A new report on Functional Public Procurement by Charles

Charles has completed a new study entitled “Functional Procurement for Innovation, Welfare and the Environment” for the Swedish Competition Agency. The report is in Swedish (56 pages) and has a summary in English (4 pages). It was published on March 21, 2019 and can be downloaded from the Swedish Competition Agency, at Alternative link here.

Public procurement amounts to 683 billion Swedish Crowns (17.5 % of GDP) in Sweden and 2 trillion euros in the EU – every year! Hence, public procurement is a very large part of our economies. As a matter of fact, Swedish public procurement is larger than the value of the whole industrial production in Sweden.

It is impossible to describe innovations, in the form of new products, before they exist. Innovations are often based upon new combinations of knowledge from different fields. We do not even know on which fields of knowledge a future innovation will be based. To pursue what has been called “innovation procurement” by describing innovation is therefore impossible. The term “innovation procurement” is not used at all in the procurement law.

A very small part of the public procurement lead to innovations. The main reason is that most public procurement is based upon a description of a specific product, called “product procurement”. As argued in detail in the report, such product specifications are serious obstacles to innovations. And innovations are the force that most has transformed our societies over longer periods of time. In addition, innovations are the most important basis for increased productivity and, thereby, for welfare. Functional procurement can affect the speed of innovation processes, but also their direction. Procurement with a focus on sun instead of coal can, for example, mitigate the climate challenge.

Of course, the public procuring organizations want to buy products to use them for something. In fact, with the help of the product the public agencies usually want to solve a problem or get a function fulfilled. And this is done for the benefit of the citizens. An alternative to product specifications is that the buying organizations describe these problems and functions in the procurement documents. When such a description exists, the term “functional procurement” is used in the report. The term “functional demands” is used eight times in the procurement law.

In the case of functional procurement, the contracting organization specifies what is to be achieved rather than how, i.e. with the help of which product or method it should happen.

Product procurement can only exceptionally lead to the development of innovations. Functional procurement opens in principle all procurements for the developmentof new and better products, i.e. innovations. If you want to promote innovations through procurement, then functional specifications should be used as much as possible.

If functional procurement that leads to innovations is to be carried out on a broad front, an action plan for implementation of functional procurement is needed. Part of the new report is therefore aimed at sketching how such a plan can be developed. The development and implementation of such an action plan will lead to creativity and innovation among suppliers, as well as increased competition between suppliers and products. This, in turn, leads to higher quality of public services (i.e. to innovations in the public sector).

Dividing public procurement into product procurement and functional procurement and arguing that the latter opens for innovations seems to be a very simple and obvious idea.