Guide for Public Procurement of Innovation in the health sector PUBLIC DRAFT VERSION

Transcription

1 Guide for Public Procurement of Innovation in the health sector PUBLIC DRAFT VERSION

2 Executive summary This guide is written to give procurers and managers in public health care institutions a practical guide for how to utilize the procurement processes to solve the need for new and innovative products and services. The guide is based on execution of several public procurement of innovation within the partner organization of the Nordic PPI Net project and through insight from other processes and guidelines in the Nordic and European countries. Compared to traditional procurement processes in general, there are four main focus areas that need to be addressed as part of an Innovative Procurement to secure the best possible future solution. It is: 1. Make sure to analyze the real user need and describe the required functionality let the suppliers make proposals on solution. 2. Invite to a pre-tender dialogue with the suppliers to receive input to innovative solutions (existing solutions and/or possible new developments) 3. Consider to invite suppliers to participate in a user driven R&D competition (Pre-Commercial Procurement) to develop and test new solutions and services. 4. Consider a more innovative friendly tender procedure and base the criteria s on total cost of ownership instead of a narrow lowest price thinking. The Nordic PPI net program has developed a step-by-step guide with three phases: Phase 1 - Preparation and anchoring Solution in the market? No Yes Phase 2 - Pre-Commercial Procurement (PCP) Phase 3 Innovative Public Procurement (IPP) This framework follow the guideline given by EU, and has shown important results. The process of preparation and anchoring improves the tender documents and open up for new procurement strategies fostering innovation. The Pre-Commercial Procurement phase invites suppliers to develop new solutions in a close collaboration with the users, and the Innovative Public Procurement phase open up the market for new suppliers and consortiums of suppliers and gives the industry an incentive to deliver innovative solutions. Public Procurement of Innovation is a field that is still undergoing major development. By testing out the methodology, there will be new best practices, and we invite all users to innovate on this guide. 1

3 Table of content Executive summary... 1 Nordic PPI Net project... 3 Introduction... 4 Development of a Nordic home market for Healthcare suppliers... 4 Strategy for innovation... 4 Pre-Commercial Procurement as a bridge to commercialization... 5 Practical Guide... 6 Phase one Preparation and anchoring... 6 Phase two Pre-Commercial Procurement (PCP)... 6 Phase three Innovative Public Procurement (IPP)... 6 Phase one Preparation and Anchoring... 7 Step 1.1 Challenge and Need assessments... 7 Step 1.2 Planning and Organizing... 8 Step 1.3 Dialogue with Markets Step 1.4 Innovation strategy and Competition design Phase two Pre-Commercial Procurement (PCP) Adjusted and simplified Pre-Commercial process model Step 2.1 Solution design Step 2.2 Develop and test Phase three Innovative Public Procurement (IPP) Step 3.1 Competitive tender Step 3.2 Contract Step 3.3 Delivery and evaluation Reference list

4 Nordic PPI Net project This Guide is one in a series of four reports with different perspective on Public Procurement of Innovation prepared and produced as part of the Nordic PPI Net project. Other reports and guidelines produced by the Nordic PPI Net project are: Legal Practices and Recommendations Value based procurment manual a road map to radical innovation Best practice and key learning points The reports will be available at South-Eastern Norway Regional Health Authority together with Norwegian National Program for Supplier Development and Oslo Medtech has organized the work with this guide. Editor of the report has been Bent- Håkon Lauritzen, advisor innovative procurement in Oslo Medtech. Guide for Public Procurement of Innovation in the health sector is a practical step-by-step guide based on existing framework within EU and the Nordic Countries. As background for the guide, the Nordic PPI net project has analyzed ongoing and completed innovative procurement processes in the Nordic countries and the EU. Norwegian Agency for Public Management and egovernment (Difi) has approved the guide. 3

