Business Innovation Observatory

Public Private
Partnerships

Public Procurement
of Innovation

Case study 7

Enterprise
and Industry
The views expressed in this report, as well as the information included in it, do not necessarily reflect the opinion or position of
the European Commission and in no way commit the institution.

Public Private Partnerships

Public Procurement of Innovation

Business Innovation Observatory

Contract No 190/PP/ENT/CIP/12/C/N03C01

Authors: Kristina Dervojeda, Diederik Verzijl, Fabian Nagtegaal, Mark Lengton, Elco Rouwmaat, PwC
Netherlands, and Laurent Probst, Erica Monfardini & Laurent Frideres, PwC Luxembourg.

Coordination: Directorate-General for Enterprise and Industry, Directorate B “Sustainable Growth and
EU 2020”, Unit B3 “Innovation Policy for Growth”.

European Union, September 2013. .

Table of Contents
1. Executive summary 2

2. Public procurement of innovation 3

3. Socio-Economic Relevance 4

3.1. The market potential of the trend 4

3.2. The role of public procurement for the development of an innovation 6

3.3. The creation of new markets and jobs as a result of the public procurement of innovation 8

3.4. Realising competitive advantages through public procurement 8

3.5. Client perspectives and challenges related to the uptake of innovations developed as a result of public procurement 9

4. Drivers and obstacles 10

4.1. Public procurement as a facilitator of access to conventional markets 10

4.2. Public procurement of innovations makes innovative companies less reliant on external funding 11

4.3. Support and feedback received from public parties procuring an innovation can form a key driver 11

4.4. The nature of the application domain for developed innovations can form an obstacle 12

4.5. Regulation and needs of end-users that drive market uptake 12

4.6. Regional aspects that drive the development and commercialisation of publically procured innovations 13

4.7. Challenges and drivers with regards to the workforce 13

4.8. Challenges with regards to internationalisation 13

4.9. Tendering procedures can form a barrier for public procurement 14

5. Policy recommendations 14

5.1. Policy gap analysis 14

5.2. Policy recommendations 15

6. Appendix 17

6.1. Interviews 17

6.2. Websites 17

6.3. References 17
Public Private Partnerships

1. Executive summary
For years, governments have sought to encourage innovation Programmes that focus on public procurement of innovation
through supply-side measures in order to catalyse the have specific drivers and face several obstacles. These
generation of new knowledge and new technology. Over the drivers include the facilitation of access to conventional
last decade, governments have begun to accompany supply- markets and the extent to which these programmes make
side policy with demand-side policy measures, whether in innovating companies less reliant on external funding. Also,
the form of regulation, standardisation or the public institutional factors such as the availability of an educated
procurement of innovation. work force and the specific institutional drivers that shape
the needs of end-users are helpful for the successful
The public procurement of innovation, referring to the development and uptake of publicly procured innovations.
government’s direct purchasing power towards innovation, Conversely, obstacles include the nature of the application
can increase demand for innovation and help articulate domain for developed innovations, as commercial market
demand for innovation. Moreover, the public procurement of development might occur at a rate that is too slow for the
innovation can: enhance the uptake of specific innovations; innovation to find market uptake outside public procurement.
spur the development of new innovations; and increase the
production and diffusion of innovation throughout the For development programmes that focus on public
innovation chain. procurement of innovation, it seems there is a lot of support
yet to be offered by public policy in Europe. Gaps in policy
Annual public procurement at European level is estimated at are noted in the assessment and monitoring of public
€400 billion although some estimates put this number even procurement programmes, for instance: the high upfront
higher. Of this €400 billion, it is estimated that €3.78 investments that discourage participation in broadly defined
billion can be considered as the public procurement of public tenders and calls; the extent to which they offer
innovation at the European-level. Programmes focused companies the opportunity to test their innovation in a real
on the public procurement of innovation can have a positive world context; and the differing difficulty encountered when
influence on jobs and can have significant impact on the seeking public support for incremental innovation as
success of innovative companies, both in terms of revenue compared to radical innovation.
and company size.
European governments can address these policy gaps by
The degree to which companies actually derive a introducing hybrid versions of funding development and
competitive advantage from the public procurement of innovation procurement. This may be achieved by: co-
their innovation on offer differs according to the type of procuring with private sector actors; combining procurement
procurement programme involved. For public procure- with free-of-charge access to university R&D hours and
ments that focus on funding the development of the knowledge; introducing an Envy scoring mechanism for
innovation, many competitive advantages can be seen as a public procurement programmes; cutting up tender
result of the company’s innovative capacity. Public procedures in several (smaller) separate assignments; and
procurements that also establish feedback loops between using specific methods that can encourage or force
the innovating company and the users of the innovation tenderees to adopt certain innovations or technologies.
offered a competitive advantage to the innovating company
able to collect and analyse data from the real-world
application of the innovation.

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2. Public procurement of innovation

For the last three decades, innovation policy has been • Little articulation of innovation need;
dominated by supply-side measures, supporting the
generation of new knowledge and innovation. Since the late • Little early communication of future trends;
1990s, demand-side policy measures have taken the form of
product market regulation and standardisation as well as • Unhelpful priorities in the minds of public procurers,
public procurement for innovation.12 who often focus on price and short-term satisfaction
over innovation and long-term considerations.
As stated in the 2012 State of the Innovation Union report,
demand-side policies, including public procurement of Innovation procurement is slowly increasing across Europe.
innovation, are crucial to the In 2012, Italy assigned more than €300 million to pre-
The innovation union aims for commercial procurement (PCP). PCP will be deployed in
attainment of the 3% target and
procurement markets across Southern Italy with the support of structural funds, as has
the stimulation of European
the EU starting from at least been done in other Italian regions. Moreover, the higher risk
Competitiveness.3 According to the
€10 billion a year for related to these purchases can be covered by a special risk-
report, a better balance between
innovations that improve the sharing facility established in cooperation with the European
supply- and demand-side measures
efficiency and quality of public Investment Bank. Cross-border collaboration is also
is needed, as supply-side measures
services, while addressing the developing. The Nordic Ministers of Industry launched a
alone will not generate the impact
major societal challenges. The ‘lighthouse project’ in health care to strengthen the
required.
aim should be to achieve collaboration between Norway, Finland, Sweden, Denmark
innovative procurement and Iceland on innovation procurement.11
Public procurement of innovation
markets equivalent to those in
can articulate and increase demand
the US. Coordination of public procurement efforts can help to
for innovations, and improve
conditions for the uptake of innovations in order to spur combat fragmentation in public procurement markets across
innovation and their diffusion into the marketplace, Europe, to aid in linking specific procurers across Europe
triggering and accelerating the production and diffusion of through procurer networks, to support risk taking and market
innovation throughout the innovation chain.4 transparency through training and awareness programmes
as well as improved market discourse across Europe.
The main objective of public procurement of innovation is to
direct government purchasing power towards innovations. An Transnational cooperation on innovation procurement is
analytical difference is made between public procurement currently supported in a few areas with EU research and
that is responsive to existing innovation, and procurement innovation funding. In 2012, 16 projects were launched to
that is proactive. In the latter case, innovations are triggered drive innovation procurement involving procurers from the
when a new need has been made apparent, to which a majority of Member States. The projects will encourage
specific solution needs to be found. Pre-commercial public procurers to deploy more innovative solutions in the
procurement is seen as a variant of public procurement, areas of lighting systems, energy efficient buildings,
which can include purchasing of R&D to benefit technological supercomputing technology, and better care for elderly,
smart transport systems, intelligent border security control,
developments still in a demonstrator phase.56
and intelligent textiles for fire brigades. In 2013, such EU-
Societal challenges often can serve as a catalyst for level support is likely to more than double, approaching
implementation of procuring innovation. Perceived barriers to €100 million.12
optimal implementation of public procurement of innovation
include:7 8 9 10 The Lead Market Initiative

