​Innovation-oriented procurement means that contracting authorities purchase better, more efficient and/or sustainable(er) solutions, whether or not in collaboration with market parties. This does not therefore concern the tendering procedure used, but the delivery, service, work or process to be purchased.

The competitive dialogue and the competitive procedure with negotiations are the best-known procedures for innovation-oriented procurement. But: innovation-oriented procurement is in principle possible with any tendering procedure, both below and above the European threshold values. When it comes to purchasing ‘innovation’, contracting authorities can also apply the innovation partnership procedure, whereby the contracting authority first goes through a research and development phase in collaboration with one or more market parties.

The innovation partnership is a form of cooperation derived from the European innovation partnership tender procedure, in which the contracting authority goes through a tender procedure to contract a market party as an ‘innovation partner’. The parties then jointly go through a so-called research & development phase, after which the contracting authority – without a new tendering procedure – can purchase this solution.

The procedure for an innovation partnership is a relatively new type of procurement introduced by Directives 2014/24/EU and 2014/25/EU of the European Parliament. While it has been around in legislation for some time, in practice, this procurement procedure is gradually starting to emerge as the concept for flexible and solution-oriented procurement. Innovation partnerships offer a wide range of options that help procedures to move forward in practice.

In an innovation partnership, a contracting authority goes through a procurement procedure to contract one or more economic operators – at the authority’s discretion – as innovation partners. The contracting authority then goes through a research and development process with the innovation partner(s), after which the contracting authority can purchase the developed (innovative or greatly improved) products, services or works.

Whereas previously a separate procurement procedure was required to purchase a solution that had already been developed, that is not necessary for innovation partnerships. The contracting authority and the economic operator work together as innovation partners to research and develop a solution, after which the contracting authority may purchase it from the economic operator.

In accordance with the procurement directives and domestic implementation set out in the Dutch Public Procurement Act (in Dutch: Aanbestedingswet), this procedure may be applied if:

there is a need for ‘innovative products, services or works’; and ‘this need cannot be met by purchasing products, services or works already available on the market’. According to the procurement directives, the definition of ‘innovation’ means ‘the implementation of a new or significantly improved product, service or process, including but not limited to production, building or construction processes, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations inter alia with the purpose of helping to solve societal challenges or to support the Europe 2020 strategy for smart, sustainable and inclusive growth’.

In other words, the innovation partnership concept may be applied if a contracting authority needs a new or significantly improved product, service or process and the current market is unable to provide it. So, following on from the European Commission, a relatively broad definition of the term ‘innovation’ is applied here.

A contracting authority may conclude that the current market does not meet its needs after a sufficiently comprehensive market survey. The lengths to which a contracting authority must go depends on the product, service or work that it requires. This may range from a survey in a few Member States to a global market analysis, as is the case for specialist medical equipment, for instance.

We also recommend holding market consultations to get input from key market players on the proposed issue and method of tendering. By doing so, concerns that potential tenderers may have can immediately be taken into account in the preliminary research.

Once it has been prepared, the innovation partnership procurement procedure consists of three parts:

1. the selection phase and/or competitive phase;
2. the research and development phase; and
3. the purchase phase.

During the initial phase, the contracting authority goes through a procurement procedure that is similar to the procedural rules for a competitive tendering procedure that includes negotiations. In the process, the contracting authority negotiates with tenderers on the initial and follow-up tenders so that tenderers can improve their tender before the final submission. The parties do not negotiate about the minimum requirements and the award criteria. The tenderer or tenderers that are finally awarded the contract are contracted as the contracting authority’s ‘innovation partner(s)’.

In the research and development phase, the contracting authority and innovation partner(s) implement the contract, while following the phases in the research and innovation process. As Section 2.126d of the Public Procurement Act indicates, this could involve the manufacture of goods, the provision of services or the completion of works. During this phase of the innovation partnership, the targets to be reached in the interim and the associated fees are set. Here we have in mind the setting of milestones in, for instance, the development of a product or service, as well as stages in the progress of work.

If the innovative solution that has been developed meets the agreed performance level and stays within the stipulated budget, the contracting authority may decide to purchase the developed innovative solution from the innovation partner(s) at the end of the research and development phase. This is when the so-called purchase phase begins. The contracting authority has the innovative solution it is looking for, the innovation partner(s) have a commercial customer and investment for the future.