5 Introduction The overall ambition of this Guide is to stimulate the use of innovative public procurement in the healthcare sector on a Nordic level and thereby create a new and interesting marketplace for suppliers both nationally and regionally. The Guide is a practical document aimed at procurers and managers in the public sector. It provides the framework to stimulate the involvement of users and suppliers in the planning stages, to increase the focus on describing the needs in a functional way and organizing the tender process to ensure the best possible participation from players in the industry. The main purpose of increasing the use of innovative procurement in the Healthcare Sector is the need for modernization and streamlining of equipment, processes and services. Both the utilization of existing solutions from other sectors and the development of new and better products and services need to be an integral part of procurement activities. Importantly, a more innovative procurement strategy in the Nordic countries will strengthen the competitiveness of the industry. Competition, Transparency and Equal treatment are fundamental to all public procurement processes so also for processes that aimed at fostering innovation. Needs driven innovation, open dialogues, simplified tender specifications and the use of balanced award criteria open the market for new players and increased competitiveness. Development of a Nordic home market for Healthcare suppliers The organization and funding of healthcare services are essentially the same in all the Nordic countries. Given high public spending and high penetration of technology, the possibility to develop, test and implement new and innovative solutions to health issues is generally good. The public procurers in the health service have a great opportunity to influence the development of a national or Nordic Medtech industry. Increased use of innovative procurement processes that invites small and large participants from the Nordic and international industry will expand the marketplace and give existing and new companies the possibility to grow. A strong Nordic home market increases the possibilities for international growth. Strategy for innovation Successful innovation is based on both strong management support with a culture which is open to change, and the economic and functional frameworks necessary for the execution of the process. This must be integrated in a strategy for innovation containing an overall ambition and measurable goals. Procurement and innovation A qualitative and well-organized public health service is important in all the Nordic countries. Demands and expectations of improvement and development come from many different stakeholders: politicians with legislative and regulatory roles, patient groups with special interests, researchers, managers, employee groups, vendors, and others. They all try to influence the development of the health services. Everything, from new solutions for elderly people staying longer in their own homes, to the development of advanced cancer drugs needs to be resolved. 4

6 This guide focuses on the possibilities of utilizing the procurement of goods and services to ensure innovation and participation of the best companies in the innovation process. Mutual development of skills in cooperation with the suppliers will ensure development of new and innovative solutions. Example: purchasing strategy: South-Eastern Norway Regional Health Authority has chosen quality, patient safety and standardization of technology and work processes as the main developmental focus of their strategy for the period The organization purchases goods and services for 21 billion NOK each year. The potential for innovation with proper use of these funds is substantial. In order to utilize the purchasing power, the procurement department has made a purchasing strategy. The procurement strategy emphasizes the need for highly skilled procurement teams with the possibility to create added value for the core organization through sustainable and innovative procurement. Public procurers that manage to become highly skilled advisors will be able to play an important role when implementing Innovative procurement within their organization. 5 Pre-Commercial Procurement as a bridge to commercialization Different public programs and incentives throughout Europe have led to a series of innovation projects. Most of the projects end up in small-scale production or are closed down after the project funding ends. Only a few of them have been successful enough to show social and economic impact. Lack of long-term commitment to solving problems might be the main reason. The Pre-Commercial Procurement process can be useful to build the bridge between excellent projects/proposals and a formalized procurement and implementation process. More about the Pre-Commercial Procurement processes can be found later in the document under Phase two Pre-Commercial Procurement (PCP)

7 Practical Guide Below is a figure and a short introduction to the three phases of the Public Procurement of Innovative Solutions process: Phase 2 - Pre-Commercial Procurement (PCP) 1.1 Challenge and Needs assessment 1.2 Planning and organizing 1.3 Dialogue with market Phase 1 - Preparation and anchoring 1.4 Strategy / Competition design No Solution? Yes 2.1 Solution design 3.1 Competitive Tender 2.2 Prototype 3.2 Contract 2.3 Test and verification 3.3 Delivery and evaluation Phase 3 Innovative Public Procurement (IPP) Phase one Preparation and anchoring The gray part of the figure describes efforts to secure a solid foundation and a good process for preparing a procurement strategy and designing a competitive process. A thorough description of needs, anchoring and participation from important stakeholders and a dialog with the suppliers has proven to establish a better foundation for the procurement process. Phase two Pre-Commercial Procurement (PCP) When no viable solution for the initial need is found during the preparation and anchoring phase, the public institution can choose to establish one or several parallel development projects. The description of this phase presents several different ways to involve the industry in the development of new services and products. Phase three Innovative Public Procurement (IPP) Given that the outcome of the preparation and anchoring phase shows that there are already commercial solutions available on the market, the next phase is subject to a regular procurement process. The blue steps (Step 3.1 to 3.3) show how the IPP process can best be organized to result in the awarding of the contract to the supplier that best meets the initially described user needs. 6

8 Phase one Preparation and Anchoring Below the preparation- and anchoring phase is described step-by-step: No 1.1 Challenge and Needs assessment 1.2 Planning and organizing 1.3 Dialogue with market 1.4 Strategy / Competition design Solution? Phase 1 - Preparation and anchoring Yes Step 1.1 Challenge and Need assessments The first stage focuses on identifying, defining and assessing the challenge and needs. A good description of the real user needs is important for the dialogue step and as input to the competition description. Identifying challenges and opportunities for innovation The daily challenges and opportunities for new solutions are described in close collaboration with users. It is recommended to organize workshops and consultations to ensure a good user interaction during this step. The results from the meetings can be validated by using a quantitative questionnaire. A thorough needs assessment is very important for innovative procurement. The final contract must be based on identified needs, recognized and amenable to user groups. Some practical examples and use of methodological tools: 1.1 Challenge and Needs' assessments Identifying challenges and opportunities for innovation Describe the need in a efficient and functional way Document current cost structure Example: "I wish I had" Oslo Medtech has developed a method for user involvement called "I wish I had". Oslo Medtech and the Geriatric Resource Center of the Municipality of Oslo in conjunction with users and other stakeholders, organized a dialogue/workshop on the topic "How to stay longer at home with high quality of life". The meeting mapped different situations that can cause insecurity. During the workshop, different solutions were discussed to meet the challenges. 7 Describe the need in an efficient and functional way After the initial process where users identify challenges, the next step is to use this information to define the functional requirements/needs. Taking the needs as the starting point, NOT the solution, the user will be able to use this description in further dialogue with the market to identify appropriate ways to address the need. It is important not to describe the need with reference to today s scope of opportunity, but be open to innovative solutions and products.

