Private: Innovation In Procurement Toolkit
Private: Guide To Market Engagement

Pre-Procurement Procurement

What is it?

Pre-commercial procurement (PCP) is a means to stimulate the market to deliver the innovation and solutions you want. Through PCP, you can commission R&D services from multiple suppliers, who develop alternative solutions in parallel for your service needs. You are then able to test these prototypes and MVPs to determine which best meets your service needs and offers the best value for money.

In PCP, public procurers share the benefits and risks related to the IPRs resulting from the research and development (R&D) with suppliers at market price. Suppliers retain IPR ownership rights, while procurers keep some usage and licensing rights.

The PCP process consists of multiple phases, with suppliers being eliminated at each phase. The budget per bidder increases every round to reflect the resources needed for further development. The phases of PCP include, open market consultation, call for tender, solution design, prototype development, testing of a limited volume of products/services. PCP covers the development of products up to the prototyping and testing phase, but not beyond.

R&D does not include commercial development activities such as quantity production, supply to establish commercial viability or to recover R&D costs, integration, customisation, incremental adaptations and improvements to existing products or processes.

There are limits on the quantity of the prototypes that can be purchased for the purposes of testing and piloting.

The total value of supplies purchased needs to remain below 50% of the total PCP contract value.

After the PCP process, you need to go to tender for commercial volumes of your preferred solution. This tender process must be competitive and must not disadvantage suppliers who were not involved in the PCP process.

After the PCP process, you need to go to tender for commercial volumes of your preferred solution. This tender process must be competitive and must not disadvantage suppliers who were not involved in the PCP process.

Why does it matter?

  • PCP is an important mechanism for encouraging suppliers to innovate, understanding what the market is able to produce, and getting technology products that truly meet your needs.
  • By inviting multiple suppliers to simultaneously develop solutions you stimulate competition within the market, which in turn leads to higher quality prototypes and products.
  • Through PCP you can steer the development of solutions towards your needs, whilst comparing/validating alternative solution approaches from different vendors. PCP gives you the opportunity to evaluate prototypes and real products in practice, exploring and comparing pros and cons of alternative solutions. This process fosters strong partnerships between boroughs and innovative suppliers.
  • Innovation inherently involves uncertainty. Having a flexible, phased procedure with implementation freedom allows you to navigate the uncertainty of R&D and innovation activities and mitigates some of the risks of making large upfront commitments.
  • PCP is a cost-effective way of commissioning R&D. By allowing companies to retain the IPR, the cost of R&D services to the public purchaser is decreased, because the company is able to generate additional revenue from the IPR – the lower price point also enables you to invest in the competitive development of multiple solutions
  • PCP is an opportunity to jointly commission but separately procure innovation with other boroughs. The R&D costs and risks can be reduced through bundling of demand with other public purchasers, whilst each buyer retains autonomy over the procurement of solutions.

When should you do it?

  • If you have conducted thorough market engagement and have concluded there is insufficient competition to ensure quality and affordability of solutions, or there is simply no commercially stable or satisfactory solution.
  • When you have a good grasp of the problem you are trying to solve, but do not know what solution you need, PCP is an appropriate route for conducting R&D for the purposes of solution discovery.
  • When you want to involve multiple stakeholders in developing a solution – suppliers can work together in consortia, harnessing their respective strengths to innovate.
  • When the procurement is not highly time sensitive – though PCP may deliver better outcomes than traditional procurement routes, the R&D process does take considerable time, and may not be appropriate if a solution has to be implemented quickly.
  • If you are not the sole customer or potential user for a highly bespoke and customised solution. If you are the only potential customer, suppliers may be unwilling to absorb part of the R&D costs because there will be no further return on their investment through sales to other buyers.

How should you do it?

Good PCP follows the steps outlined in the diagram below. As with all good procurement PCP should start with a clear statement of user needs, followed by thorough engagement with the market to determine that PCP is most appropriate procurement route.

Thorough user research and market engagement is then followed by the design of the PCP development phases, and a call for participation. The PCP then commences through three development phases: Solution Design, Prototyping and Testing.

Guidance Documents

The European Assistance For Innovation Procurement (EAFIA) initiative has put together a detailed toolkit on how to conduct PCP, including guidance for collaborative procurements. We recommend you refer to Modules 2 and 3 of the toolkit, and follow the guidance when conducting PCP.

The INSPIRE (International Network Supporting Procurement Innovation via Resources and Education) has also written a PCP toolkit. The first document is intended to indicate the key questions which Public Procurers and their organisations will need to be able to answer in order to establish whether they should or should not conduct PCP. The second document provides real-life examples on how to assess need, engage with the market, define a business case and design the competitive procedure.

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