Angelyn Rowan, Senior Associate at Eversheds, explains how Europe’s new procurement process for innovation partnership will operate in practice.

Smart growth, including developing an economy based on knowledge and innovation, is one of the key priorities of the European Union’s Europe 2020 strategy. The Irish Government has embraced this strategy and expressed an ambition to become a leader in innovation. Interestingly, Ireland was ranked third out of 28 member states in the European Commission’s Indicator of Innovation Output in 2013. With the recent appointment of a Commissioner for Start Ups in Dublin and events such as the Innovation Showcase organised by Enterprise Ireland in December 2014, innovation is high on the agenda.

Public procurement is seen as a tool to achieving the objectives of the Europe 2020 strategy, whilst ensuring the most efficient use of public funds and maintaining an open market. With this in mind, the opportunity was taken to introduce a new procurement procedure to facilitate innovation in public sector procurement during the recent revision of the European public procurement directives.

What is it?

The innovation partnership is a new procurement procedure introduced under the 2014 Public Sector and Utilities Directives (the “Directives”), that will enable contracting authorities to run a tender competition for both the development and the purchase of innovative goods, works or services in a single award process.

Why is it different from other award procedures?

Typically, competitions for the award of public contracts will involve a contracting authority tendering for the provision of specific products or services in accordance with clearly defined parameters. Under the existing rules, where a contracting authority wishes to run a procurement procedure that combines both development and purchase elements together it encounters a myriad of difficulties in structuring a competition that does not infringe upon the principles of equal treatment and transparency. The innovation partnership introduces, for the first time, a new procedure that allows for the combination of both the development and purchase elements, with express rules in place to seek to ensure equal treatment and transparency.

From when can it be used?

The Directives must be transposed into Irish law before April 2016. However, it is expected that the Directives will be implemented in Ireland well before this deadline. The UK draft regulations implementing the Directives have already been published.

When should it be used?

The process can only be used in limited circumstances, where (i) the goods, works and services that are sought are “innovative” and (ii) there is an intention to include both the development and purchase elements in the procedure, provided they correspond to agreed performance levels and maximum costs.

What will it involve?

Competitions under the innovation partnership procedure will be governed by effectively the same rules that will apply to other procurement procedures under the Directives. However, there are certain additional requirements specific to innovation partnership competitions which contracting authorities must also adhere to. Some of the key requirements include the following:

Required solution: The contract notice must set out sufficient information to allow tenderers to identify the nature and scope of the required solution as a whole. The need for the innovative solution that cannot be met by products, works or services already available in the market must also be set out. It must also set out performance levels and maximum costs to which the resulting products or services must adhere. Contract notice: The contracting authority must issue a contract notice in the usual way and the minimum time limit for receipt of requests to participate is 30 days from the day which the contract notice is issued.

Process: It will be in successive stages including (1) the research and development of the solution which can take place in several stages, and (2) the subsequent supply to the contracting authority of the solution. More than one partner can be identified and partners can then be eliminated as the development work progresses. The partnership will set intermediate targets to be attained by the partners and can provide for payments in appropriate instalments.

Selection criteria: Criteria must be applied in respect of tenderers’ capacity in the field of research and development when selecting candidates. Capacity is distinguished from experience, so as not to rule out the involvement of start-ups.

Award phase: Whilst the minimum requirements and award criteria are not subject to negotiation, contracting authorities are required to negotiate with tenderers on their tenders to improve their content, save for the final tender. The criteria to award the innovation partnership must always be the most economically advantageous tender with the best price-quality ratio.

IP rights: Importantly, in the context of innovative products, works, or services, the procurement documents must provide for the protection of tenderers’ intellectual property rights.

Proportionality: The estimated value of the supplies, works or services must not be disproportionate in relation to the value of the investment required for their development. This requirement seeks to avoid the abuse of the procedure and limit the quantum of the award to an amount that is essential to incentivise the development.

Subsequent purchase: The purchase of supplies, services or works developed under the partnership may be made only where they correspond to the agreed performance levels and maximum costs.

Will it have an anti-competitive effect?

While the concept of innovation partnerships has been broadly welcomed, concerns have been raised by some commentators, particularly in relation to the potentially anti-competitive effect of the procedure. This was flagged in the Directives which state in the recitals that the procedure should be structured so as to have the necessary ‘market pull’ to incentivise development without foreclosing the market. This is clearly an area of weakness that could potentially give rise to challenges in a procedure that is not properly managed.

Conclusion

The new procedure provides clearer guidelines to contracting authorities wishing to procure innovative goods, works and services and overcomes the issue of procuring both the development and purchase of these in one award procedure.

For these reasons, it is a welcome addition to the procurement procedures currently available to contracting authorities. Given the additional requirements involved, contracting authorities will have to carefully plan and run the procedure to avoid the risk of a procurement challenge. Good advance planning will be key.