9 To describe needs from different vantage points, it makes sense to begin with the identification of the various user groups and their requirements. This can be done by documenting different scenarios, as illustrated in the example below. Example: User needs in Lyngbakken Nursing house In the report "New Warning Systems in Tomorrow's Nursing house" you can read about the survey made on the needs in Skien, Norway as a part of a plan to construct the new nursing in Lyngbakken. The report describes both the problems regarding nursing homes and the survey s methodology. (Downloading link is Document current cost structure A thorough survey of the current cost structure associated with the defined challenges and needs will contribute to better and more objective decision-making later in the procurement process. The mapping should be specified so that the total costs are known. Cost from the outset of staff, cost for operation and maintenance and overhead costs need to be calculated for the contract period. Often, costs appear in different budgets and departments. Mapping of current funding and regulatory requirements might also give valuable input later in the process. The cost of implementing a new product/service is often significant, and the size of the acquisition and the potential savings are therefore important elements to understand. The analysis of the potential cost savings and/or elaboration of the business case should be outlined at this stage, and updated throughout the procurement process. Step 1.2 Planning and Organizing Public institutions with a strategic view on innovation and a management with clear guidelines and mandate, have the best foundation for successful implementation of innovative procurement. 1.2 Planning and Organizing Anchoring Mobilizing Planning Planning, anchoring and identifying the right skills are crucial to the success of an innovation. Time constraints are a critical factor in many procurement processes. Planning and execution of dialogue activities with suppliers can be time consuming, and when new solutions are suggested, further discussion and anchoring might be necessary. It is important to set aside extra time for the preparation and anchoring phase. Time spent in this first phase often results in quicker and better acquisition and implementation. Anchoring Innovation often affects both budgets, routines and individuals. To identify affected groups and individuals is crucial. Examples of groups that are involved or affected by innovation are end-users, (different groups of) employees, management, technical department and financial management. It is thus important to plan and 8

10 implement an anchoring process with all concerned. Professionals and managers tend to resist radical innovation of existing solution, it is therefore important to establish a common goal supported by the stakeholders. Recommended activities: Establish clear ambition for acquisition. This needs to be communicated both internally and externally. Anchoring. Involvement from users and stakeholders are important and should be taken into consideration early in the process. Ensure that the ambition is anchored at the adequate management level in the organization Clarify economic frames. It is important to ensure adequate funding of the procurement process and outline eventual financial consequences of the acquisition. Ensuring sufficient and dedicated resources. Key personnel are often involved in several parallel activities, which can quickly lead to reduced progress and quality. Assess risk profile Establish a plan for how to handle different possible risks and incidents. Be aware of cultural issues and address them as part of risk profile documentation Identify existing bottlenecks and limitations. In many cases, there are limitations within the infrastructure in the short to medium term. Example: Technical limitations A nursing home procured wireless IP-phones. After starting to use them, they had a technical problem. The supplier claimed that it was a user s error. After several rounds of investigations the cause of the faulty system was found to result from poor network capacity: IP-phones were connected to the same wireless network as all other internet communications in the nursing home, including guest-online. The load on the network was too heavy and the phones stopped working. Mobilizing It is essential to have a competent and well-functioning procurement group. Some cases require external expertise to ensure sufficient knowledge/skills. It is also crucial that people who are engaged in the procurement group have sufficient capacity to contribute to the group. Use of an external facilitator have proven to be successful in many projects. Being able to see the organization from the outside during the process of needs assessment and to operate as a facilitator during the dialogue activities with the industry, can both be useful in opening up the dialogue and fostering the innovation. 9 Planning A project plan must ensure enough time to achieve the aim of the acquisition. Time pressure can often cause shortening of the procedure and result in making decisions in haste without proper foundation. Innovation processes require the ability to innovate, and the project plan must allow adjustments to be made during the

