-wide Start-up in Residence (SiR) Intergov programme. Intergov stimulates innovation cooperation with companies, involving a larger number of smaller assignments.
It is important to motivate start-ups to invest in new solutions for government tasks. That is why the Innovation Partnership is always applied, so that a successful solution can be purchased directly. But isn't the Innovation Partnership a bit heavy-handed to achieve the goals of the SiR programme? After all, the intensive innovation cooperation between the government and young companies involves modest initial orders of €25,000. "It is true that a procedure such as multiple direct tendering requires less administration and simpler contracts," agrees De Vaan. "But the advantage of an innovation partnership is that after the first phase you can quickly continue the cooperation and scale it up. That is interesting for both sides."
De Vaan thinks the Innovation Partnership is a suitable means of driving sustainable innovation provided you want to work with it structurally, with a group of people who really commit. The first time, the approach really requires learning time. The organisation must acquire new knowledge, develop routines and draw up new contracts. "But if an organisation wants to structurally engage in innovation partnership, then those routines will develop. I think that the Innovation Partnership can actually save time. You are freer to develop together and you can choose a partner more quickly and then move forward together."
Province of Overijssel
The province of Overijssel is also pioneering the Innovation Partnership. Together with regional partners, the province set up a programme to find innovative solutions for energy transition. Janine Swaak, responsible for Procurement with Impact at the province, chose the Innovation Partnership because it encourages intensive collaboration between client and contractor and allows for clear phasing. Swaak makes no bones about it: "You have to learn to use the Innovation Partnership and 'just doing' is a good way to learn. The start is crucial. Select those procurement issues where people really feel ownership and where impact can be achieved.”
Municipality of Utrecht
The Municipality of Utrecht observes that tendering forms that enable new forms of cooperation work well. "You get there faster if you put out innovative tenders and thereby encourage companies to cooperate, contribute market knowledge and experiment," says sustainable procurement advisor Marieke Hoffmann. "If you want to move towards sustainable innovative solutions with sustainable procurement, cooperation between client and contractor is a prerequisite," she says. "Structural cooperation between contractors is also valuable because it enables you to attract and connect more knowledge and solutions."
We also asked the opinion of Stephen van Aken, innovation manager at the province of Utrecht. He has not yet worked with the Innovation Partnership, but is keen to increase knowledge of new tendering forms. "Especially if this allows us to develop innovative solutions for our policy challenges in ecosystems with companies, knowledge parties and residents."
According to the pioneers, the Innovation Partnership is a powerful instrument. This is confirmed by a European study that describes three successful European cases. However, it is not a silver bullet that removes all barriers. The pioneers observe two limitations.
The first is that the Innovation Partnership has a specific scope: it works particularly well when there is a series of assignments waiting, as in the case of HDSR with the six sections of Lek. In that case, the R&D result can be scaled up immediately. This is also possible if various clients combine their demands, as the regional partners in Overijssel did when they asked for energy innovations.
What is striking is that the Innovation Partnership is applied to large assignments such as the Strong Lek dyke, but also to small assignments such as the SiR programmes. In both cases, the aim is to achieve real partnership between the client and the contractor(s). In the large projects, with more contractors, scaling up is envisaged during the course of the project. In the smaller one-on-one projects, scaling up and demand aggregation are more often in the offing after the project.
A second limitation is the time and investment needed to prepare an Innovation Partnership. This takes time, especially if an organisation is not yet familiar with the instrument. If the organisation does have experience with it, the time required is similar to that of conventional tenders. Market consultation, dialogue phase and selection of the contractor also take place beforehand. However, the investment is higher if working with more contractors, because the client pays each contractor for his efforts. On the other hand, the costs of purchasing the result can be lower, certainly if it is applied more broadly. In addition, innovation is sped up as several developments are driven forward in parallel. Further, with good project management knowledge sharing and synergy between the various contractors and innovation tracks are additional benefits.
It is therefore advisable to first get to know the Innovation Partnership and to use it for specific sustainability projects that call for new solutions. These are results that will be applied not just once but more frequently, if possible with different clients.
Floris den Boer, coordinating advisor for innovation-oriented procurement at PIANOo, indicates that the Innovation Partnership is still relatively infrequently applied. Moreover, when it is used, this is not always with the scope for which it is actually intended: when there is a real R&D question, the proven solution is actually purchased and the project is at a substantial scale. He advises governments to translate the national mission-driven innovation policy into their own organisations and into the implementation of their own policy tasks. Then go all out, with sufficient resources, room to manoeuvre and demand aggregation.
According to Maud Vastbinder of the Foundation for Climate Friendly Procurement and Business (SKAO, manager of the CO2 Performance ladder), an instrument will gain sufficient support if it is clear, widely deployable and structurally applied. Given the limited number of applications to date, there is still some way to go. All the better that the pioneers are inviting their colleagues to take a look behind the scenes and to make a smart start with a pilot in their own organisation. Simultaneously, it helps to join forces with other contracting authorities that have similar tasks, with a view to bundling demand and upscaling. This works well at the regional level, because contracting authorities, as well as solution developers, know the regional tasks well and are able to find each other quickly.
Originally published in: Milieu