Encouraging the innovators

Last week, Peter Smith examined the Prime Minister’s call for the public sector to take risks on innovative companies. He now looks at how to encourage innovation and SMEs – legally.

We wrote in our previous post about the Prime Minster encouraging procurement staff to take risks with innovative suppliers, and we expressed some doubt about whether this was really a sensible approach for an individual or organisation to take if they want to stay out of the metaphorical EU Procurement Court! But, to be more positive, there are various things that organisations and procurement people can do to encourage innovation, new or SME suppliers, without falling foul of regulations.

That can start before the actual contracting process. Is your organisation open to suppliers putting new ideas forward? Is there some route by which they can submit such ideas? There may be no guarantee of business, and you need the right words to cover issues of intellectual property, but there is no reason why potential suppliers can’t be offered an appropriate contact point. Other organisations and have gone further with ‘speed dating’ or ‘meet the buyer’ type events, including the ability for suppliers with genuine innovation to put that forward.

Where an organisation has a tangible requirement, there are two very common issues that get in the way of new, small or innovative providers. The first is the pre-qualification process used to weed out suppliers. The simplistic approach here is to rule out suppliers below a certain size, and those who haven’t done pretty much identical work previously, perhaps even in the same sort of contracting authority. This is not done maliciously – it is just the quickest and easiest route.

I remember bidding through one of the major eTendering portals to deliver training to SMEs (ironic this really...) to help them bid for public sector contracts in one UK Region. But the way the PQQ evaluation was set up, there was no way you could possibly get through unless you had previously delivered identical training, in the same format, to SMEs, in the same part of the country! A totally pointless ‘competition’ and clearly no way to encourage innovation or even decent competition.

So if you really want to encourage new and different approaches, you need to look carefully at pre-qualification and take a more pragmatic approach. Why does the supplier need a turnover of £10m to do this work? Is there really a capacity issue or is it just a way of kicking out lots of bidders easily? Do they really need to show exactly the same experience or can we look at their underlying capability and think about whether it could work in our situation? Some parts of the public sector are starting to take a more considered and risk based approach to pre-qual (e.g. Value Wales) but it is not widespread.

The second boost to innovation and new suppliers can come from use of output and outcome based specifications. Don’t tie down to the last detail exactly what you want and what the supplier has to deliver. Try (and it isn’t possible in every case, I acknowledge) to express the requirement in terms of outputs or outcomes and let the potential suppliers suggest ways in which they can meet your needs. This won’t always lead to innovation, or SME providers, but it does leave the door open for fresh ideas.

And the final point is the most obvious but perhaps the main block for SMEs doing business with many of the larger public organisations. The tendency to automatically aggregate everything up to the highest level makes it difficult for SMEs to cover that entire requirement. Setting up a ‘national framework’ or even one on a ‘regional’ basis, whether the category is consulting services, construction or IT equipment, will almost inevitably rule out many smaller or local providers. Developing a series of more local frameworks opens the market up; of course a balance has to be sought with leverage and economies of scale, but too often we see organisations not really thinking these issues through.

We would strongly recommend you develop a strategy for encouraging innovation, SMEs, and new suppliers; but there are ways to do this in a structured and legally compliant manner. You don’t have to simply take a risk on a nice firm that you like the look of, and hope that the PM will bail you out when you get challenged!

Peter Smith is a former President of the Chartered Institute of Purchasing and Supply, a consultant to public and private sector organisations, and editor of Spend Matters UK / Europe, the leading procurement blog.