11 entire process. The ample clarification time, ties and dialogue with the market, will create the basis for a more rapid and successful acquisition and implementation. Step 1.3 Dialogue with Markets The value of having a dialogue with the market, defined as both suppliers, end-users and experts, before the preparation of tender documents rests on two key reasons. Open up the planning phase to secure broad input on needs and possible solutions both existing market ready solutions, product development plans not yet launched and R&D. The procurer gives possible suppliers information about a planned acquisition at an early stage 1.3 Dialogue with Markets Dialogue Conference One-to-one Meetings Partnering / matchmaking Plan and designing conference Consultation of tender documents Many cases reveal that it may be appropriate to encourage one or more suppliers to co-operate to ensure a good overall delivery. The dialogue might also confirm the need for applied R&D projects. Public Procurement of innovative solutions provides closer contact between buyers and suppliers than traditional procurement. To ensure equal treatment to all suppliers participating in the procurement process, it is might be wise to anchor and communicate with the market using an external facilitator to broker the process from a more neutral position. There are a number of alternative ways to organize the activities pertaining to the different dialogues. Different activities will supplement each other. Dialogue Conference Invite to an open meeting where you present the user needs. Then open up for questions and let the suppliers comment on the described needs and challenges. Subsequent to the meeting, the suppliers should be invited to submit written solutions within a defined deadline. The written feedback is important to make sure that all suppliers get a chance to give feedback regardless of their presence at the conference. Dialogue conferences are also suitable for other experts and user groups to give their feedback and input to the process. Ensure that all information on planned activities is distributed so that all suppliers have the same opportunity to participate. This involves publishing information on Public procurement portals, own websites, collaboration with clusters, organizations and advertising in trade journals or other relevant media. One-to-one meetings One-to-one meetings are often used as an extension of the dialogue conference. All contractors who have delivered written feedback are invited to present these. The meeting duration and agenda should be standardized. Suppliers tend to be hesitant to share business secrets at open meetings, but are generally 10

12 more open minded in closed meetings. Non-disclosure agreements might be a part of the one-to-one meetings. Example: Dialogue Conference and One-to-One Meetings: Oslo Municipality, Health Division invited to dialogue conference with the theme: "Acquisition of assistive technology in Oslo that allows residents to stay home as long as possible in safety and with quality of life". 52 participants attended the meeting. 30 companies wanted one-on-one meetings. The process gave the procurers valuable insight regarding market ready solutions and services, projects under development, opportunities for collaboration projects with vendors Partnering / matchmaking To ensure a sufficient number of procurement providers as well as to increase providers' competence and competitiveness, the extension of dialogue activities through invitation to partnering/matchmaking process may be a solution. Short pitch-based presentation following the dialogue activities where companies can meet and express their needs for partners has proven to be successful. This activity should preferable be organized and carried out by an external facilitator. Plan and design conference Plan and design conference is widely used as a way of dialogue in urban development projects and larger construction projects. It can also be used in the healthcare sector in larger programs for innovation. Well placed to challenge providers to design specific solutions. Consultation of tender documents Sending out the tender documents as draft version for comments and feedbacks is a useful way to get new input and make sure the procurement process opens for innovation. It also gives the suppliers more time to prepare for the upcoming tender process. 11

13 Example: Dialogue as part of Tender process udbudshjulet As part of a continuous improvement process in their procurement department, the Southern Region of Southern Denmarkhave developed a guide for dialogue during the tender process - udbudshjulet. Step one describes how they use meetings with suppliers to get better insight into the existing solutions in the marketplace. As step two - consultation, the procurer sends out a draft tender specification to the suppliers and asks for feedback. By involving the suppliers, the consultation process has proven to increase the quality of the tender specification Step 1.4 Innovation strategy and Competition design All the input from the need assessment and dialogue activities are gathered and processed in this step. It is quite usual to reconcile feedback from the initial ambition and innovation strategy, and in some cases it will be necessary even to redefine ambition. Output from this step is an innovation strategy containing a procurement plan that emphasizes innovation if the need can be met by existing solutions, or a developmental strategy (Pre- Commercial Procurement) if no solution is available. Update your gains/loss calculation and needs/functional description As part of the basis for the procurement strategy, it is important to update the needs / functional description document and the profit/loss calculation. After the dialogue activities, it will be easier to calculate the financial consequences of the different solutions. If needed, this analysis can be developed into a more comprehensive business case. Is there a satisfactory innovative solution in the market? After collecting and systematizing all the information, it is important to clarify whether it is possible to identify suppliers that are able to fulfill the tender. With no viable innovative solution, the procurer should consider establishing a Pre-Commercial Procurement project or Applied R&D project. Often there are existing products that resolve parts of the need, but they do not have the same functionality or usability as described in the needs. If the innovative solution is under development by a small company with limited resources, the discussion becomes even more challenging; the choice between "the safe and sure" and the "innovative and untested/unknown" might become challenging. In other situations, the real innovation is based on known and existing technology implemented in a new 12

