City governments have the potential to be catalysts for innovation, which would benefit their citizens.
There is fairly widespread awareness of the failure of public procurement to cultivate and attract innovation. According to the OECD, 81% of OECD countries have developed strategies or policies to support innovative goods and services through public procurement. However, public perception and traditionally risk averse behaviour limit the engagement of innovative firms in public sector tendering.
According to Sam Markey and Andrew Watkins in a blog post for the World Economic Forum, “this is bad news for taxpayers who miss out on potential improvements to public services.” However, there are opportunities for public sector procurement departments to redress this lack of innovation in public procurement.
Public procurement lacks competition and innovation
Annual city government procurement budgets account for more than $6 trillion around the world. In total, 8% of the world’s GDP is spent by public procurement teams buying from private sector suppliers.
Public spending has the potential to be a huge force for innovation. Governments have the potential to push private sector companies to invest and invent new solutions to social, environmental, and logistical problems.
For example, in Norway, ferries are a large part of the country’s transport infrastructure. Therefore, they are largely operated as public services. A regional government initiative required that all new ferry contracts favour low-emission technologies over traditional diesel engines. As a result, electric-powered ferries are commonplace and the sector’s emissions have been reduced by 95%. Simultaneously, costs have also been slashed by 80%.
By leveraging the scale of public procurement, governments can drive the private sector to innovate. As such, it can be a force for the betterment of citizens’ lives.
Public procurement of innovative solutions
According to the European Commission, the public sector is wasting its potential to use its purchasing power to act as an early adopter of innovative solutions which are not yet available on a large scale commercial basis.
This public procurement of innovative solutions, when implemented, provides a large enough demand to incentivise industry act. Private sector firms invest in commercialising the solutions at the quality and price needed for mass market deployment.
This enables the public sector to be a modernising force. It can make public services better, deliver better value for money solutions and provide growth opportunities for companies in the private sector.
