19 Dec 2007   |   News

Commission takes another tilt at lead markets windmill

Using Europe’s €1,700 billion annual public procurement budget to stimulate innovation is an idea whose time is coming – slowly.

Using Europe’s €1,700 billion annual public procurement budget to stimulate innovation is an idea whose time is coming – slowly. The latest move in the long-running discussion comes in a Commission document that examines the concept of “pre-commercial procurement”.

This is defined as the stage when basic research gives rise to an idea for a product or service, its design, the building of prototypes and creating the first test products. The document also refers to this as the “R&D phase before commercialisation”, while “proof of concept” is a label that has more currency, particularly in life sciences.

But however it is described, the Commission says that currently less than Euro 3 billion of the €1,700 billion procurement budget is spent on this phase of commercialisation.

Launching the document, Viviane Reding, Commissioner for Information Society and Media, said, “Europe's public sector has massive buying power, but until now it has not found a clear way to strongly link mid to long term public purchasing needs with research and development programmes.”

“Only with a more pro-active, pro-innovative use of public spending will Europe be able to equip itself to meet structural challenges such as an ageing population and the transition to a low carbon economy.”

The competition conundrum

It’s not hard to spot that spending public money at this end of the innovation cycle could be construed as state aid to promote national champions. The document says the way to steer round this possibility is to ensure pre-commercial procurement is a competitive process, “enabling the public purchaser to identify the best possible solutions the market can offer”.

It says one way to do this is to introduce cross-border cooperation, something that is rarely a feature of public purchasing.

Pre-competitive procurement is also to be strictly ring-fenced from other public spurs to innovation, such as grants, tax incentives, access to finance and joint technology initiatives.

The overall aim is to use public sector purchasing to drive the development of lead markets, simultaneously improving the quality and efficiency of Europe’s public services, whilst fostering the development of high technology markets.

To achieve this, the public sector must develop procurement strategies that look beyond buying commercially available products and services, to include “the procurement of R&D of new solutions that can outperform those available on the market”.

It is central to the model that project results and intellectual property results are shared. “The exclusive assignment of rights to the public purchaser takes away the incentive for companies to invest further in commercialisation,” says the document. Indeed, exclusive development rights would not only grab any benefits, but also leave the public sector saddled with all the risks.

The Commission says it want to launch a debate on the concept, on the basis of which it will set out concrete proposals in the second half of 2008 to drive the movement forward. Likely fields in which pre-competitive procurement will be tried include energy efficiency, healthcare, environmental protection and security.

One very happy outcome would be to propel the Commission closer to meeting the Lisbon objective of raising Europe’s R&D spending to 3 per cent of GDP. If Europe’s public sector procurers applied just 2.5 per cent, or €40 billion, of their budgets to pre-competitive procurement it would halve the gap between current spending and the 3 per cent target.

“Increasing the level of research in Europe involves creating the right environment,” said Janez Potočnik, European Science and Research Commissioner. “A clever use of the power of public procurement could be a great force for developing new, innovative solutions to existing challenges facing the public sector.”

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