• Pressure on public budgets (especially in the case of The Lead Market Initiative (LMI) for Europe was adopted by
public procurement of innovation); the European Commission in December 2007 following the
EU’s 2006 broad based Innovation Strategy. The LMI is a
• Technological risk, policy risk and the risk of combination of different policies, mainly public procurement,
introducing competitive disadvantages when standards, other legislation and complementary actions. It
intervening too far upstream, as well as the risk of was adopted on December 21st 2007. The Commission
lock-ins or to the acquisition of inappropriate and/or identified six target markets:
premature technologies;
• eHealth,
• Lack of interaction between relevant ministries and
agencies; • recycling,

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• renewable energy, that would not otherwise be picked up by other policy

frameworks. The LMI fell short of the ambition of the Aho
• sustainable construction, Report, which had raised expectations. The scope of the
Action Plans was necessarily more restricted, especially
• protective textiles and given the limited nature of the budget available.
Furthermore, the Initiative involved experimenting with
• bio-based products.
various new procedures.
All of those six markets are defined around ‘broad market
The six markets initially chosen as targets continue to show
segments’ rather than a concrete range of products. The
a marked potential for further growth and varying degrees
basic idea as stated by the Commission is not to pick
of success were achieved in relation to the different Action
winners, but to support broad areas in which different kinds
Plans. A coordinated approach to the demand-side
of innovations can flourish. All areas are linked to wider
stimulation of innovation ought to continue to have an
societal needs (sustainability, efficient and effective health
important place in innovation policy, while the links with
care etc.) and for all of them the Commission sees a strong
supply-side measures should continue to be strengthened.
economic potential within Europe that can be realised
The case for demand-side actions, especially relating to
through concerted, coordinated and flexible action.
public procurement, remains strong, notably in the ‘busy’
According to its final evaluation in 2011, the LMI should be policy areas of recycling and renewable energy. A balanced
understood as a set of pilot actions aiming to shift the basis approach to support for the procurement of innovation needs
of an important area of policy, whose major strength was to be developed across all phases of the innovation cycle.
targeting interrelated policy areas for promising markets

3. Socio-Economic Relevance
In recent years demand-side policy measures have taken the Figure 1: Annual public procurement at European level
form of product market regulation and standardisation as (in billion Euros)
well as public procurement for innovation. Especially in the
current economic climate, it is hard to acquire funding and 3.78
customers for (radical) innovations. Both capital investors
and firms prefer to invest their funds in products, processes Regular public
and services that have a relatively short return on procurement
investment. Therefore, in such a context, public procurement
396.22
could be a valuable instrument to maintain innovative Public procurement
capacity in an economy. This however also forms a paradox, of innovation
as most governments also have their funds limited as a
results of declining economic growth.

Programmes focused on the public procurement of

3.1. The market potential of the trend
innovation can have significant impact on the success of
Innovative procurement describes the situation where a innovating companies, and can have a positive influence on
public body procures product does not yet physically exist, job creation, as can be seen from the example of the Small
but that, based on research and development by the Business Innovation Research programme of the United
company offering the product, can be developed within a States government.
reasonable timeframe.13 It is a policy tool to that serves to
encourage innovation via demand pull. Small Business Innovation Research programme –
US government as a lead customer
Annual public procurement at European level is estimated at
€400 billion, although other estimates would put this In the Small Business Innovation Research programme, The
number even higher. Of this €400 billion, it is estimated that United States government takes on the role of ‘lead
€ 3.78 billion can be considered public procurement of customer’, providing for R&D funding to SMEs, representing
innovation at European level (Figure 1)14. over €750 million in research funds. Half of this budget is
allocated to firms with fewer than 25 people and a third to
firms of fewer than 10. SBIR funded firms have generated

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five times the number of jobs compared to firms that did to Phase III, wherein they can attempt to commercialise the
not receive SBIR funding. SBIR funded firms include Apple, product.
Federal Express and Sun Microsystems.
The cases taken up in this report (Table 1) demonstrate this
To apply for SBIR funding, companies compete for Phase I dynamic, showing revenue growth, an increase in head-
funding, which would allow them to demonstrate the count, or the potential for such. AlertSolutions was able to
feasibility of their concept within six months. Companies that commercialise their product and recently achieve a break-
were successful in Phase I can apply for Phase II, which even point. Ashwoods is expected to grow from 3 to 28
provides 24 months of funding for R&D and product testing. employees and increase its revenue generation tenfold.
Companies that successfully finish Phase II can be admitted KEMA and PHOTONIS demonstrate how public procurement
of innovation can lead to additional commercial investments.

Table 1: Overview of the company cases referred to in this case study

Company Location Business innovation Success signals

AlertSolutions NL Through public procurement of innovation, The company had to make significant
AlertSolutions was able to develop a real investments in the first years. In 2012, the
time system for monitoring the structural company was able to break-even for the
integrity of dikes. The company developed first time. It is, however, still hard to fund
measurement instruments that are R&D based on commercial revenue. The
inserted into the dike structure. All company currently employs 5 persons, of
measurement instruments are connected which 2 on a full-time basis.
to one data acquisitions system, which
provides live data access to customers
anytime, anywhere. This provides
customers with valuable data, besides the
standard field inspections.
Ashwoods UK Ashwoods has developed the so called In 2008, when Ashwoods first engaged
“light foot driver behaviour technology”. with the public procurement programme,
This technology can be installed to existing they were generating a turnover of GBP
vehicles and encourages and supports 690,000 with 3 employees. In 2012, the
drivers in real-time to drive in the most company is prospected to generate GBP 6
efficient way possible and makes sure million with 28 employees. According to
they do not slip back into bad habits. The Ashwoods managing director, this is
technology was developed as a result of largely enabled by public procurement.The
public procurement for hybrid vehicles, a technical success are about 10 to 15%
prequel aftermarket technology that fuel savings for hybrid vehicles and 10%
facilitated the development of this for the light foot product, compared to
innovation. vehicle lacking the technology.
KEMA NL KEMA acts as a partner in a consortium for The project substantially contributes to the
the Nanoglowa initiative. The Nanoglowa European Union’s (EU) aim of meeting the
initiative is conducted within a Sixth Kyoto protocol requirements to reduce
Framework Programme context. The greenhouse-gas emissions (6.0% in 2010).
project was conducted between December Since CO2 accounts for more than 80% of
2006 and December 2011. these emissions. It also enables the EU to
become a more environmentally friendly
and sustainable society. Currently the
technology is being implemented in a
Norwegian power plant, with associated
investments of approximately EUR 24
million.
PHOTONIS NL PHOTONIS has developed night vision PHOTONIS was awarded the Georgia Tech
sensor technology. Sign Sponsored Research Agreement in
2012, is currently one of the world leaders
in the design and manufacturing of state-
of-the-art Image Intensifier Tubes for
military, space and commercial
applications, employs over 1000 people
and boosts impressive revenues that
exceed 160M.

