Policy instruments for public procurement of innovation: Choice, design and assessment

TLDR

Public procurement is increasingly viewed as a key innovation policy instrument, yet its design is largely anecdotal and lacks a clear theoretical or empirical basis for how it influences firms’ innovation capabilities and outcomes. This paper seeks to establish the theoretical foundation of innovation procurement policy. The authors develop a broad taxonomy of procurement policies and instruments from OECD countries and compare it with UK firms’ perceptions via a survey of 800 public sector suppliers. Survey results show that policy measures—such as creating framework conditions, establishing organisational frameworks, developing capabilities, specifying needs, and incentivising innovation—align with firms’ barriers but fail to fully address them due to limited coverage, purchaser ownership, incomplete acquisition cycles, and risk aversion, indicating a need to extend policy scope in time, breadth, and depth.

Abstract

Public procurement is increasingly seen as an important potential instrument of innovation policy. However, policy design has been underpinned largely by anecdotal evidence and without a clear theoretical or empirical basis for understanding how supplying to the public sector actually influences a firm's innovation capabilities and performance and in what ways desirable behaviour and outcomes can be promoted. This paper seeks to address the basis of innovation procurement policy. It establishes a broad taxonomy of procurement policies and instruments that have emerged in OECD countries in response to perceived deficiencies and then compares these with the perceptions of firms using an analysis of a dedicated survey of 800 public sector suppliers in the UK. It is observed that policy measures include the creation of framework conditions, establishing organisational frameworks and developing capabilities, identifying, specifying and signalling needs, and incentivising innovative solutions. The survey findings confirm that the barriers encountered by firms correspond to the deficiencies addressed by policies but do not address them sufficiently. This arises from lack of coverage, lack of ownership by purchasers, failure to address the whole cycle of acquisition and to address risk aversion. The scope of policy measures needs to be extended in time, breadth of reach and depth.