14 setting. In both cases the intention of a Pre-Commercial Procurement process is to reveal the potential of the innovative solution and reduce the risk of failure following a traditional procurement process. In cases where there is sufficient delivery capacity among suppliers or the Pre-Commercial Procurement process has been finalized, the next step will be to execute the Innovative Public Procurement. Purchasing Strategy with both Pre-Commercial Procurement and Innovative Public Procurement Example: Oslo Municipality - safety packages After completing the needs assessment and dialogue with the market, the Health Division in Oslo found out that they needed to modernize the basic services and technical infrastructure before (PPI processes) to be able to continue with a PCP process for innovative mastering/health packages, They decided to split up the innovation in 4 procurement steps: 1. Security Packages tender for products(devices) Q Emergency central - tender for services Q Key-free Solutions PCP/tender 2015/ Mastering /Health Packages PCP 2015/2016 Security Packages and emergency central will focus on procurement of existing and proven services in the market, while Key-free Solutions and Mastering/Health Packages in 2016/2016 probably will be developed in collaboration with vendors as Pre-Commercial procurement or R&D projects. As illustrated in the example above, implementation of basic technology and new platforms/infrastructure are important assumptions for future successful innovative solutions and services. The strategy should therefore be based on a fundamental analysis of the challenges in a short-term and long-term perspective. 13

15 Phase two Pre-Commercial Procurement (PCP) The objective with PCP is to procure research and development services up to the prototyping or first test production stages. PCP may include the acquisition of the limited prototypes and/or test products developed, but does not include the acquisition of larger volumes of resulting end-solutions on a commercial scale and must not constitute state aid 1. After development of a test series, before starting a full-scale implementation of the new solution, the traditional procedure has been to announce a tender competition. With implementation of the new EU 2014 EU procurement directives 2 in all the Nordic countries, we expect the possibility to go directly to a 5 th step with a formal contract with the winning solution. Waiting for the new directive to be implemented, there will still be need for at tender competition. EU has developed a competitive framework for Pre-Commercial Procurement to facilitate development where several businesses are invited to attend on equal terms. 3 Given a well described challenge and several interested companies wanting to compete for development of a new solutions the PCP model is a suitable way to organize innovation. There are currently several large cross border and multi procurer projects, funded by public programs, which are testing out the overall process of PCP. This guide focuses on small and medium-sized projects involving one public organization. The process is therefore simplified by merging 3 and 4 from the EU-guide. 1 Guidance for public authorities on Public Procurement of Innovation 2 Directives 2014/23/EU (the Concessions Directive); 2014/24/EU (the Public Sector Directive) and 2014/25/EU (the Utilities Directive)

16 Adjusted and simplified Pre-Commercial process model Solution in the market? Phase 2 - Pre-Commercial Procurement (PCP) Phase 3 (IPP) 1.4 Strategy / Competition design No 2.1 Solution design 2.2 Develop and test Yes 3.1 Competitive Tender Supplier A Supplier B Supplier A Supplier X Open tender for A, B, C, D and other Supplier.. The model above is a two-step innovation model for new services and products. Inviting to an open competition based on an identified need and ask supplier to present a solution design in the first step and invite the two or three best solutions into a development and testing phase. The purpose of organizing the open competition is to get as many innovative ideas as possible, using the power of entrepreneurial spirit among new and existing suppliers. Inviting the best suggestions to step two has two focuses: 1. To develop a news service or solution based on real user needs 2. To secure future competition between at least two different suppliers. For the suppliers it will be crucial to leverage out the risk of investment therefor it is suggested to have incentives to secure interest from the best companies. Step 2.1 Solution design Organization, competition design and funding The scope and ambition for the PCP process needs to be planned and organized. Beside description of the rules and award criteria s for the competition, it is crucial to have a clear description of the challenge and how to treat the intellectual property. The PCP process should consider the need for incentives (e.g. price money and possible R&D support for 2.1 Solution design Organization, competition design and funding Launching competition Review incoming proposals Invite winners to next step the different steps). All the Nordic countries have public programs that support innovation and R&D. These programs together with participant contribution are the main sources for funding. For juridical issues regarding R&D contract please read the document: Legal Practices and Recommendations. 15 Launching competition The launching of the competition should be public and be followed by an information meeting and possible matchmaking event for companies and other stakeholders. The public institution(s) should be open for questions and dialogue during the competition period; use the same routines as when launching a public tender.