The duration of an innovation partnership depends on the problem and its solution. For instance, one issue may require more negotiation in the award phase of the tender than another issue or problem. Conversely, it is not possible for the law to lay down the length of the research and development phase in advance either: it all depends on the parties, the subject of the tender and the intended solution. Therefore, apart from standard minimum deadlines for tenders, the laws and regulations do not impose any other requirements on the deadlines. In practice, it concerns long-term partnerships, where the selection phase is in any event labour intensive, and the relationship resembles a collaboration rather than a traditional client-contractor relationship.

Section 2.126b (6) of the Public Procurement Act provides that the contracting authority must include the rules applicable to intellectual property rights in the tender documents.

Intellectual property law provides for many options and, depending on the contracting authority’s investments, on the one hand, and those of the innovation partner on the other, a proportional decision should be made here. It goes without saying that potential tenderers may also be asked for their views on this when consulting the market, and whether they already have certain preferences. These can then be taken into consideration when inviting tenders.

There are various reasons to opt for an innovation partnership:

1. Selection in the interests of contracting authorities and economic operators

Economic operators are encouraged to invest time and money in innovation because the contracting authority co-invests in the research and development phase, and it can then purchase the solution developed from this innovation partner during the procurement phase without having to invite tenders. As a result, economic operators face less risk when investing in innovation and have the security of a sales market and investment going forward.

Contracting authorities work together with innovation partners and therefore have significant influence on the research and development phase. If the development phase is successful, contracting authorities will then get the customised solutions they need and will not have to invite tenders again for these solutions.

2. Flexibility in every phase

All phases of the innovation partnership can be worked out in greater detail depending on the intended solution: including the requirements to be set in each phase, the number of innovation partners, as well as the design and duration of the process as a whole. The Public Procurement Act provides for some procedural requirements that must be taken into account, but there are relatively few of them. These regulations also offer sufficient leeway for flexibility.

Here are some examples:

• the contracting authority determines the criteria for selecting economic operators, after which negotiations take place;
• this may concern one round of negotiations, but there may also be several written rounds and negotiations;
• at any rate, the competitive phase offers plenty of leeway for consultations and interaction;
• the duration of the research and development phase depends on the problem and the offered solution. The same applies to the procurement phase;
• the contracting authority determines in advance how it will deal with pertinent intellectual property rights;

the contracting authority determines the rules and can therefore determine how the collaboration will be structured during the various phases.

Although innovation partnerships have advantages, they also have some downsides:

1. Unknown is unloved|

The procurement procedure for an innovation partnership is not a traditional procurement procedure. This creates room for flexibility, but that can have its disadvantages.

The flexibility of the procedure means that contracting authorities cannot follow a predefined path. Instead, they have to consider carefully for themselves exactly how they want to structure the procedure. Innovation partnerships involve long-term and intensive collaboration with economic operators. To avoid problems, contracting authorities must give due consideration beforehand to the way the partnership is set up.

Potential tenderers may be reluctant to participate simply because they are unfamiliar with the procedure and it does not have a fixed structure. The pool of tenderers may be limited as a consequence.

2. Frontrunners bear the risk

Is it true that contracting authorities that opt for innovation have an advantage over other contracting authorities because innovation partnerships are less familiar territory and therefore riskier and more expensive? This is not necessarily the case. It is imperative that those involved demonstrate their commitment in terms of the content and process, and accept that – especially the first time – setting up the procedure will be time consuming.

For the rest, research and development is a costly process and there is no guarantee that it will be successful. The innovation partnership may then come to an end before the investment has been able to pay for itself: a risk inherent in innovation.

If it concerns complex contracts, contracting authorities may follow a competitive dialogue procedure. The aim of this tendering procedure is to find a solution or solutions that meet the needs of the tenderer through dialogue. Selected candidates are then invited to submit a tender based on these solutions. Competitive dialogue is therefore widely used for large-scale integrated infrastructure projects, large computer networks, projects with complex and structured financing, etc. There is a demand requirement, an economic operator tenders with a solution and the contracting authority procures this solution with the final award.

The concept of an innovation partnership was introduced to promote innovation and this type of partnership can be applied in fewer cases than competitive dialogue can. For innovation partnerships, the contracting authority enters into a collaboration with one or more economic operators for the development and subsequent procurement of solutions that either do not yet exist or need significant improvement.

In Europe, the Netherlands is part of a group of high-performing countries when it comes to the implementation of policy measures that contribute to integrating innovation partnerships into practice.