Pre-Commercial Procurement (PCP)and Public Procurement of Innovative

Solutions (PPI)

Lieve BosEuropean Commission

DG CONNECT F2 unit (“Innovation”)

Health care Climate Change Energy Efficiency Transport Security …

RationaleRationale

Public sector is faced with important societal challenges. Addressing these, often requires public sector transformations so

technologically demanding, that no commercially stable solutions exists on the market yet, and forward looking public procurement strategies are needed

However, public procurement driving innovation from demand side is underutilised in EU versus other parts of the world

3

Underutilisation demand driven Underutilisation demand driven innovationinnovation

Public expenditure is 47% of EU-25 GDP, but 20 times less is spent on R&D procurement in EU (~2,5 Bn€) versus US (~50Bn€)

Lack of procurers driving R&D to their needs and getting familiar with emerging innovations, also slows down uptake of innovative solutions in public sector afterwards

More demand to develop new innovative solutions for public sector challenges for which there are no products on the market yet (R&D procurement) can fill half of the EU-US R&D investment gap

RTD expenditure as % of GDP

00,5

11,5

22,5

33,5

EU US

R&D ProcurementBasic +appliedR&D funding

Lack of awareness of how to optimise risk-benefit balance for procurer and supplier

Unclear how within the legal framework for R&D procurement

Fragmentation of demand

4

Overcoming Overcoming the barriersthe barriers

Phased approach, separate procurement of R&D from procurement of end-solutions, IPR sharing

Commission PCP communication COM(2007)799 & SEC(2007)1668

Cooperation among procurers (share PCP/PPI experience/cost), EU support for cross-border PCPs/PPIs

PCP Pre-Commercial ProcurementPCP Pre-Commercial Procurement When

– Challenge requires R&D to get new solutions developed. Problem clear, but pros / cons of several potential competing solutions not compared / validated yet. No commitment to deploy (PPI) yet.

What– Public sector buys R&D to steer development of solutions to its

needs, gather knowledge about pros / cons of alternative solutions, to avoid supplier lock-in later (create competitive supply base)

How– Public sector buys R&D from several suppliers in parallel (comparing

alternative solution approaches), in form of competition evaluating progress after critical milestones (design, prototyping, test phase), risks & benefits of R&D (e.g. IPRs) shared with suppliers to maximise incentives for wide commercialisation

PPI – Public Procurement of Innovative SolutionsPPI – Public Procurement of Innovative Solutions When

– Challenge requires solution which is almost on the market or already on the market in small quantity but not meeting public sector requirements for large scale deployment yet. No R&D involved (R&D already done, or no R&D needed to solve problem)

What– Public sector acts as launching customer / early adopter / first

buyer for innovative products and services that are newly arriving on the market (not widely commercially available yet)

How– Public sector acts as facilitator establishing a buyers group with

critical mass that triggers industry to scale up its production chain to bring products on the market with desired quality / price ratio within a specific time. After potentially a test and/or certification, the buyers group purchases a significant volume of products.

How does it workHow does it work

Supplier B

Supplier C

Supplier D

Phase 1 Solution design

Phase 2 Prototype

development

Phase 3 Original development

of limited volumeof first test products /

servicesSupplier A

Supplier B

Supplier C

Supplier D

Supplier B

Phase 0 Curiosity

DrivenResearch

R&D / Pre-commercial Procurement (PCP)

Phase 4 Deployment of commercial

end-productsDiffusion of newly developed

products / services

Supplier D

Public Procurement of Innovative Solutions (PPI)

… … in line with WTO proc. rules, EU Treaty, State aid freein line with WTO proc. rules, EU Treaty, State aid free

Supplier(s) A,B,C,Dand/or X

Also normally multiple sourcing here to keep competition going

Smart PCP/PPI combination enabling:– Price/quality products that better fit public sector needs– Earlier customer feedback for companies developing solutions– Better take-up/Wider commercialisation of R&D results– Price/quality products that better fit public sector needs– Earlier customer feedback for companies developing solutions– Better take-up/Wider commercialisation of R&D results