17 Review incoming proposals Reviewing of incoming solution designs can be done in various ways. Ensure all participants are equally treated and informed about the process. Organizing an expert group with internal and external members and using well defined ranking criteria s will give the ranking credibility. Give the losers of the competition feedback to show the seriousness of the process. Evaluation and ranking of winners need to be documented. Invite winners to next step To secure real competition after the development step, it is recommended to invite at least two companies into the second phase. Step 2.2 Develop and test The winners from step 2.1 are invited into a user driven innovation and development phase. Clear agreements, good organization and involvement from both the supplier and the public organization are needed. While the supplier develop new technology or products, the public organization should focus on service innovation to secure that the new technology fits into the existing infrastructure, organization and operation. 2.2 Develop and test Project organization and cultural differences Development strategy Testing, testing, testing.. Closing - next step? To go through a user driven development process together with a large public institution will demand both financial and human resources within the supplier company. This capacity needs to be addressed and guaranteed before starting the development and test process. Project organization and cultural differences Forming a steering group for the project with representatives from both the supplier and the public institution that have the overall responsibility for the project, makes it possible to discuss issues of importance. Forming the right project group with the right mindset and competence is crucial for success. This involves access to the specialists within the organization and recruiting project members with fundamental understanding of development and innovation processes. Working in a small or midsized private company is different compared to a large public institution. Decisionmaking procedure, resources and economic mechanisms are different and to secure a successful development project, both parties need to understand the difference in standpoint and culture. Development strategy There are many development strategies, and the best regime might differ from case to case. Having the ability to work following a structured approach and according to a plan while being able to react to new findings and feedback, is normally difficult but becomes and even more challenging when dealing with large public institution. The development strategy needs to be discussed and agreed upon in order to secure flexibility and adaptability. 16

18 Planning for integration and seeing the new innovative solution as part of the overall internal process is also an important part of the development strategy. Very few innovations can exist without technical integration into the overall infrastructure. Example: R&D project Fairplay Fairplay is a Pre-Commercial project between a Norwegian SME called Factlines and the South-Eastern Norway Regional Health Authority (HSØ). The aim of the project is to establish a portal and collaboration tool to secure good documentation and audit of suppliers Corporate Social Responsibility. The solution will help the procurers to do risk assessment of the portfolio of suppliers and their subcontractors as well as support during the follow-up activities. The project is organized as an R&D project partly funded by Innovation Norway. The process started with a great idea presented to the CRS responsible in HSØ. HSØ wanted to invite Factlines to an R&D project. The project is based on a user-driven development process in which all the modules go through a process of: 1. Planning and organizing 2. Specification 3. Prototyping 4. Development 5. Testing Factlines owns all IPR for the developed solution. South-Eastern Norway Regional Health Authority have the full rights to use all project materiel as input to a tender specification after the conducted project. Testing, testing, testing The interaction with real users makes it possible to set up an agile development strategy. Using a continuous loop of development, testing and evaluation, gives the developers a unique arena to adjust the new product or solution in close contact and according the real need. Example: Ballerup Municipality Welfaretech laboratory As part of the OPI program in Denmark, Ballerud Municipality have set up a laboratory with the main purpose to invite private companies to test their solutions within assistive technology and receive feedback directly from users. The laboratory has four areas of services: 1. Access to knowledge about users and patients needs and processes. 2. Concept development together with users allows the companies to discuss their product idea and get direct feedback. 3. Testing of products with groups of users. 4. Providing public and institutional data (statistical and financial) to help the company develop a solid business case. 17

19 Closing next step? Before closing the PCP project, make sure to establish a clear documentation of possible gains and losses implementing the new innovative solution (both qualitative and economic effects) Closing the Pro Commercial Development Process both the public institution and the supplier must secure the value of the time and money spent. What the benefit should be, differs from project to project, but most projects underline that the public institution must be free to use all the project findings as part of an upcoming tender process. The company must secure the possibility to use the developed solution in a commercially viable way. If the public institution has contributed with important insights and development capacity to the final solution, a revenue share agreement might be a good compensation model. All this needs to be part of the initial contract. For more information about juridical and practical examples please read the other reports available for the Nordic PPI net project at 18

20 Phase three Innovative Public Procurement (IPP) This phase focuses on how to execute a public procurement with the goal of procuring and implementing an existing innovative solution. Within a well-functioning market with existing solutions, (YES), the procurement process starts as a continuation of phase one. If the solution does not exist, purchase can only happen after a completed and successful pre-commercial phase. It is important to note that there are no special rules for the implementation of innovative procurement. All processes should follow the ordinary rules for public procurement. This guide gives some examples of how to, within existing procurement regulations, focus on procurement of innovative solutions. Some advice/forms of competition that foster(s) innovation: Create opportunities to provide alternative offers Consider the use of competitive dialogue as a framework in technically complicated procurements. Select the competitive negotiations for minor purchases Use the award criteria that emphasize factors other than price, such as quality, functionality and operational costs. Select an execution model that promotes innovation Example: Innovative use of demo-apartment during the tendering process Skien s procurement process for the new alarm system at the Lyngbakken nursing house was based on the use of the demo-apartment "Old Ekdal". First step consisted of a pre-qualification process. From the pre-qualification, three suppliers were chosen, and they each got a day to install and demonstrate their solutions in the demo apartment, according to user-defined scenarios. The employees at Lyngbakken scored each supplier according to a set of pre-determined criteria. The results of this assessment had a direct impact on the result of the tender. 19