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Ashwoods’ two key products are the hybrid vehicle and light PHOTONIS is a proven case of the market potential for their
foot driver behaviour technology. At the end of 2012, innovative night vision solutions. As more and more combats
Ashwoods’ sold hybrid vehicles had saved approximately take place by night, night vision has become a key opto-
2,400 tons of CO2. For 2013, prospected sales of hybrid electronic technology in modern warfare. PHOTONIS is
vehicles are about 450 units. The company is the UK’s currently one of the world leaders in the design and
leading supplier for light commercial hybrid vehicles, a manufacturing of state-of-the-art Image Intensifier Tubes
market in which it does not have many competitors. for military, space and commercial applications. Their
Moreover, it is expected that at the end of this year, products are in use in all of the NATO countries and are
Ashwoods would have sold approximately 5,o00 units of largely deployed on a worldwide scale. Moreover, their Image
light foot. The prospected sales for 2014 are about 7,500 Intensifier Tubes are integrated into equipment of the
units of light foot, a clear growth of 50% annually. For world’s leading suppliers of optical systems. The market
potential is also evidenced by the notion that PHOTONIS
every 5,000 light foot products sold, the company saves
currently employs over 1000 people, generating revenues
approximately 5,500 tons of CO2 per year.
that exceed 160M on a global scale.
At the moment, the light foot product is still only applicable
to business fleets. In the near future, Ashwoods will 3.2. The role of public procurement
introduce a consumer version of the product, retrofitable to
any vehicle (e.g. diesel or petrol). The market potential
for the development of an
then encompasses basically anyone with a vehicle. innovation
The current potential for AlertSolutions’ innovation in The innovations described in this case were all developed
and/or commercialised as a result of public procurement. The
its national market is limited, as the market in the
rationale for developing these innovations is that in all cases
Netherlands is currently not large enough for the company to
a government body perceived a certain market need which
survive on. Regional authorities are slow to adopt the
was not yet sufficiently met. Whether the requirements for
innovation and do not generate much revenue for the
the innovation, as outlined in the public procurement
company. AlertSolutions has to rely on international markets
programme (tender), complied with actual needs in the
to generate sufficient income. Future potential for the
market differs per case. This already illustrates the first
innovation is substantial though. On average, 0.5 to 1 % of
opportunities for improvement.
construction budgets are spent on monitoring systems. For
dike construction this share is approximately 2%. Currently, a
large share of the monitoring budget for construction Problem 1 ‒ The UK Small Business and Research Initiative
projects is acquired by engineering agencies. AlertSolutions launched a public procurement programme for the
aims to capture a part of the market from engineering development and deployment of hybrid light commercial
agencies. This will be challenging, because engineering vehicles. Through the procurement programme, the CO2
agencies form part of the customer base for AlertSolutions. emissions of the business fleets of 15 selected public
organisations (e.g. Royal Mail) had to be reduced.
The market potential for the Nanoglowa technology
developed by KEMA and partners depends on regulation on Innovative solution 1 ‒ As a result of the procurement
CO2 emissions. Carbon market programmes are a means to programme, Ashwoods not only developed a hybrid light
control and reduce carbon dioxide emissions by having a commercial vehicle, but also became a supplier of hybrid
regulatory authority set a quantitative limit on absolute or components and the novel driver behaviour technology.
relative carbon emissions by major emitters, such as Public procurement did not provide Ashwoods with funding
industrial factories and power plants. For each ton of carbon for development, but with initial launch customers. At the
emitted over the cap, the emitter needs to buy allowances to time Ashwoods participated in the public procurement
be able to legally exceed the limit. As KEMA’s technology programme, its technology was at a low production volume
allows emitters to reduce their CO2 emissions, they would stage. The procurement programme was aimed at proving
possibly need to buy fewer allowances or might even sell the performance of new technologies in practice, and
residual permits on the market. The global market for carbon provided a launch market to realise this. Effectively, the
trading approximated USD 176 billion in 2011.15 The World procurement programme allowed Ashwoods to further
Bank estimates that by 2025, the global carbon trading invest in the production process the technology, and
market will equal approximately USD 1 trillion. preparing the technology for wider market uptake.
Furthermore, it appears that by 2015-2020, most of the
world’s major economies, and many developing ones, will The direct effect of the procurement programme was that is
have some form of carbon trading programme in place.16 subsidised the purchase of approximately 160 hybrid
vehicles made by Ashwoods. These vehicles were put into
operation at fifteen of the most demanding publically
owned fleets in the UK. The product received substantial

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exposure, and proved its durability and real-world Laboratory tests showed that out of five types of
performance, in practice. The revenue generated as a result membranes, two types proved to have the most promising
of these sales was put into the development of other hybrid performance. These were the Diffusion Transport
technologies and peripheral products. Several of these Membranes and Fixed Site Carrier Membranes. These two
peripheral products became a commercial success. types have been integrated into modules which were used
in the industrial tests.
For development of the first hybrid technology, Ashwoods
in-sourced all required components from external suppliers. A graphical representation of the membrane technology
With the second generation of the hybrid technology the developed as a result of the Nanoglowa initiative, KEMA was
company was able to come up with improved components participating in.
and peripheral telematics instruments that were developed
in-house. This was enabled by public procurement of the
first generation technology. This all eventually led to the
current situation, where Ashwoods is not only selling its
hybrid vehicles consisting of in-house developed
components, but is also selling the components and
peripheral instruments as stand-alone products. Thanks to
public procurement, Ashwoods is now able to supply the
OEM market with components for hybrid vehicles, and fleet
managers with telematics systems that stimulate drivers to
be more fuel efficient and provide fleet managers with
monitoring instruments.

A graphical representation of the driver behaviour

technology interface of Ashwoods.

