Forward Commitment Procurement Know How Programme Part 4 Procurement KHP 4: Supporting Innovation In The Procurement Phase These materials remain the property of BIS. They constitute part of a ‘learning by doing’ programme and are unsuitable for stand alone use. They must not be used or passed to other individuals or organisations without the express and written permission of BIS

Forward Commitment Procurement KHP 4: Contents Stage 3 of the FCP Process: Procurement By the end of this section you will be able to describe ways in which you can support and promote innovation during the procurement phase of an FCP project Activities and resources Work through the key points Complete the review exercises and submit the worksheet Review and coaching session

FCP Process Overview This section concerns the final procurement phase of an FCP project. Establish outcome based requirement Could FCP help deliver a solution? Recognise problems and unmet needs Market sounding Market sounding review Procurement strategy and specification Implement procurement strategy Purchase goods or services IdentificationMarket EngagementProcurement FCP Process Stage 1 Market consultation FCP Process Stage 2 FCP Process Stage 3 Establish outcome based requirement Could FCP help deliver a solution? Recognise problems and unmet needs Could FCP help deliver a solution? Recognise problems and unmet needs Could FCP help deliver a solution? Recognise problems and unmet needs Establish outcome based requirement Could FCP help deliver a solution? Recognise problems and unmet needs Establish outcome based requirement Could FCP help deliver a solution? Recognise problems and unmet needs Establish outcome based requirement Could FCP help deliver a solution? Recognise problems and unmet needs Establish outcome based requirement FCP Process Stage 1 Could FCP help deliver a solution? Recognise problems and unmet needs Establish outcome based requirement Outcome s

Procurement Phase Creating the market conditions to support innovation This is the final phase of an FCP project – buying a solution. We will make some suggestions specific to the FCP procedure and procurement of innovation and provide some examples. As with any public sector procurement process your FCP project will be governed by public sector procurement regulations. The market engagement phase will have given you access to a wealth of information about the appetite and capacity of the market to respond to meet your unmet needs. You will also have an understanding of the options available and how you can support the supply chain to deliver what you need. The next step is to develop a pro-innovation procurement strategy –Using the feedback from the consultation process, the procurement strategy sets out how you can carry out your procurement in a way that supports delivery of an optimal solution. –It provides a valuable reference point for the project team and makes sure everyone is entering the procurement process with the same objectives.

Procurement Phase Developing a procurement strategy to support innovation The procurement strategy will largely be informed and influenced by the feedback from the supply chain. It sets out and justifies the procurement approach that: –is best suited to the state of the market and –is most likely to achieve the desired outcomes, best value, and pull forward innovative solutions. Developing and agreeing a procurement strategy within the FCP Project Team is an opportunity to reflect on the market consultation and reassess your outcome based requirements in the light of the market response. It also provides an opportunity to identify and address any risks, issues and concerns that may have arisen. It provides an important reference point for all those involved in the forthcoming dialogues and evaluation of bids. If the procurement strategy is well developed and clearly set this out, it will provide an effective management tool

Procurement Phase Procurement Strategy Typically the procurement strategy covers: –The purpose and objectives of the procurement strategy. –A summary of pre-procurement activities and their findings: Market sounding and consultation. Meetings with potential suppliers. Base line studies and research. Consultation with internal stakeholders. –Revised statement of unmet needs and requirement. –Procurement procedure, approach and rationale. –Risks and issues identified and how they will be managed. –Management and resourcing of the procurement and roles of key staff members. –Procurement process and schedule. –Evaluation process and criteria. The procurement strategy will be an internal, confidential document and should be signed off by senior management.

Procurement Phase Procurement Strategy Here are a few procurement strategies that are commonly used in FCP projects: –Use of an outcome based specification. –Procurement of a whole life and / or fully managed service. –Use of the competitive dialogue procedure. –Requiring provision for future proofing in the service. –Use of Forward Commitment agreements and contracts. –Proactively creating routes to a wider market for goods or service. –Advertising the contract as a ‘public contract’ or framework. –Incorporating trails and demonstrations within the procurement process. –Being a demanding customer and maintaining ambitions. –Setting progressive targets. –Respecting the need of a supplier to make a profit to stay in business. –Rewarding innovation and improvements in performance, efficiency etc. –Use of contractual incentives.

Procurement Phase Procurement Strategy Before signing off, check that the procurement strategy has covered all angles: –Are all the stakeholders identified and on board? –Is there a budget in place? –Are roles and responsibilities clearly defined? –Have you updated the supply chain on your plans? –Are the risks being managed? –Are there any skill development or training gaps that need to be filled? (for example in competitive dialogue) –Do your need technical support or advice? –Are you likely to need funding for demonstrations, or to support first phase deployment? Once the strategy is in place and agreed the process of implementation should be relatively straightforward.

