Report: altering Canada’s approach to public procurement could stimulate innovation

A new approach to public procurement might be an answer to Canada’s innovation problem, according to a recent report published by the University of Calgary’s School of Public Policy.

The report, titled “Buying with Intent: Public Procurement for Innovation by Provincial and Municipal Governments,” was authored by Daria Crisan, a research associate at the School of Public Policy. It surveys the state of Canada’s innovation-based policies, and outlines why the country should consider making innovation a part of its public procurement strategy at the subnational level.

Public procurement is the acquisition of goods, services and works by government institutions and publicly owned companies.

“Public procurement may be an answer to Canada’s perpetually disappointing innovation performance.”

To date, the report said, there is limited evidence that municipal and provincial governments, which are responsible for most of Canada’s public procurement spending, use procurement for innovation. It attributes this, in part, to the prevailing view of the purpose of procurement: to acquire “the lowest cost, safest solutions that answer the public sector’s needs.”

The report claims, however, that public procurement could instead be used strategically at Canada’s municipal and provincial levels of government as an effective means of stimulating innovation.

“Public procurement is potentially the most powerful, yet currently underutilized, tool for stimulating innovation from the demand side,” read the report. “It also represents a significant departure from the Canadian tradition of using mostly supply-side instruments like research and development (R&D) tax credits to encourage innovation by reducing its costs, mostly with underwhelming results.”

“The disappointing state of innovation in Canada, particularly as measured by the level of R&D spending, has been a constant concern for policy-makers over the last few decades,” the report said.

In 2010, Canada’s federal government appointed an expert panel to review the effectiveness of federal programs in supporting business and commercially-oriented R&D. The panel’s final 2011 report identified the need for Canada to support the growth of small, innovative firms and the weakness of Canada’s demand-side innovation policies, including its over-reliance on supply-side instruments, from tax credits to research funding and R&D subsidies.

“However, there is a growing recognition in both academia and among policy makers that besides enabling government organizations to fulfil their roles more effectively, purchasing innovative products can also influence the level of innovation in the private sector,” reads the report.

“Public procurement of innovation could stimulate local demand, further policy goals, turn society’s needs into market demands, help manufacturers achieve critical mass for production and lower production costs and ultimately help innovative firms grow and spread their novel solutions to more users,” the report said.

The report found that “given the constitutional distribution of powers between levels of government in Canada” the bulk of public procurement is undertaken by provincial and municipal governments. Sectors under the purview of municipal and provincial governments include education, healthcare, social services, and municipal affairs. As a result, the report identified provincial and municipal governments as representing the largest opportunity for an innovation-driven procurement strategy.

However, the report noted that “there are no programs yet in place for using procurement for innovation at the provincial level, similar to the federal one.”

One of the ways Canada could encourage innovation via public procurement, the report noted, is by giving small to medium-size enterprises (SMEs) more opportunity to participate in municipal and provincial public tenders. Current insistence on low prices, can “squeeze SMEs out of the bidding process.”

“SMEs vastly outnumber larger firms in Canada and, given opportunities to innovate, they could provide a significant boost to employment and economic output,” reads the report.

The report also acknowledges that not all municipal and provincial domains are equal, calling for attention to be focused on procurement areas that would benefit most, such as those with no existing products, where existing products perform poorly, or where the risks of novel solutions are “not too high.”

“There is a growing recognition… [that] purchasing innovative products can also influence the level of innovation in the private sector.”

For public procurement to succeed as a tool of innovation, procurement departments would need to embrace additional risks and increased costs, according to the report. Government agencies would also need to collaborate, recognize that additional costs and potential savings might occur in different areas, and accept that “buying innovative goods and services serves more than the particular government unit they are intended for,” the report said.

To incentivize the procurement of innovative products, the report proposes that the federal, provincial, and municipal governments consider setting up “matching grant programs or specific funds dedicated to the procurement of new-to-the-market goods and services.” Access to additional funds, it said, would make it easier for public-sector buyers to seek and embrace new, innovative, and possibly more expensive solutions that better respond to their needs.

The report argued that the financial support for such a program “doesn’t necessarily require additional government spending”— it suggested that, instead, governments could identify existing innovation-driven initiatives that are underperforming and reallocate some of the associated funding towards the procurement of innovative products from small to medium-sized businesses.

“Used wisely, public procurement may be an answer to Canada’s perpetually disappointing innovation performance,” reads the report.

Image source The School of Public Policy at the University of Calgary via LinkedIn