The pathway of PCP strategy: Italy under the spotlights - by Sara Bedin, Expert of innovation public procurement - The European House Ambrosetti - Head of Public Administration Practice.

1. EOS Fair Udine, 17th May 2013 1
Pre-commercial procurement and
procurement for innovation:
driving innovation to ensure energy efficient buildings
in the MED area
The pathway of PCP strategy:
Italy under the spotlights
Sara Bedin
Expert on innovation public procurement
The European House-Ambrosetti - Head of Public Administration Practice

2. EOS Fair Udine, 17th May 2013 2
The innovation policy mix
DIRECT FINANCIAL
SUPPORT FOR R&D
FACILITIES
SUPPLY-SIDE GRANTS
FOR INDUSTRIAL R&D
ACTIVITIES
DEMAND SIDE
MEASURES FOR R&D
PROCUREMENT

3. EOS Fair Udine, 17th May 2013 3
Direct financing of innovation has some distortions
«disorient/replace, to a certain extent, private investment»
do not allow the public sector to guide R&D to meet the real
needs of innovation
do not ensure economic finalization of innovation

4. EOS Fair Udine, 17th May 2013 4
Traditional public procurement show rigidity
Do not enable innovation
Single supplier lock-in and closes off the market

5. EOS Fair Udine, 17th May 2013 5
WHY PCP has a central role in promoting innovation?
create and strengthen new markets, reducing time-to-market
create additional and spontaneous incentives to innovate
enable competition during the execution

6. EOS Fair Udine, 17th May 2013 6
WHAT is PCP?
 it is a procurement of R&D services

7. EOS Fair Udine, 17th May 2013 7
 it isn’t a supply contract to procure product/services nor a work contract
 doesn’t include commercial development activities such as industrialization,
quantity production, supply,
 doesn’t include activities like integration, customisation, incremental
adaptations and improvement to existing product or processes.
WHAT is not PCP?

8. EOS Fair Udine, 17th May 2013 8
WHO can undertake a PCP initiative?
Contracting authorities at all levels (local,
regional, national and supra-national)
representing the real demand side,
• that are responsible for the acquisition
strategy of the new solutions that could
be developed as a result of the PCP
or
• that participate in public service
delivery chain
and/or
• that can mobilise, besides public
procurement, the most important
demand side instruments to speed up
market introduction of solutions.

9. EOS Fair Udine, 17th May 2013 9
HOW shoud be formulated the object of the tender?
described in terms of
(minimun)
functional/performance
requirement and target
?
PROBLEM TO BE SOLVED
without prescribing a
specific solution
approach

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WHEN PCP implementation is viable and effective? (1/2)
When there is a technologically demanding problem/challenge
• with no commercially stable solution on
the market or exhibiting shortcomings
which require new R&D,
• suitable to multiple technologies, also
alternatives.

11. EOS Fair Udine, 17th May 2013 11
• with industrial applicability and subject
to repeated applications (wider market),
• potentially amenable to patent
protection or IPRs management.
When there is a technologically demanding problem/challenge
WHEN PCP implementation is viable and effective? (2/2)

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creative thinking and
innovative capacity
90% 10%
production, delivery &
manufacturing capacity and resources
WHAT is relevant in PCP?

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Company SIZE
Company AGE
...doesn’t matter
WHAT does not matter in PCP?
All potential bidders must have equal chance to bid
(no discrimination against any potential supplier)

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Selection/qualification criteria : changing the practice of
requiring stringent requirements
No discrimination against
any potential supplier
No financial qualification
requirements and financial
guarantees proof
No stringent customer
reference
Forward-looking criteria
No reasons for exclusion as set out in article
38 Legislative Decree no.163/2006
(No provisional deposit for the initial
phases)
Have the ability (and technical equipment)
to perform all R&D services and contract
described in the lex specialis
Have accounting and organizational
structures to ensure the management,
exploitation and / or transfer of IPRs arising
from the R&D activities.