21 Step 3.1 Competitive tender Designing specification In an innovative procurement, it is essential to stimulate innovation in the design specifications by focusing on needs, not solutions. There are various types of specifications that can be used in a competitive process. The two most current specifications are following: 3.1 Competitive tender Designing Specification Qualification Requirements Alternative Offers Procedure of Choice Selection Criteria Specifications for Performance Requirements: A specification based on the performance to be covered and criteria for fulfillment of requirements. It gives suppliers both the chance to suggest the best way to meet requirements and the possibility to suggest innovative solutions. Suppliers show interest in the competition because it deals with different solutions. Functional specifications: A specification based on functional description of needs to be fulfilled by the supplier not a technical description of the wanted solution. It will be up to the provider to propose solutions and methods. A contract, containing functional specifications, must be monitored based on target fulfillments, but not on the individual actions, followed by the agreement. A specification of any type will normally have both "mandatory requirements" and "ought-claims". The wide use of "mandatory requirements" will naturally reduce the chance of innovation. Qualification Requirements Below are some suggestions of qualification requirements that can be added to the tender documentation that can prove the ability to innovate among the suppliers: Experience with innovation. Documentation: Experience Overview. References from previous innovation projects. Documentation: Reference Guide. Information about how the supplier in similar assignments has contributed to innovation. Alternative Offer According to Directives for public procurement, it is allowed to accept alternative offers. This gives the procurer an opportunity to accept solutions that differ from the specifications for one or more positions. There are at least three distinct advantages to take into account with respect to alternative offers: The opportunity to offer alternative solutions. Provides potentially better coverage of the client s needs. Challenges the suppliers in thinking creatively. Procedure of Choice Two procedures, in particular, demonstrate good interaction between the procurer and supplier. It is the "negotiated procedure" and the "competitive dialogue". 1. Tender competition with negotiations: To stimulate innovation through this procedure it needs to be based on the following: 20

22 Specifications criteria must be formulated based on performance and functionality, which stimulate new solutions. Selection criteria that stimulate innovation and promote negotiating to sharpen/adjust solutions to meet defined needs in the best possible way. Sufficient competence, both on the supplier and procurement side, to navigate through the negotiations 2. Competitive dialogue: The procedure is suitable for promoting innovation through dialogue between the procurer and the supplier. It makes an active dialogue about the proposed solutions possible, including a dialogue related to the innovation. At the same time, it stimulates the competitive process. Selection Criteria The selection criteria are the basis for winning the "most financially beneficial" offer. This gives the procurer the possibility not to reward the lowest price only, but to focus on other specification in the solution offered. With an optimized balance and scale between innovation and cost, the procurement process will most probably end up with the best supplier, the one best able to deliver the innovation. Two issues, in particular, are important aspects related to innovative procurement and award criteria: Use criteria that can be evaluated and scaled. Measure the innovation up to criteria that create value for the client. Always state the balance between the chosen selection criteria so that there is full transparency when it comes to the evaluation of the tenders and choosing the winner. Example: Award criteria for promoting innovation to supplier 4 The Swedish Environmental Management Council has completed a tender for procurement of plastic apron that is produced from biopolymer instead of usual plastic. Points gained to the tenders that could show what climate change based on a life-cycle perspective, the production of plastics raw materials (e.g. plastic granulate) to plastic apron have reported in CO2-equivalents per kilogram of plastic raw material. Highest score given to plastic apron with the lowest climate impact

23 Step 3.2 Contract Requirements Contract requirements can be used to stimulate innovation. If the ideal product is not available from the beginning of the contract, it is possible to make the development and deliveries of new and innovative products or services during the contract period dependent on contract requirements. 3.2 Contract Requirement Duration Subcontractors Compensation and pricing models Duration Reflect supplier s investment in capital and competence to develop products or services. By product/services that require further development, a prolonged contract period will make it possible for the supplier to spread development costs over a longer period. Subcontractors Many small and innovative companies do not have the capacity to take part in the tender competition. If the contract opens up for subcontractors, the innovative companies can partner with bigger companies. Compensation and pricing models: The contract can stimulate innovation through different pricing models that give the supplier the opportunity to develop more innovative solutions. An example is a bonus model to compensate the increasing demand (quality, effects) or lower cost to the buyer. Increased earnings for the supplier will be an important incentive to develop new solutions. Step 3.3 Delivery and evaluation Delivery of innovative solution An important part of the innovation is to ensure close collaboration with the supplier after the contract is signed. Going from dialogue with the procurement committee to initiate dialogue with end users of the new solution is often a difficult transition that requires focus from both the supplier and the management of the organization. 3.3 Delivery and evaluation Delivery of innovative solution Focusing on Changeoriented Management Training Operation & Support Experience & Learning Publication of results The testing and implementation stages are a source of conflict, and therefore, the contract should have good mechanisms associated with this phase. It is important to test the solution properly and if possible run a pilot test to make sure that both the system and the routines are of high quality before implementation. The costs resulting from user errors, and the decrease of confidence because of errors detected during fullscale operation of a new service or product can be enormous. As part of the planning, it is important to remember the initial output goals, both qualitative and financial. A concrete plan will make sure that goals are reached and the innovation is sustainable. 22