Problem 3 ‒ It is often difficult to successfully commerce-

alise an innovation on international markets. Especially in the
industry of defence and security, innovative concepts can
suffer early-stage setbacks related to funding and the
opportunity to demonstrate a proof of concept. Acting as a
launching customer, the Ministry of Defence procured night-
vision sensors from PHOTONIS, which allowed them to enter
Problem 2 ‒ The objective of this project was to develop
new markets.
optimal nano-structured membranes and a large variety of
installations for various CO2 capture applications at power Innovative solution 3 ‒ As a result of the procurement,
plants. The use of this technology for gas separation PHOTONIS was able to develop and commercialise their
processes has the potential to reduce CO2 emissions, one of innovative night-vision sensors that complies with
the Kyoto protocol recommendations. Development and international military standards. The procurement of these
usage of cost-effective membranes to remove CO2 from sensors by the Ministry of Defence provided PHOTONIS with
expelled gases in industrial applications enables the a concrete market opportunity that could drive the
reduction of the energy costs associated with CO2 development of the new sensors.
separation to less than € 20 per ton. Other specific
objectives for this project were to test and develop smart- Although the subsequently generated revenue was not
design modules, with a long life and low degradation and stellar, this market opportunity was an important driver, as
contamination. These were to be tested in both the in its development trajectories PHOTONIS needs to include
laboratory and the field and combined with integrated both its development partners and its end-users.
performance monitoring. Another innovation goal for this
project was to enable the liquefaction of the gases after
separation, which results in reduced transportation costs.

Innovative solution 2 ‒ After several years of lab testing at

different sites in Europe, developed membrane modules
have been installed in three different operating power
plants (both European and non-European) to test the
working of the membranes in an actual flue gas stream.

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procurement, resulted in enhanced system components that

Problem 4 – The Dutch national government foresaw the
can be sold as stand-alone products. Whereas Ashwoods
need for a real-time monitoring system for the structural
was first acting as a supplier of hybrid vehicles, it is now
integrity of dikes. Currently, dikes are still mainly monitored
also a supplier of components for hybrid technology to OEMs
based on visual inspection by field investigators. Therefore,
in the automotive industry, and fleet managers.
the Dutch ministry of economic affairs, and ministry
infrastructure published a public procurement programme Ashwoods was given access to real life market data, which
for the development of a novel real-time monitoring system would not have been there in the commercial sector, at that
for dikes. AlertSolutions submitted a proposal for this tender time. In essence, the company was able to build up
and eventually received the funding to conduct a feasibility experience and collect real-world feedback, in advance to its
study and to develop the technology. competitors. This enabled it to develop superior components
and peripheral equipment for hybrid technology, which is
Solution 4 – The monitoring system AlertSolutions
now sold to a wider marketplace. As mentioned afore, in the
developed is called GeoBeads and consists of an
near future the light foot product will also be sold on the
integrated system of sensors, coupled through field
consumer market. At the moment there is no competition for
networking. The sensors measure (underground) water
retrofitted driver behaviour technology for consumers.
pressure, movement and temperature. Based on this data,
structural integrity of dikes can be determined. Finally, Ashwoods aims to get their light foot product
Field networking facilitates the data collection and installed in stock cars by OEMs, straight from the factory. It
is currently negotiating options with UK representatives of
transmission by literally hundreds of sensor instruments.
European vehicle manufacturers.
Data is stored locally and transmitted wirelessly. This
means that local data can be accessed by an investigator in
AlertSolutions’ technology can be seen as an addition to
the field, but also through an online data panel displaying
existing dike inspection methods. The innovation will never
real-life data. This live data access provides a valuable
completely take over the market for dike inspection. The
addition to existing monitoring methods. company has already expanded its market to the UK,
Germany and also China. Although the Netherlands is a lead
market for dike inspection methods, other European
countries can also benefit from this technology.

Moreover, the company’s innovation can also be deployed to

other markets. AlertSolutions is currently also conducting
3.3. The creation of new markets and monitoring projects for customers that operate, own or build
jobs as a result of the public civil infrastructures like bridges and tunnels, and a
procurement of innovation substantial number of other structures.

The degree to which the public procurement of innovation in 3.4. Realising competitive advantages
this case has resulted in the creation of new markets and
jobs differs per company. There is a clear difference in
through public procurement
procurement programmes that mainly provided funding for The degree to which case companies derive competitive
the development of an innovation (AlertSolutions and KEMA), advantages as a direct result of public procurement differs
those that facilitate access to the market through a per type of programme. For a company like AlertSolutions,
launching customer (PHOTONIS), and those that provide both which mainly received funding for development, the
(Ashwoods). In this case, the last type of programme has had established competitive advantages are a result of the
the most significant effect on the creation of a new market
company’s innovative capacity. Apart from funding, public
and prospective jobs. procurement did not provide additional inputs for
development and market access. For Ashwoods, public
Effective public procurement allowed Ashwoods to
procurement did not only provide funding for development
carve out a niche for its specialised products and
and facilitation of launching customers, the programme also
components. Public procurement created a first market for
established valuable feedback loops from launch customers
the hybrid technology that Ashwoods had developed. This on real-world application of the innovation.
hybrid technology was sold as a complete product that could
be equipped to existing vehicles. At this time, both the Public procurement allowed Ashwoods to further develop
complete system and separate components were not yet their hybrid technology into stand-alone products.
economically interesting for commercial parties. Further Development and exploitation of the hybrid technology
development of the technology, facilitated both in terms of taught the company about the need for driver behaviour
funding and real-world feedback through public technology. It is easier to achieve fuel consumption savings

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on the driver’s side than on the vehicle side. Ashwoods is 3.5. Client perspectives and
now no longer competing with other (hybrid) vehicle
manufacturers, but has become a key supplier to them. The challenges related to the uptake
light foot product, one of Ashwoods most promising of innovations developed as a
applications, is operating in the telematics instruments
result of public procurement
market.
For innovations that were developed as a result of
Currently, there are not many competing products.
public procurement there are two different client
Conventional telematics instruments are aimed at providing
perspective related to the uptake. There is the client
fleet managers with as much data on driver behaviour as
perspective of the public organisation purchasing the
possible. The fleet manager has to analyse this information
innovation through a procurement programme, and the client
and identify which drivers are showing undesirable behaviour
perspective of market organisations purchasing the
and how this behaviour could be altered. Ashwoods light foot
product is not only collecting information, but based on this innovation.
data is also providing drivers with indications on how to
In 2010, when the first generation of Ashwoods’ hybrid
improve fuel efficiency, reduce accidents and minimise idling
technology was ready, the client perspective on uptake of
time. At the same time, the instrument is sending periodical
the innovation was negative. At that time the technology did
reports to the fleet manager to show the realised
not provide a sufficient performance improvement in relation
improvement.
to its cost. Moreover, the technology had not yet proven its
Initially fleet managers simply wanted as much data on real-world worth. This has to be seen in combination with the
driver behaviour as possible. Practice, however, showed that context that, due to the financial crisis, most customer
customers did not have the resources to analyse all this companies were short on funding for unproven novel
data. This is why Ashwoods light foot product is so technology. In such a context the majority of decisions are
successful. It is unburdening fleet managers substantially. based on a financial consideration. According to Ashwoods’
managing director it would therefore have been highly
Conventional monitoring methods for dikes are largely unlikely that market uptake would have taken place, in 2010.
limited to manual inspections by field staff. Structural
In 2010, the client perspective of the fifteen leading public
integrity is determined based on the expertise and
organisations participating in the public procurement
experience of field staff. There have been initiatives that
programme was completely different. They were provided
were aimed at a more quantified and objective monitoring of
with a substantial amount of funding, which they could
dikes. These initiatives were, however, limited to local and
spend on a selection of hybrid technologies to make their
temporary measurements. Data generated by these
fleet more sustainable. Normally, these customers would like
measurements had to be manually extracted and imported
to give priority to environmental friendly gains, but were
to a computer for analysis. Through AlertSolutions’
limited in their choices by budget cuts. Due to the fund of
technology, monitoring of dikes can be conducted
the public procurement programme, however, these
continuously at a larger scale against substantially
organisations could now pick the best hybrid technologies
lower costs and levels of effort. A dike monitoring
out of a shortlist, without having to look at economic returns.
system, however, will never completely replace manual and
visual inspection. Moreover, this technology can also be Currently, the client perspective is still the same. Clients first
deployed for other application fields. want to hear the economic/financial results of investing in
the innovation. The environmental gain has less priority. The
Another competitive advantage for AlertSolutions is that its innovation, however, has changed. Due to further
monitoring system can be installed into multiple layers of a development of the technology, its fuel saving potential now
structure simultaneously. All sensors are installed on one outweighs its cost. Furthermore, Ashwoods was able to
string of wiring, which can be easily inserted into a structure. develop a product with a relatively high fuel saving potential,
This feature was the reason the company acquired a low investment costs and that can be easily installed on the
substantial assignment for the construction of a new metro existing vehicle fleet. Fleet managers, for instance, can more
tunnel in the Netherlands. AlertSolutions is the only company easily justify towards the board the purchase of hybrid
that can currently supply such an application. technology and driver behaviour technology. The largest
obstacle for market uptake, costs outweighing benefits, has
now been taken away.