15. EOS Fair Udine, 17th May 2013 15
Based on the most economically advantageous
tender (not on lowest price)
Incorporating life-cycle cost and performance in the
evaluation of proposals
Including the soundness of the commercialization
plan of the bidder.
Evaluation/Award criteria : objective and relevant in view of
the commercialization

16. EOS Fair Udine, 17th May 2013 16
Evaluation/award criteria
Ability to address the problem and satisfy the requirement
Novelty/innovativeness (progress beyond the state-of-the-art)
Technical feasibility/reproducibility with an industrial process
Value for money throughout the whole life-cycle
Soundness of the commercialization plan of the bidder
Quality and effectiveness of the organization and resources

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HOW PCP process enable a competition during the
execution?
PCP is a competitive procurement designed to exclude State Aid

18. EOS Fair Udine, 17th May 2013 18
WHICH is the outcome of PCP?
Procurement
of innovative
solution (PPI)
WHICH (optimum
technology)
WHAT/HOW (technical
specification )
Pre-commercial
procurement
(PCP)

19. EOS Fair Udine, 17th May 2013 19
HOW MUCH is it paid with PCP?
100%
of price offered
for R&D services provided
under market conditions
any R&D benefit shared by
the public purchaser with a
company should be
compensated at market price

20. EOS Fair Udine, 17th May 2013 20
HOW PCP involve risk-benefit sharing?
 IPRs are assigned to supplier
 Agreed return of benefit /financial compensation
(i.e. % of sales to the contracting authority)
 Sharing by contractual provisions
 IPRs are different from rights of usage!
 Free licence to use R&D result (on a non-exclusive
basis)
 Call-back provision
 Technological uncertainty
 Obligation of means and not of result
 Companies are responsible to cover at their
own expense any additional unforseen costs
that they may incur above the fixed price
they have committed to in their bid.

21. EOS Fair Udine, 17th May 2013 21
Risk and benefit are shared
between public purchaser and
companies such that both
parties have an incentive to
pursue wide
commercialization and
take up of the new
solutions
HOW PCP involve risk-benefit sharing?

22. EOS Fair Udine, 17th May 2013 22
DEMAND-DRIVEN
INDUSTRIAL POLICY
WHY: Raising industry’s innovative performance,
broadening SMEs participation in R&D
projects and creating opportunities for
companies to take international leadership
in new markets
WHY: Increasing long-term effectiveness and
efficiency of public expenditure, as well as
improving the quality and sustainability of
public services, filtering out technological
risk
INNOVATION ORIENTED
PROCUREMENT STRATEGY
CONDICIOSINEQUANONEFFECT
PCP: a unique procedure
PCP: a twin relevance, both as policy and strategy

23. EOS Fair Udine, 17th May 2013 23
The public sector role in promotion of R&D&I via PCP
Financial support to implement
innovative procurement action
and to pool demand
Scope of the EU State Aid rules for R&D
Framework
payment of full cost at
market price
PUBLIC
PURCHASER
SUPPLIER
21
PCP
Mutually
binding and
risk-benefit
sharing
contract
provision of R&D
services
financial compensation
POLICY
MAKER
contribution, funding
WITHOUT LEADING TO UNILATERAL STATE AID TO INDUSTRY

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PCP should not constitute State Aid (COM (2007) 799)
Any aid which distorts or threatens to distort competition
is incompatible with the common market.
Companies participating in the procurement shouldn’t
receive any advantage.
State Aid element should be excluded through the
appropriate design of the contract.

25. EOS Fair Udine, 17th May 2013 25
Create a common commitment and agreement at all levels (political
and administrative).
Created a widespread participation and an alignment of the
personnel incentive systems with the objectives of the project.
Establish the instrument of pre-commercial procurement as
procurement strategy and innovation process (not only as
innovation policy).
Spend time to involve user and market in order to evaluate the
innovation need in-depth and market gap.
Maintain a dialogue with potential suppliers long before the public
procurement procedure is launched
Assign intellectual property rights to the party who has done R&D
and is best able to exploit it (businesses).
Do not use disproportionate qualification or financial guarantee
requirements (as there are no solutions and no customer reference
on the market yet)
A win-win policy to promote innovation through public expenditure
Lessons learned & recommendation

26. EOS Fair Udine, 17th May 2013 26
Thank you for your kind attention
Sara Bedin
mail: sara.bedin@ambrosetti.eu
mail: sara.bedin@appaltoprecommerciale.it

27. EOS Fair Udine, 17th May 2013 27
Key issue
Real problem/ concrete challenge that impact negatively
on the quality and/or cost of public services offered exist
Wide potential market (public and private) for the new
solution developed >> repeated applications
Exploring pros and cons of alternative solutions
Cost saving and/or public quality improvement
Ensure a future competitive market

28. EOS Fair Udine, 17th May 2013 28
General PCP framework
Lombardy Region first PCP

29. EOS Fair Udine, 17th May 2013 29
The pathway of Lombardy PCP pilot (1/2)
Step # 1: Identifying candidate
projects from innovation needs
€
Step -1: Innovation needs identification and
assessment
PCP viability
April 2012 December 2012
Step -2: Building awareness and objective alignment
April 2011
Step # 0: Verifying the pre-condition for PCP with an open and advertised technical
dialogue
@
advertising

