What is innovation?

An innovation is the market launch of a new idea that has been put into practice and helps to optimise products, procedures, services or processes. In terms of public-sector procurement, this means that innovative procurement processes contribute in the long term towards optimising and increasing the efficiency of purchasing.

They can be transferred to comparable institutions or organisations within the public sector. When put into practice, procured innovative products, procedures and services can significantly improve the productivity and efficiency of the purchaser, e.g. from a financial, process and/or environmental perspective.

There are basically two ways to promote innovation. Firstly, innovation can be supported on the supply side by funding research and development within the private sector and within public research institutions (innovation supply). Innovation can also be triggered on the demand side through the needs of both public and private-sector contracting authorities leading to the development of innovative products, services and procedures (innovation demand). 

The potential for innovations is enormous

The potential of innovation demand through innovation-oriented procurement is huge: the annual volume of public-sector procurement in Germany is around EUR 300 billion. If just one percent of this procurement volume were used for more new products and services, this would provide a EUR 3.0 billion boost to innovation.

That is more than the nation and the states provide in a year to fund research and innovation within companies (EUR 2.1 billion). By increasing public-sector demand for new products, procedures and services, this also creates considerable potential for innovation and technology within the German economy in general.

However, a greater amount of inspection, justification and documentation is required within public-sector procurement bodies in order to procure innovations than would be required for standard products and services. This means that such public-sector purchasers require specific economic and technical qualification to enable them to master the specifics of innovative public procurement (e.g. feasibility measurement methods, procurement market analysis, conformity with public procurement law, technical analysis).

That said, the extra effort is worth it: the development and implementation of innovations are essential for a modern industrialised nation such as Germany. Public sector demand at all levels is therefore extremely important: purchasing innovative products, procedures and services plus the procurement process itself creates potential for better management performance through new technologies and innovations with greater benefit than ever before.

From the perspective of public-procurement law – first and foremost the economic principle – innovative products and services offer many advantages. They can be economically superior when it comes to public-sector procurement. They can also help achieve objectives in areas such as energy efficiency, environmental protection, safety, health, consumer protection and occupational safety.

Methods and instruments for the procurement of innovations

Before each awarding process and the choice of the award procedure, the need must first be described. Procurement law provides two methods that can help with this process.

     functional service description

     the MEAT approach and the life cycle cost calculation

Both methods are used to describe the subject of the contract in more detail and then to define the evaluation criteria for the bidders' offers in preparation for the tender documents.

Functional service description

In the run-up to a call for tenders, the subject of the contract can be presented in more detail with the aid of a simple or functional description of services. The simple service description describes a desired product or service in a service catalog. Therefore, it leaves no room for innovation. This is different in the functional description of performance: it describes the goal to be achieved. This means that the purpose, the function and the requirements placed on the object of the order are presented.

It is mainly used when the underlying market is unknown and / or there is no knowledge of innovative solutions.

The development of possible innovative solutions is then the responsibility of the bidders. This results in a concept competition between the bidders, who bring in their technical and entrepreneurial expertise as well as their creativity to develop innovative solutions.

MEAT approach and life cycle cost calculation

Public procurement can also pursue strategic goals. This is possible with the MEAT approach. MEAT stands for Most Economically Advantageous Tender, which is primarily an evaluation approach. However, it should be applied prior to the awarding process in order to further define the subject of the contract on the basis of award criteria.

In this way, besides the price, social, environmental, qualitative and innovative criteria can be included. A basic variant is the life cycle cost calculation, in which all cost components of an order item are set as criteria before, during and after awarding. Here, above all, the purchase price, the operating and disposal costs should be mentioned

Overall, the goal is to select the best value for money offer.

For example, what criteria could be used?

  •     (Product / service) qualityp
  •     aesthetic and functional properties
  •     customer service and technical assistance
  •     delivery time, duration and reaction time
  •     cost-effectiveness
  •     technical performance, degree of innovation
  •     environment, sustainability and economic factors
  •     purchase price
  •     operating cost
  •     disposal costs

The importance of the criteria used is freely determinable. For example, it may be useful to weight the criteria according to the objectives of the procurement strategy. According to this, goals such as resource efficiency and degree of innovation can be included via corresponding criteria and gain more importance through higher weighting.

The advantages of innovative solutions are obvious: with the life cycle cost calculation, future cost components and potential risks are included in the assessment at an early stage. If further criteria of the MEAT approach are taken into account, offers from suppliers with innovative solutions become more economical, more sustainable and thus more attractive.

Guide to innovative public procurement

Video for the functional performance description

Only in German

Lifecycle cost calculator

Only in German