(CO

M/2

007/

799

&

SEC/

2007

/166

8)

Win-win for all stakeholders

- New lead markets- Increase export

- Quality of public services- Focus on political priorities- Improve innovation climate- Attract foreign investment- Increase employment

- Reduce cost of procurement

Procurers

Pre-commercialProcurement

-Shared risks & benefits-First buyer in early R&D

- Global competitiveness

PoliticiansSuppliers

Get the ‘Best Product’… … at the ‘Lowest Price’

- Address ‘public market innovation failure’- Shape product development to public needs- Increase technology knowledge- Reduce risk in commercial tendering- Favour supplier competition

- Pooling of resources- Economies of scale- No licensing costs - ‘First time right’ product - ‘EU interoperable’- Attractive to venture capitalists - Reduce unforeseen expenditure

- Better products- Economies of scale- Wider market size- Shorter Time to market

- Reduce risk of innovation

Status of PCP implementation Status of PCP implementation across Europe across Europe Update June 2012 status Update June 2012 status

UK

Frameworkidentified

Hungary (Eszak-

Alfold)BE (Flanders)

Netherlands

Awareness RaisingExploring possibilities

Denmark

Austria

FinlandSweden

Poland

Pilots started

Working onframework

Germany

FranceLuxembourg

IrelandCyprus

RomaniaSlovenia

Slovakia

Bulgaria

Czech Republic Estonia

GreeceLatvia

Lithuania

Malta PortugalSpain

NorwaySwitzerland

Italy

More info about EU funded cross border PCP projects: http://cordis.europa.eu/fp7/ict/pcp/projects_en.html

- SILVER: First project from FP7-ICT-2011 calls, started January 2012 (Supporting Independent Living of Elderly through Robotics)- Six more cross-border PCPs about to start from WP2011-12 calls (services for mobile access to patient health data, embedded ICT for fire fighter suits, cooperative traffic management centres, sustainable road infrastructure modelling, mobile ehealth services, energy efficient high performance computing)

SILVER

More Info about national PCP initiatives in Member States: http://cordis.europa.eu/fp7/ict/pcp/msinitiatives_en.html

Dike burstz in Netherlands (2003-2004) caused by dry period or broken water pipe inside the dike along canals

PCP (2006): Developing/comparing possible solutions for real time dike inspection & early warning of dikes and dams

Example PCP-like pilot Example PCP-like pilot Water management, Water management, NetherlandsNetherlands

Satellite based solutionapproach

Chip technology based solution

Optics/sensor based solution

Camera based solution

Helicopterbased solution

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Potential £160m p.a. saving

Potential £30m p.a. saving£4,000 per HCAI avoided

Potential £17m p.a. saving

Potential £19m p.a. saving

www.nic.nhs.uk

Example PCP-like project in Example PCP-like project in HealthcareHealthcare

Potential Value to NHS: The NIC has supported the development of innovations to improve the quality of the

patient experience and generate significant cost savings to the NHS (£236m).Value to the economy: With the support of the NHS National Innovation Center (NIC), a number of innovations

have been able to attract significant funding (£290m).

Regulatory requirement to seriously reduce CO2 emissions by 2016 without negative effects on health/environment, beyond what market is able to offer

PCP started in 2011, currently comparing solution approaches of 5 vendors, time-to-market shortened

Follow-up procurement for deployment foreseen for 2014 (open to whole market again)

PCP example on CO2 emissionsPCP example on CO2 emissionsCarbon capture – Norway Carbon capture – Norway Statoil/GassanovaStatoil/Gassanova

Rotherham Ultra Efficient Lighting FCP

New SME created through the FCP process.