Public Procurement of Innovation 9

Public Private Partnerships

Customers of KEMA face the same main difficulty for was more difficult because they had no existing contacts.
adopting the technology, as KEMA does for developing and When the Ministry of Defence procured the innovative night
commercialising the technology. This difficulty constitutes vision sensors, this not only boosted sales of the night vision
uncertainty with regards to CO2 regulation. As the market sensors, but also allowed them to access new contacts in
for CO2 trading derives its existence from corresponding international markets through the Ministry of Defence. This
regulation, investments from customers in related has particularly allowed PHOTONIS to help establish contact
technology also depend on this same regulation. Absence of with partners in new geographical areas.
clarity on this matter in a particular market deters clients
from adopting the technology, simply because their return on For AlertSolutions, the main obstacle to client uptake is the
investment is uncertain. lack of real-world proof of concept of its technology. The
regional authorities tasked with monitoring dikes are
For PHOTONIS, is has sometimes been challenging to hesitant to have companies conduct tests on their dikes. This
market disruptive innovations on international markets. As is simply due to the nature of the infrastructure, being
commercialisation of these kinds of innovations generally directly correlated with national security. National authorities
require good contacts and active involvement of different do not want to be held responsible for damaging dike's
stakeholders, entering a new international market can be structural integrity, and possible negative consequences.
difficult. For PHOTONIS is particular, they not only need to Moreover, in the rare occasions that they do allow real-world
establish good relationships with end-users, but also with tests on dike infrastructure, the control criteria are too
partners who will use their sensors in the end products. ambitious for a novel technology to immediately comply
While they currently have two offices in the United States, with. In short there is a clear lack of supportive launching
accessing the different niche markets there, for instance, customers.

4. Drivers and obstacles

Programmes that focus on public procurement of innovation company with required input for further development of the
have specific drivers and face several obstacles. These technology. The revenue created by public procurement of
drivers and obstacles impact both technology companies the first generation technology funded the development
developing solutions and public bodies looking to procure. work for the second generation technology. Components and
products that were developed as a result of the second
Drivers include the facilitation of access to conventional development phase are currently sold on commercial
markets and the extent to which these programmes make markets to for instance fleet managers and OEM in the
innovating companies less reliant on external funding. Also, automotive industry. Effectively public procurement allowed
feedback from the public procurer to the innovating company Ashwoods to carve out a niche for its specialised products
can be very helpful towards the development process. and components.
Moreover, the needs of end-users and the institutional
drivers for this need can lead to high demand after a public The public procurement programme that Ashwoods was
procurement of an innovation has been successful, as well involved in ensured that the company could fully focus on
as the availability of en educated work force. development of its technology.
“Having the lead customers
A dedicated party was
provided us with a real
Obstacles include the extent to which the nature of the appointed to coordinate the
competitive advantage as it
application domain for developed innovations, as commercial programme and facilitate all
allowed us to significantly
market development might occur at a rate that is too slow communication and other
improve our technology in
for the innovation to find market uptake outside public aspect related to customer
cooperation with them. The
procurement. contact. For a relatively small
revenues that we eventually
organisation the influence of
generated through this
4.1. Public procurement as a this unburdening is significant.
channel also provided further
facilitator of access to Ashwoods was only able to
opportunities to improve the
product.” ‒ Ashwoods
conventional markets significantly improve their
technology in cooperation with the support of lead
Ashwoods initially started as a producer and supplier of customers. The revenue generated by their purchases
hybrid vehicles to public organisations, which was purely provided the funding to further advance development.
facilitated by public procurement funds. The real world data Moreover, feedback on real-world application of the
collection and feedback from launch customers provided the innovation provided the company with the required input to

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Public Private Partnerships

make improvements. Without access to launch customers, allowed the company to further develop its technology, but
Ashwoods would not have been able to improve its took them 9 months to acquire. The Dutch Greentech Fund,
innovation to a level where it would become economically part of a large Dutch bank, has also invested in the
attractive to buy. However, in the current economic climate company. Both parties were given company shares in return
commercial parties do not invest in technologies that lack a for their investment. Other sources for funding have been
relatively short-term return on investment. Without public the founder’s family and friends.
procurement facilitating a launch market for the company,
this technology would not have been developed by For KEMA, public procurement could help companies to close
Ashwoods. the so called “valley of death” for radical innovations. Private
parties are hesitant to fund “We are currently making
PHOTONIS has had different experiences with public radical initiative with uncertain investments in our technology
procurement. Specifically, PHOTONIS has made use of the and long-term returns on in Norway, as the policy
opportunity to have public institutions as launching investments. However, public landscape provides more
customers. By being a launching customer, public institutions procurement in some member clearity on CO2 regulation and
step in to facilitate the diffusion process of the innovation. states appears to be oriented financial support than is the
This secured PHOTONIS of an early adopter of their on supporting incremental case in the domestic markets”.
technology, essentially facilitating access to markets. While innovation, whereas the support - KEMA
this has been very helpful for PHOTONIS, they find that for radical innovation would
typically the innovations that have a more direct market better complement private
demand tend to commercialise successfully more swiftly. investments.
Nevertheless, they underlined the potential of the instrument
and expect this channel to become increasingly more PHOTONIS is primarily financed with private equity, which
important in the near future to facilitate access to includes venture capital funding. As we have seen in other
international markets. cases, venture capital funding can put substantial pressure
on the commercialisation process. The main reason for this
For AlertSolutions, public procurement did not provide the is that venture capital funds tend to invest in companies that
desired access to dike inspection authorities. After having show high business potential. While they provide the
developed the innovation, the company had to acquire necessary funding, they typically expect returns in 3-4 years.
access to regional authorities (tasked with dike monitoring) This potentially limits both the innovation and
without the support of the national government. Although commercialisation process. Public procurement, and public
the company has been able to build up relationships with funding in general, can alleviate some of this pressure by
these customers, national government could have made this having different expectations on particularly the time-to-
process easier. Public procurement of innovations makes market of disruptive innovations. As PHOTONIS is primarily
innovative companies less reliant on external funding financed with private equity, the public procurement they
have benefitted from has had little impact on the overall
4.2. Public procurement of innovations commercialisation process of the company.