24 Focus on Change-oriented Management Focus on daily production with limited resources and missing incentives prevent in many organizations the ability for innovative thinking. Implementation of new and innovative solutions are often demanding and require extra capacity and change management. Top management focus and a strategy for innovation will create a platform for commitment from middle managers and department leaders. Raising the issue of change management and innovation management might be important in many public institutions. Training Training is essential in order to understand the innovation and to avoid faulty use. Errors occur due to lack of training and can result in major operational challenges: temporary decline in productivity, critical situations, and poor overall motivation to adopt the new solution/service. Training and materials provided by the supplier tend to be technical and function-orientated, and does not adequately meet user needs in their situation. An effective way to conduct major training activities may be to select internal ambassadors super users that receive intensive training by the supplier and then use them as internal trainers and responsible for implementing new routines. Remember to support the super users to avoid decreased motivation. Operation & Support When the solution is ready for full-scale deployment, it is essential to have extra support and attention from both the supplier and the project team. Quick response and good guidance give confidence in the solution and ease the implementation of new routines. During implementation of innovations where many suppliers are involved, there tends to be confusion regarding responsibility when errors occur. In such cases, clear operating contracts that govern responsibility/authority are crucial for good cooperation. Experience & Learning Evaluation of an innovative procurement process should focus on the reduction of total cost of ownership and improvement of quality in the service. Starting with the initial challenge and user needs, and measure the goals established in the first phase will reveal the real outcome the process. Evaluation of methods and tools can be useful in the next innovative procurement project. Was the information gathering successful and useful during the procurement process? Did the description of need, functionality and performance in the tender document trigger the market to deliver the best offers? Did the design of the competition work out according to plan? 23 Ask the suppliers about their experience with the innovative procurement process. Make sure to ask both those who won and those who lost the competition

25 Successful innovation results in better and more effective services. Innovative Procurement is designed to utilize higher degree of user involvement and better dialogue with the suppliers in all phases of the process. In this way, the procurement process in the public sector contributes to building a competitive industry, provide better services and spend taxpayer s money in the best way possible. Publication of results Success stories should be told. Announcement of results is important to build the reputation of public institutions and for suppliers to reach new markets. 24

26 Reference list European Commission Innovation; How to Convert Research into Commercial Success Story? Part 1: Analysis of EU-funded research projects in the field of industrial technologies. See webpage: Procurement of Innovation Platform - Guidance for public authorities on Public Procurement of Innovation. Download link En veileder for førkommersielle anskaffelser i spesialisthelsetjenesten, Utarbeidet av helseregionene i Norge i samarbeid med Sykehuspartner, Difi, Innovasjon Norge, Forskningsrådet og Hinas, download link PreCo: Pre-commercial procurement: Best practices and alternatives in the European ehealth sector. Download link Analyzes conducted on behalf of NHO and KS - Nasjonalt program for Leverandørutvikling, See Agency for Public Management and egovernment (Difi) PIANOo - Tips for Buyers (from best case examples) Download link Innovation Procurement - Delivering Efficiency, Quality and Sustainability in Healthcare - A guide to innovation procurement for the healthcare sector. 10 Messages from the LCB-HEALTHCARE Pilot Projects. Download link MENON-PUBLIKASJON Innovative offentlige innkjøp mer produktivitet og bedre tjenester. Download link VINNOVA Information VI 2013:22: Att efterfråga innovation Tankesett og prosesser. Download link INNOVATION, HEALTH AND WEAL. The ACCELERATING ADOPTION AND DIFFUSION IN THE NHS. Download link and Cases and Innovationsupphandling: Möjligheter och utmaningar vid upphandling av innovation. Download link Lindkjökings Universitet: Innovationsupphandling, Strategier och metoder för effektiv innovationsupphandling i Sverige med fokus på förkommersiell upphandling. Download link Region Syddanmkar: Dialog i Utbudet, Øget dialog skaffer bedre indkøb 25

27 1.1 Challenge and Needs assessment Model for Public Procurement of Innovation Phase 2 - Pre-Commercial Procurement (PCP) 1.2 Planning and organizing 1.3 Dialogue with market 1.4 Strategy / Competition design No Solution? Phase 1 - Preparation and anchoring Yes 2.1 Solution design 3.1 Competitive Tender 2.2 Prototype 3.2 Contract 2.3 Test and verification 3.3 Delivery and evaluation Phase 3 Innovative Public Procurement (IPP)

28 Project partners