30. EOS Fair Udine, 17th May 2013 30
The pathway of Lombardy PCP pilot (2/2)
Step #5: Performing IPRs contract
December 2012 March 2013
Step #6: FCP/PPI
...
Step # 3: Needs well-definition and fine-tuning
Step #2: Governance model and PCP structure design
Fase 0
Ricerca di
soluzioni
Fase 1
Elaborazione
della
soluzione
Fase 3
Sviluppo iniziale di quantità
limitate di primi prodotti/
servizi in forma di serie
sperimentali
Fase 4
Commercializzazione dei
prodotti/servizi (sviluppo
commerciale)
Idea di
prodotto
Elaborazione
di soluzioni
Prototipo
Primi
prodotti test
Prodotti
finali
commerciali
Fase 2
Messa a punto di
prototipi
Impresa A
Impresa C
Impresa C
Impresa E
Impresa
A,B,C,D,E
o X
Appalti pubblici
per la produzione
commerciale
Valutazione
intermedia
Valutazione
intermedia
Appalti pre-commerciali
Impresa C
Impresa B
Impresa D
Impresa E
Impresa F
Impresa C
Impresa D
Impresa E
Step #4: Run PCP

31. EOS Fair Udine, 17th May 2013 31
Assumption and pre-condition #1 for PCP
Do we have a real problem/ concrete challenge that
impact negatively on the quality and/or cost of public
services offered?
Is the need clearly identified and well-described?
Do exist a wide potential market (public and private) for
the new solution developed?

32. EOS Fair Udine, 17th May 2013 32
WHO
Niguarda Hospital
• Clinical Engineering
Department
• Medical Direction
Department
• Quality and clinical
safety Department
• Direction of nursing
Phase -1: Innovation needs identification and assessment

33. EOS Fair Udine, 17th May 2013 33
Phase -1: Needs setting and pre-analysis
WHO
Lombardy Region
• General Direction
for Healthcare
• Direction for
University and
Research
Niguarda Hospital
• Clinical Engineering
Department
• Medical Direction
Department
• Quality and clinical
safety Department
• Direction of nursing

34. EOS Fair Udine, 17th May 2013 34
Assumption and pre-condition #2 for PCP
Do “off-the-shelf” solutions already exist? If not, how long
does it take?
Is there a market gap (actual need versus solution
currently available on the market)?
Is it clear the way to address the public sector need?
Are radical improvements and new breakthrough
solutions needed (as opposed to incremental
adaptations)?

35. EOS Fair Udine, 17th May 2013 35
Available
solution on
the market
Public notice
Public hearing
Forum on-line
Explorative call
Patent analysis + info request
Market gap
with
respect to
actual need
? ?Function and
performance
evaluation
Phase 0: Open technical dialogue with the market

36. EOS Fair Udine, 17th May 2013 36
Assumption and pre-condition #3 for PCP
Have we formulated the object of the tender as a
problem to be solved in terms of functional/performance
based requirement without prescribing a specific solution
approach?
Have we allocated the right resources (in terms of time,
budget and number suppliers) for each phase?
Have we determined clear (and proportional) selection
and award criteria?

37. EOS Fair Udine, 17th May 2013 37
Phase -1 & 0: Needs description
Easy-to-use automated universal
system for moving hospital beds,
with anti-collision and safety
systems, not needing guide lines
or tracks even on non rectilinear
routes
Problem description (AS-IS)
Solution functionality and whole life-cycle
performance description (TO-BE)

38. EOS Fair Udine, 17th May 2013 38
Phase 0: Procedure setting
Phases number and type
Offers number per phase
Starting price for each phase/service
Selection criteria
Evaluation/award criteria

39. EOS Fair Udine, 17th May 2013 39
The step-wise PCP procedure
Solution 1 Solution 1
Solution 2
Solution 3 Solution 3 Solution 3
Solution 4 Solution 4
Solution 5 Solution 5 Solution 5
Solution ...
Solution n
Phase 1 Phase 2 Phase 3
Feasibility study Technical design Prototyping,
test, sperimentation
10-15 % of budget (100K€)
(fixed compensation according to mkt condition at the end of Phase 2 )
85-90 % of budget (650K€)
(price payment)
Intermediateevaluation
Intermediateevaluation
Ranking on “most economically
advantageous offer” and minumun
technical “pass” scoreRanking on technical quality an minimun “pass” score

40. EOS Fair Udine, 17th May 2013 40
Thank you for your kind attention
Sara Bedin
mail: sara.bedin@ambrosetti.eu
mail: sara.bedin@appaltoprecommerciale.it