makes innovative companies less

4.3. Support and feedback received
reliant on external funding
from public parties procuring an
Ashwoods is owned and funded by its management, staff innovation can form a key driver
and an investor. The company did not only receive money for
development, but public funding also allowed launch To fully exploit these opportunities provided, companies need
customers to purchase a first generation of the technology. to be able to deploy a demand-driven approach to
It was therefore less reliant on external funding sources to innovation. Interviewees indicate that this would probably be
commercialise the technology. The company has looked at harder in a large corporation.
options for financial support from banks and private equity
providers. Due to public procurement of the innovation the For Ashwoods, all customers and suppliers (Ashwoods and
company was not forced to approach a private equity party. three other beneficiaries) involved in the procurement
Such a party, if not completely necessary, was considered programme were fully engaged in development of the
undesirable to approach as it would then dilute ownership innovation. Through quarterly review meetings the company
and control of the company. was provided with a constant flow of feedback generated by
putting the innovation into use. Intensive monitoring of the
For AlertSolutions, public procurement did not fund a performance of the hybrid vehicle by customer companies
launching customer for the innovation. The company generated valuable data.
therefore had to rely on a private equity party to seed
commercialisation of the innovation, in 2010. This funding In fact, the new and successful light foot product was
developed in a response to a demand of the Royal Mail,

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 Public Private Partnerships

expressed during one of the meetings. Launch customers For Ashwoods, market adoption moved rather slowly.
clearly indicated their desires and needs, which helped Thanks to public procurement the company was able to
Ashwoods to fine-tune their technology. This does not mean boost the development speed of hybrid technologies. Market
that private parties do not support the company in further uptake in the commercial sector, however, cannot match the
developing its products. Currently, a commercial customer is speed at which the company is able to develop new
highly involved with tailoring the light foot product to its technologies.
particular needs.
Ashwoods aims to have its driver behaviour technology
Contrasting to the above, KEMA did particularly receive installed to stock cars already in the vehicle manufacturer’s
support and feedback from public parties, but has actually plant. Realisation of this aim is stalled because development
subject to competition from public parties. There are several cycles for cars take approximately 5 to 7 years. For the
national public research institutes which conduct similar technology to be incorporated in a stock car, it has to be
activities like KEMA, but which receive public funding for tested throughout the vehicle’s development cycle. Meaning
conducting their business. that it could take another 5 years before the first stock
vehicles with pre-installed light foot technology will be sold.
4.4. The nature of the application
domain for developed innovations 4.5. Regulation and needs of end-
can form an obstacle users that drive market uptake
For AlertSolutions, the demand and requirements of the For Ashwoods, rising oil prices and strict European
public procurement programme formulated by the national regulation on vehicle emissions are significant drivers for
government did not match the market uptake. OEMs are forced to keep the overall carbon
“We operate in a highly footprint of their product offering below a certain level.
conservative industry, as needs amongst regional authorities.
The company is performing tests Moreover, fleet owners and consumers are demanding
monitory equipment for e.g. higher fuel efficiency with every new development cycle.
dikes that in operation needs and pilots in collaboration with 8
different regional authorities These two aspects drive the adoption of Ashwoods light foot
to work flawlessly. New product and hybrid components amongst OEMs, but also
solutions pose a risk to end- tasked with dike maintenance and
monitoring (Dutch “Waters- directly amongst end-users.
users, as the solution may
turn out to be e.g. unreliable. It chappen”). The innovation is,
KEMA, particularly for the Nanoglowa project, is highly
is therefore key to proof your however, not yet sold on a large
reliant on stable long-term regulation. Prices of CO2
innovation in practice, which is scale to these local authorities.
trade are highly susceptible to regulation, as this artificial
a process that takes time.” These customers are hesitant to
market is solely facilitated by regulation. Firstly, for this
‒ AlertSolutions apply the company’s technology.
market to be able to come up with innovation, prices of CO2
This has to do with the high risk
have to be significant. Secondly, established regulations
associated with conducting test in dikes that are in
have to be in force for a substantial period of time for
“operation”. There is always some risk associated with
businesses (or consortia for that matter) to make
inserting monitoring equipment into a dike. Local authorities
investments in a related technology. Currently, this is a
do not want to be responsible for possible damages to the
substantial obstacle for KEMA to conduct its businesses in
dike’s structural integrity. This process takes time. Small
the domestic market.
success stories help to convince other customers to also
adopt the innovation.
End-users also form an important aspect of the
commercialisation trajectory of PHOTONIS. Although the
For KEMA being a service provider, it is hard to apply for
nature of PHOTONIS’ business requires them to establish
government support for innovation. Support programmes are
good contacts with partners, they also need to create
largely oriented on product innovation. KEMA is forced to
awareness at the end-user level. This is particularly
participate in consortia in order to indirectly benefit from
important if the company is looking for a good market
government support programmes. This means that in most
uptake of the innovation. This approach was referred to as a
instances KEMA is forced to find partners for developing and
push and pull process. To a certain degree, PHOTONIS pushes
commercialising an innovation. Absence of these parties
the technology on the market, but ensure successful
could pose another obstacle for developing and
commercialisation by creating demand pull. The latter is
commercialising innovation within the company’s sphere of
influenced by familiarising potential end-users with their
influence.
new components and by involving some of the end-users
already in the research stage.

