A lost opportunity: how the public sector could grow the economy by promoting innovation

19 Mar 2015 Nick Garbutt    Last updated: 7 Jul 2015

The public sector currently spends £2.7 billion a year. Scope examines how this massive spending power could be used to grow the economy and produce better services

Northern Ireland is so heavily dominated by the public sector that our future prosperity is dependent upon the extent to which it promotes growth and innovation.

Given the massive spending power of public bodies (£2.7 billion per annum) there is enormous potential for them to stimulate the economy by rewarding innovation: ie awarding contracts to organisations that can provide superior solutions to their problems, thus providing better value for money for taxpayers and helping organisations to grow, flourish and expand into new markets.

Research commissioned by NICVA suggests that that opportunity is currently being lost

All those with experience of tendering for public contracts know how the process usually works. An invitation to tender is issued which defines the product or service required and specifies how tenders will be evaluated, these days cheapness is a very big factor. Those who compete for it then spend hours filling out the forms and making sure all the boxes are ticked. It is a restrictive process and there are seldom any marks for suggesting a different, better way to achieve the stated aim. Then the public body together with government procurement specialists will mark the tenders, add up the scores and award the contract. It is a rigorous process and nobody is saying that it is not fair in its way, but does it promote innovation?

How it should work

NICVA’s survey, carried out by Envision suggests no.

How the system could and should work is laid out in a Westminster document from the Office of Government Commerce It argues that when contracts come to an end public bodies should be looking to see if there are innovative ways to deliver a better service. It should also be constantly seeking solutions to longer term problems, in healthcare and IT, for example.

In England a number of bodies are adopting this approach. For example the NHS National Innovation Centre (NIC) have a website and portal to attract and evaluate clinical innovations and then nurture the most promising ones and in tandem the NHS Rapid Review Panel assesses new equipment, materials and other products of potential value in improving hospital cleanliness, hygiene and infection control.

So there are two key steps that public bodies can take: defining short term problems and needs and inviting suppliers to suggest the best solutions before putting out a tender and in solving longer term problems working with suppliers to help develop potential solutions.

An example of this approach comes from the British Prison Service. It buys around 40,000 mattresses a year for prison cells but also has to dispose of 40,000 because of what it describes as “soiling and misuse”. This costs the service £3 million.

It is appealing for organisations to come up re-cyclable mattresses ultimately reducing costs and eliminating waste. Clearly the winner of this contest will have developed a cutting edge new mattress with enormous market potential thanks to the Prison Service calling for innovation rather than carrying on doing what it always has done.

Little progress

So how is Northern Ireland faring? The good news is that documents promoting innovation in procurement have been placed on the Department of Finance website and there is no question that there is a determination in government to change and to promote innovation and also some individual examples where this has worked. Finance Minister Simon Hamilton is determined to drive this forward, believing that spending cuts will make it imperative to find better ways of doing things.

But NICVA’s research finds little evidence of this new approach being put more widely into practice. Chief executive Seamus McAleavey said: “To be more effective requires innovative ways of providing services and of approaching social and economic problems. Yet voluntary and community groups are strongly of the opinion that their ability to deliver services and address social and economic need in innovative ways is not being fully realised by public procurement practices - ultimately to the detriment of the citizens who fund and use public services.”

The Key Findings of the Report were as follows:

  1. While there are a number of successful initiatives in Northern Ireland which encourage innovation, the procurement processes available under the EU Procurement Directive, which can facilitate the procurement of innovative products and services, are not widely used by Northern Ireland public sector bodies.
  2. These can be lengthy and costly processes and there is the perception within the public sector that these processes carry a higher risk of legal challenge from suppliers than the standard procurement procedures.
  3. The public sector buyers interviewed experience a number of barriers to procuring innovative products and services. The most critical is the risk of legal challenge by a supplier and the financial and professional implications of this. This threat has largely led to public sector buyers choosing more structured procurement procedures and setting restrictive tender specifications, which in turn limit a supplier’s ability to offer more innovative products and services.
  4. The supplier base are committed to offering innovative products and services to the public sector but they too are experiencing barriers. The most critical barriers faced by suppliers are restrictive tender specifications and the lack of pre-procurement engagement with buyers.

Legal action

The report also concludes that there is no real demand for innovation from the public sector, a lack of discussion with potential suppliers before work is put out to tender and all too often a general lack of knowledge and experience in the public sector of the work that is being procured.

Over and above this hangs the spectre of legal challenge. The more restricted a tender process is, the less likely it is for iunsuccesful rtenderers to take legal action. There does appear to be a claims culture in Northern Ireland and this fear of litigation makes the public sector less open to new ways of doing things.

All these problems can and should be fixed: innovation in the public sector can be rewarded; training can be given to improve public servants knowledge of the sectors they are working with, processes can be put in place to lessen legal and financial risks. There’s a lot at stake here. But if that £2.7 billion annual spend was used to help promote innovation there is so much to gain, for the private sector, the voluntary and community sector, and for every citizen in Northern Ireland.

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