Procurement Phase Stimulate wider market demand At this stage of the process it is a good idea to increase your efforts to generate evidence of wider demand for the solution you are seeking. This helps suppliers to help you. Although public sector needs are often scalable – an implicit scaling up of demand as what one hospital, school or local authority needs suppliers can expect that other would too. Suppliers are more likely to invest to come up with a solution and engage in an often costly procurement process if they can see evidence of this wider demand. Colleagues on the project board will have ideas on who to approach via their professional networks.

Procurement Phase Keep the supply chain informed and engaged Keeping the supply chain informed and engaged is a job that is easily forgotten at this stage as you are preoccupied with setting up the procurement process. It can therefore seem to a supplier as if everything has gone very quiet and they may think that the process has been a waste of time. It is therefore important to keep communicating with the supply chain to let them know what is happening and give them indicative timeframes for the start of the procurement process. For example, you could make available a public version of the procurement strategy, giving advance notice of the core requirement, the procurement process that will be followed, how the notification will be advertised and anticipated timeframes. –This gives suppliers time to prepare, for example by finding out more about the competitive dialogue process, seek out key supply chain members and build consortia.

Procurement Phase Using Competitive Dialogue The UK Regulations which implement the EU public procurement directives are often quoted as a barrier to innovation. This is misleading. –The regulations allow for the use of outcome or output-based specifications and variants, which can encourage innovative solutions. –The competitive dialogue procedure provides considerable scope for client / supplier dialogue. Competitive Dialogue allows a progressive discussion with suppliers and innovators to determine how their solution meets the need expressed and an opportunity to explore ways in which the needs can be met before best and final offers are invited

Procurement Phase Using Competitive Dialogue FCP recommends the use of competitive dialogue procedure in most cases. Design competitions can also be an effective way to stimulate and procure innovative solutions. There are however several advantages of using this procedure for FCP projects. –It allows you to specify the outcomes you need to deliver without specifying the means of delivering them. –This allows scope for suppliers to bring forward innovative solutions and an opportunity to distinguish their products and services on factors other than price alone. However, following the competitive dialogue procedure requires significant preparation, planning and effort by the contracting authority. The advantage of marketing sounding and consultation in advance is that it helps to simplify and streamline the dialogue with suppliers.

Procurement Phase Supporting Innovation OJEU Contract Notice –A cornerstone of FCP is to provide a visible and credible demand for innovative goods and services that is sufficient to stimulate the supply chain to invest to deliver a solution. This remains important at this stage. –Demonstrate credibility and commitment, use of outcome based specifications, pushing boundaries, progressive improvement, being a demanding procurer and referencing support for innovation.

Procurement Phase Supporting Innovation Cost and value for money –Value for money should not be seen as a barrier to innovative solutions. –Procurement decisions should not be made based on lowest cost but on value for money (VFM). –VFM is about the optimum combination of whole life costs and quality to meet the user requirement. –At the start of procurement, the requirements specification can reflect the need for innovative solutions, subject to normal rules on cost effectiveness of public expenditure. At the award stage, the value accruing from innovative aspects of the bid can also be relevant to the evaluation of ‘whole life cost and quality’. Award Criteria –The best value for money can come from an innovative solution. Sometimes innovative offers can look more expensive or less advantageous in the short term, but will be a better offer in the long term. –Taking these long-term effects into account is possible within the legal framework through, for example, long-term cost calculations or life-cycle cost approaches. –Although not listed in the Regulations, criteria involving innovative solutions may be used to determine the most economically advantageous tender, where they provide an economic advantage for the contracting authority which is linked to the product or service which is the subject matter of the contract.

Procurement Phase Forward Commitment? Forward Commitment –The word ‘commitment’ often causes concern among procurers. However, it is often the case that by the time you have been engaged with the supply chain in a credible way over the course of many months your commitment has been sufficiently demonstrated and competition stimulated. –Based on the market engagement phase you should now have a clear view on the level, type and duration of any forward commitment needed to deliver the outcomes you are looking for. –At the end of this process a formal, or contractual forward commitment may or may not be needed. –In other cases you can use more formal but legally non binding indications of your commitment. –In many cases the process itself has served as sufficient ‘forward commitment’ and the market engagement phase will in many cases have provided sufficient to the market by providing the necessary ‘credible articulated demand’.

FCP Know How Programme Closing Message In a time of rapid change and escalating challenges the public sector needs new solutions and innovation to deliver, what is needed in a cost effective way. If we are to stimulate and bring these innovations to the market will need to take responsibility and be proactive managers of supply chains. This not only means changes in way specifications are written and procurement is planned and managed; it means that procurement professionals, operational staff and policy leads will need to work together to identify and address unmet needs. Similarly we will need to make the most of investment opportunities and equip buildings and services for the future. FCP provides a focus and a mechanism to do this. Innovation matters because it can deliver better products and services, new, cleaner and more efficient production processes and improved business models. You have now reached the end of the FCP KHP programme which, together with you demonstration project we hope has been an interesting and valuable learning experience.