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 Public Private Partnerships

4.6. Regional aspects that drive the For KEMA, a company historically oriented on electronic
appliances, it has been challenging to attract the necessary
development and electro-technical expertise. Policy makers could make a
commercialisation of publically beneficial contribution through increasing awareness of
procured innovations technical education programmes amongst high school
students.
For Ashwoods, the UK was a suitable region to develop and
commercialise their hybrid and driver behaviour 4.8. Challenges with regards to
technologies. Fuel prices in the UK are amongst the highest
in the world, creating substantial incentive for users to adopt
internationalisation
the technology. Moreover, telematics instruments for Ashwoods’ innovation has to be applied to stock vehicles
business fleets are already widely used in the UK. Both for it to be functional. As vehicles specifications differ
drivers and fleet managers are used to working with the between various EU member
technology. The United Kingdom Trade
states, additional adjustments and Investment agency (UKTI)
need to be made before the played a crucial role for
AlertSolutions is strategically located in the Delft region.
innovation can be brought to Ashwoods. They put the
Delft is home to the Netherland’s most prominent technical
international markets. This company into contact with
university. The university is amongst the world’s leading
forms the most significant potential customers, and
institutes in the field of water management and water
barrier to internationalisation. especially the entry they
related civil engineering. AlertSolutions can acquire all its
employees and interns conveniently from this university. In provided to embassies in the
The United Kingdom Trade and
the early stages of development, the company made use of territories Ashwoods wanted
Investment agency (UKTI)
research facilities offered by the university. Although this to explore were very useful.
helped Ashwoods to access
support was helpful, the acquired benefits were not international markets. The agencies international network
substantial, due to related costs and inefficiencies and connections have put the company into contact with
associated with outsourcing of R&D activities. potential customers. Especially the entry they provided to
embassies in the territories Ashwoods wanted to explore,
Furthermore, the Delft region is located in an area of the
were useful. Moreover, the UKTI organises road shows and
Netherlands that houses the largest sum of invested capital
network events that help to generate exposure for
beneath sea level in the country. Investments in dikes and
Ashwoods’ innovation.
related infrastructure are therefore significant. This therefore
forms one of the company’s lead markets. AlertSolutions mainly makes use of the network of third
parties to gain access to international markets. The company
4.7. Challenges and drivers with was recently invited by another Dutch firm, to participate in
regards to the workforce a project in China. Moreover, AlertSolutions also gained
access to the German market via the invitation of a large
Having access to a highly skilled and specialised workforce is Dutch firm conducting a project there. Finally, the UK market
considered to be crucial by most of the interviewed was accessed through a European programme for
companies. The degree to which monitoring.
“It has at times been
they find it difficult to attract and
challenging to attract the To really establish a foothold in international markets like
retain such a workforce varies
necessary electro-technical the USA, AlertSolutions needs to have a local subsidiary with
among the companies.
expertise. In general, it is a full-time sales representative. The company currently lacks
increasingly more difficult to the funds to finance such an operation.
Ashwoods has not encountered
attract engineers, as fewer
any obstacles with regards to the
students pursue a degree in PHOTONIS showcases the potential for internationalisation
availability of an educated
this field these days.” – KEMA through public procurement. In specific cases, having e.g. the
workforce. The company is already
working together with the universities of Bath and Bristol for Ministry of Defence as a launching customer has allowed
doing research. Moreover, there are several government them to gain better access to international markets. This can
initiatives aimed at educating the next generation of be attributed to the ability to make use of the public
automotive engineers. institution’s network, gain direct market access to new
markets and have a showcase for their innovative solution.
AlertSolutions is currently employing 2 full-time For PHOTONIS this has been particularly helpful, allowing
employees. At the peak of development the company them to access new niche markets and gain access to new
generated enough work for 5 FTEs. After the development partners in in the United States.
stage, the company had to let go 3 of its full-time
employees.

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Public Private Partnerships

4.9. Tendering procedures can form a their IP. Moreover, they did not have to draft the
administrative documents, which companies sometimes
barrier for public procurement perceive as being resource intensive. The direct approach
therefore has had significant advantages for PHOTONIS, but
Increasingly more cases can be identified by the companies
other companies that are particularly concerned about IP
in which the procurement of innovation is facilitated through
face similar trade-offs.
official tendering procedures. While tendering procedures
open up transparency of the opportunities to many of these AlertSolutions also faced a number of difficulties in
companies, they sometimes also impose barriers.
participating in tenders. Being an SME, they are faced with
very specific barriers as well. As they have limited resources,
For PHOTONIS, finding a launching customer in the Ministry
they continuously need to balance between bringing their
of Defence can be characterised by a more relationship-
innovation a step further or by drafting a proposal.
based approach. There was no formal tendering procedure
that led to the contract. This had a number of clear Moreover, as an SME they need to involve other partners,
advantages to the company. Firstly, as Photonics produces which can be challenging as well. This poses additional
highly technical components, it is sometimes difficult to fully difficulties, as not only do they have to draft a text for the
explain the concept in a tendering procedure. Secondly, a proposal, but also negotiate on their position in the final
tender document and possible agreement often requires contract. Furthermore, in their experience some of the larger
companies to disclose sensitive company information. contractors are often focused on coming up with the
Moreover, they typically require a consortium of partners. As
cheapest solution that just meets the tender requirements.
PHOTONIS is highly conscious of the information they want These solutions, however, not necessarily result in the most
to share with their potential competitors, this poses a desirable project outcomes, but are favoured in the review
substantial risk to them. Finally, consortia agreements
process due to the competition on price. This leaves less
typically require you to share the resulting Intellectual room for small innovative companies like AlertSolutions to
Property (IP). In light of that, it could be more attractive to participate in tenders, as such companies often offer
develop a solution privately. relatively expensive high value added solutions that possibly
exceed the tender requirements.
Through direct public procurement, different conditions may
apply. In the case of PHOTONIS, there was no need to share

5. Policy recommendations
Public procurement of innovation can benefit European Case companies see the need for strict assessment and
companies as well as the EU economy and labour market, as monitoring of public procurement programmes, as it involves
the development and management of innovative tax payers’ money. There is, however, also a need for a less
technologies and processes requires highly skilled workers in burdensome administrative procedure. An approach that
a multitude of fields. However, CEOs of innovating would fulfil both needs would be desirable.
companies have named several obstacles that could be
addressed by government policy. The upfront investment for participating in a public tender is
significant, especially for smaller companies. These costs,
amongst others, consist of substantial administrative
5.1. Policy gap analysis requirements related to submitting a proposal. The chances
Concerning the development programmes that focus on of actually winning a public procurement tender are,
public procurement of innovation, there is a lot of however, relatively slim. This might discourage start-ups and
encouragement yet to be offered by public policy in Europe. SMEs to make use of public procurement programmes.
Gaps in policy are noted in assessment and monitoring of
Measures that help to lower labour cost, particularly of R&D
public procurement programmes; discouraging upfront
personnel, are considered to be highly beneficial. In several
investments for participating in public tender and calls that
EU member states, however, existing measures are not
are often broadly defined; the extent to which they offer
providing sufficient support. For instance the Dutch WBSO
companies the opportunity to test their innovation in a real
(law on support for R&D activities) helps to alleviate the
world context; and the difference in difficulty of acquiring
burden of R&D related personnel costs for companies, but
public support for incremental innovation as compared to
does not provide enough support to hire additional
radical innovation.
employees.