PPI ExamplePPI ExampleLow Carbon HealthcareLow Carbon HealthcareUltra Efficient LightingUltra Efficient Lighting

Results (project started back in 2006,): • LED project refurbishment: energy consumption saving of 30% or €5,200 for 40 beds over 10 years, and Maintenance Saving of 88% or €15,400 for 40 beds over 10 years.• For more info: http://lowcarbon-healthcare.eu/ •UK brand name for PPI = FCP = Forward Commitment Procurement

LCB-HEALTHCARE network: Department for Business Innovation and Skills, Rotherham hospital (UK) (lead), Norwegian Directorate for Health Affaires(NO), Rawicz Hospital(PL), Department of Health DH (UK), Nottingham univ hospital (UK), European Health Property Network EuHPN (NL), Rotterdam Erasmus MC (NL), Organisation for Applied Scientific Research TNO (NL)

Swedish experience with PPI since 70s– creating buyers group also with private sector, further market uptake

encouraged through certification and (eco) labelling Significant cost and energy/environmental efficiency

improvements were achieved in:– Heating-cooling-ventilation of buildings– White appliances (ovens, washing machines, fridges) and components (motors)– Office blocks (sun shading, lighting, control/monitoring)– Public transportation (hydrogen busses)

For more info (Swedish brand name for PPI = technology procurement): http://ec.europa.eu/environment/enveco/innovation_technology/pdf/bridging_valley_report.pdf

PPI examplePPI exampleEnvironmental/energy Environmental/energy efficiency fieldefficiency field

Sweden NUTEK / STEMSweden NUTEK / STEMTechnology procurementsTechnology procurements

EC support to EC support to PCP & PCP & PPIPPI

Today– DG CNECT and ENTR (security) are piloting EC support to joint

cross-border PCPs done by min 3 public procurers from 3# MS/AC• FP7 CP-CSA grant, co-financing up to 75% of the cost of the procured R&D + up to

100% of the costs for preparing/coordinating/evaluating joint PCP – DG ENTR and ENV are piloting EC support to joint/coordinated

cross-border PPIs. DG CNECT proposes similar in CIP PSP WP2013 (€10 Mio for PPIs in ICT for health/active ageing, done by min 3 public procurers from 3# MS/AC)

• CIP grant, co-financing up to 20% of the cost of the innovative solutions procured / deployed + up to 100% of the costs for preparing/coordinating/ evaluating PPI

Horizon 2020 proposal (2014…)– PCP & PPI new funding instruments available across entire H2020– EC can co-finance PCPs/PPIs carried out by grant beneficiaries– EC or EU funding bodies (e.g. agencies) can carry out PCPs/PPIs on

their own behalf or jointly with Member States– can also be used in context of e.g. EIPs

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Demand driven PCP

“FP7 CP-CSAgrants to procurers for joint PCPs”

Industrial research and (FP7)Experimental Development

Supply driven“FP7 grants tounivs & suppliers”

Phase 1 Solution Design

Phase 2 Prototype

development

Phase 3 Original development up to limited volume

of first test series

Phase 4 Production / early

adoption of commercial

volumes

Phase 0 Curiosity

DrivenResearch

Phase 5 Sales of

off-the-shelfproducts

FundamentalResearch

Commercialisation (CIP)Commercial Development

Input to standardisation & regulation

DemandDriven

Fosteringwider

diffusionVC & other financers

CIP grants to procurers for cross-

border PPIs

EU PCP/PPI support today… … and tomorrowEU PCP/PPI support today… … and tomorrow

Health/active ageingHealth/active ageingrelated PCP/PPI calls related PCP/PPI calls

FP7-ICT-2013 (Call deadline 15 January 2013)Targeted calls for joint PCPs in specific areas of public interest (CP-CSA for PCP grants)

Objective 5.1.(d), Call 10 – ICT for Personalised Health - Active Ageing (€8M) up to 1 on personalised care for co-morbid patients, up to 2 on mobile ehealth services

An open call for joint PCPs addressing any area of public interest (CP-CSA for PCP grants) Objective 11.1, Call 10: Proposals for joint PCPs relating to public sector needs for new ICT solutions in e.g. healthcare, inclusion, e-government, transport, energy efficiency, environment, security, education etc (€4M: 1 project)