Public Procurement of Innovation 14

Public Private Partnerships

For public procurement through research funding commercial parties for meeting those needs, using a hybrid
programmes like FP7, it is beneficial for smaller companies procurement programme.
to have narrowly defined calls for proposals. A broadly
defined call for proposals usually results in a high number of Policy measures aimed at the commercial demand-side of
contenders, while it decreases the chance of precisely innovation would be beneficial to reduce perceived return
addressing call requirements. This demotivates participation on investment for companies and consumers. These
of smaller companies to such programmes, because the measures could take the form of public funding matching
upfront investments outweigh the slim chances of winning a the investments of commercial parties in innovative green or
tender. Smaller companies do not have the resources to safety enhancing technology. Other measures could be tax
spread their efforts across several calls. breaks or exemptions for companies and consumers
investing in these innovations.
A clear difference in procurement procedures that case
companies participated in is the degree to which they Another beneficial policy measure that is already deployed
offered the company to test their innovation in a real world by public research institutes, in for instance the Netherlands,
context. Companies that were offered this opportunity, like is the combination of funding and free-of-charge R&D hours
Ashwoods, indicate that this significantly helped them to and knowledge. TNO, a public research institute in the
proof their concept and generate market exposure. Netherlands, offers companies the possibility to further
Companies lacking this aspect in the public procurement develop one of the institute’s ideas or technologies.
programme indicate that, although they were able to Companies are not only supported with funding, but also
develop the innovation, they lacked the support to swiftly with a number of free research hours they can use for
access the market. It takes these companies significantly having the institute’s staff conduct R&D activities.
more time to acquire the required seed capital to
commercialise the innovation, and find a launch customer to Another policy recommendation entails the use of an Envy
conduct real-world tests. scoring mechanism for public procurement programmes,
which provides better opportunities for small innovative
Finally, it is significantly easier to acquire public support for firms. Conventional tender scores often have a strong price
incremental innovation compared to radical innovation. It is component, which dilutes some of the effectiveness of
hard for smaller parties to close the valley of death without scoring high on aspects such as innovation, creativity and
government support. To get from technology development to quality. An Envy scoring mechanism, however, allows high
commercialisation requires substantial funds, while at the quality and innovative proposals a deduction in price, making
same time potential for quick returns on investment are them more competitive in a tendering procedure. This could
relatively low. Private parties might therefore be hesitant to stimulate the number of high quality proposals that are
invest, making public procurement of these innovations key. submitted, further streamlining the process.
Public procurement measures specifically aimed at closing
this valley of death for radical innovations would be Small innovative firms often participate in tender procedures
beneficial. as subcontractors to large contractors. These contractors are
often focused on coming up with the cheapest solution that
meets all tender requirements, which might not necessarily
5.2. Policy recommendations result in the most desirable project outcomes for society and
thus governments. Moreover, this leaves no room for small
European governments can address these policy gaps by
innovative companies to participate, as these often offer
introducing a hybrid version of funding development and as
relatively expensive high value added solutions, possibly
well as procurement of innovation, by co-procuring with
exceeding tender requirements. Policy makers could make a
private sector actors, by combining procurement with free
clear distinction between products and services that can be
access to university R&D hours and knowledge, by
procured solely based on price, and those for which
introducing an Envy scoring mechanism for public
increased quality and innovative solutions are desirable.
procurement programmes, by cutting up tender procedures
Moreover, by cutting up the tender procedure in several
in several (smaller) separate assignments, and by using
separate assignments, smaller companies are less
specific methods that can encourage or force tenderees to
dependent on large contractors for participating in public
adopt certain innovations or technologies.
procurement programmes.
Currently, government initiatives are mainly aimed at
A novel tendering approach that is applied by policy makers
funding either the development of an innovation or the
in for instance the USA is a two stage process. In the first
procurement of one. Interviewees indicate that a hybrid
stage, tenderees have to submit the best possible solution to
version of both types of funding would be highly beneficial.
a certain problem. The tenderer selects the proposal that
Such a programme would provide funding for the
offers the most desirable result. In the second stage,
development of an innovation that has a guaranteed market.
tenderees have to submit a price against which they are
Governments could identify public needs and contract
willing to execute the selected proposal. Such a procurement

Public Procurement of Innovation 15

Public Private Partnerships

procedure does not only result in more valuable outcomes, result related requirements, and could put more emphasis on
but also leaves room for the contribution of small and the use of certain methods or processes. This would be
innovative firms. beneficial for smaller companies, which often only
participate in tender procedures as a subcontractor to a
Finally, there is another measure that could support the bigger party, as the main contractor would be obliged to
adoption of innovative approaches in tender proposals, and adopt input from innovative companies in its proposal.
its execution. Tender specifications could be less oriented on

Public Procurement of Innovation 16

Public Private Partnerships

6. Appendix
6.1. Interviews
Company Interviewee Position
AlertSolutions Pepijn van der Vliet CEO/founder
Ashwoods Mark Roberts Managing director
KEMA Theo Bosma Department Manager New Energy Technologies Department
PHOTONIS Fred Lalkens Programme Director

6.2. Websites
AlertSolutions http://www.alertsolutions.nl/
Ashwoods http://www.ashwoods.org/
KEMA http://www.dnvkema.com/nl/Default.aspx
PHOTONIS http://www.PHOTONIS.com/en/

6.3. References
1
Document on the Innovation Union. Accessed on 28-6, at: http://ec.europa.eu/research/innovation-union/pdf/erac-report-
2012.pdf#view=fit&pagemode=none
2
Document on the Innovation Union. Accessed on 28-6, at:
https://www.escholar.manchester.ac.uk/api/datastream?publicationPid=uk-ac-man-scw:145258&datastreamId=POST-
PEER-REVIEW-NON-PUBLISHERS.PDF
3
Document on the Innovation Union. Accessed on 28-6, at: http://ec.europa.eu/research/innovation-union/pdf/erac-report-
2012.pdf#view=fit&pagemode=none
4
Document on the public procurement of innovation. Accessed on 28-6, at:
https://www.escholar.manchester.ac.uk/api/datastream?publicationPid=uk-ac-man-scw:145258&datastreamId=POST-
PEER-REVIEW-NON-PUBLISHERS.PDF
5
Document on the public procurement of innovation. Accessed on 28-6, at:
https://www.escholar.manchester.ac.uk/api/datastream?publicationPid=uk-ac-man-scw:145258&datastreamId=POST-
PEER-REVIEW-NON-PUBLISHERS.PDF
6
Document on the public procurement of innovation. Accessed on 28-6, at:
https://www.escholar.manchester.ac.uk/api/datastream?publicationPid=uk-ac-man-scw:145258&datastreamId=POST-
PEER-REVIEW-NON-PUBLISHERS.PDF
7
Document on the Innovation Union. Accessed on 28-6, at:
http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=7011
8
Document on the Innovation Union. Accessed on 28-6, at: http://ec.europa.eu/research/innovation-union/pdf/erac-report-
2012.pdf#view=fit&pagemode=none
9
Document on the Innovation Union. Accessed on 28-6, at: http://ec.europa.eu/research/innovation-union/pdf/erac-report-
2012.pdf#view=fit&pagemode=none
10
Document on the Innovation Union. Accessed on 28-6, at: http://ec.europa.eu/research/innovation-union/pdf/erac-report-
2012.pdf#view=fit&pagemode=none
11
Document on the Innovation Union. Accessed on 28-6, at: http://ec.europa.eu/research/innovation-union/pdf/state-of-the-
union/2012/state_of_the_innovation_union_report_2012.pdf#view=fit&pagemode=none
12
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