(in complementarity to PCPs called for under objective 5.1(d))

Targeted calls for networking on PCP (CSA grants)Objective 5.1.(e)(1), Call 10 - Community building public procurers in ehealth, active ageing and independent living (€500.000)

CIP-PSP-2013 (Call expected to open January 2013)Targeted calls for joint or coordinated cross-border PPIs in ICT for health – active ageing

€10M for support to PPIs (€5M for up to 2 in active ageing, similar for health) EC proposal currently under discussion with Member States

How to use ECHow to use ECPCP support?PCP support?

Supplier B

Supplier C

Supplier D

Phase 1: Solution design ~10-15% PCP budget~100-250K/supplier

~4-10 suppliers

Phase 2: Prototyping~30-40% PCP budget~500-750K/supplier

~3-6 suppliers

Phase 3: Original development – operational testing

~50-60% PCP budget~800K-2,3M/supplier

~2-4 suppliersSupplier A

Supplier B

Supplier C

Supplier D

Supplier B

Example of €5,066-7,6 Mio PCP

Supplier D

Example: €4 Mio CP-CSA for PCP grant Max 30% (€1,2 Mio) for coordination costs - 100% funded Other €2,8 Mio = EC contribution to the ICT R&D procured through the joint PCP

• Reimbursement rate 75% for public, 50% for private contracting authorities• If consortium of only public contracting authorities -> PCP of € 3,73 Mio (ex VAT)• If consortium of only private contracting authorities -> PCP of € 5,6 Mio (ex VAT)

Example CP-CSA Example CP-CSA for PCP grantfor PCP grant

Consortium brings €0,93-2,8 Mio (+VAT) for €3,73-5,6 Mio PCP Comparing various solution approaches from different vendors, defragmenting market to get in long run also cheaper large volume purchases, sharing R&D cost/experience with other procurers & EC: joint PCP cheaper/procurer than buying R&D from one supplier on your own

Supplier ESupplier E

Supplier E

PreparationJoint PCP

P1

P2

P3P4

P5

Consortia of public procurersP1->P5 (min 3)

One Joint PCP call for tender

Phase 4 Deployment of commercial end-products

Early adoption of new to the market products / services

Public Procurement of Innovative Solutions (PPI)

Procurer 1 buying e.g. €2 Mio solutions from supplier A

How to use ECHow to use ECPPI support?PPI support?

Example PPI Example PPI pilot grantpilot grant

Example: €3 or 5 Mio PPI pilot grant Max 30% up to max €1 Mio for coordination costs - 100% funded Remaining €2-4 Mio = EC contribution to the ICT solutions procured / deployed through

one joint or several coordinated PPIs based on jointly defined specs• Reimbursement rate 20% for public and private contracting authorities -> value

total amount of PPI procurements by all procurers in consortium = €10-20 Mio

PreparationJoint or

coordinated PPIs

P1

P2

P3P4

P10

Consortia of public procurersP1->P10 (min 3)

One Joint or several coordinated (jointly

defined tender specs) PPI call for tenders

Procurer 2 buying e.g. €1,5 Mio solutions from supplier B

Procurer 3 buying e.g. €5 Mio solutions from supplier D

Procurer 4 buying e.g. €2 Mio solutions from supplier E

Procurer 10 buying e.g. €2 Mio solutions from supplier X

…

… …

Background infoBackground info

PCP website: Info on calls, EU funded projects, background docs, FAQs, PCP initiatives in Member States and Associated Countries etchttp://cordis.europa.eu/fp7/ict/pcp/home_en.html

Detailed info about PCP calls: Calls page on PCP website links to all official call docs:http://cordis.europa.eu/fp7/ict/pcp/calls_en.html

Info about PCP/PPI initiatives in MS and AChttp://cordis.europa.eu/fp7/ict/pcp/msinitiatives_en.html