Smart public procurement: A multi-billion-dollar opportunity to boost the low-carbon economy
This editorial originally appeared in the 2017 Canadian Clean Technology Report, by Analytica Advisors.
This is what federal-provincial/territorial governments spends on the procurement of goods and services each year. This tremendous purchasing power represents a huge opportunity to create the demand drivers necessary to seed market opportunities for clean technologies in Canada. Public procurement can have a foundational role in stimulating an innovative, low-carbon economy. Proving adoption in domestic markets is a boost for developing export opportunities.
But how can this be done in practice, while assuring value for taxpayer dollars?
Outcomes based procurement models are gaining traction on the international stage, with organizations such as the World Bank highlighting this as a key strategy to improve procurement efficiency. Under this model a customer contracts and pays for results delivered, rather than a defined activity, task, or asset — a move from focusing on the “how” of traditional procurement to the “what”.
Without prescriptive specifications, the innovation community is free to propose any solution that delivers the desired outcome. Sometimes that may be technology driven, but it might also be business-model driven. With payment based on the delivered outcomes, suppliers deliver innovation, efficiency, and value—accepting risk of delivery.
In 2010, the Norwegian Ministry of Transport used this method to procure the world’s first electric ferry. The tender did not specify a technology, only a clear objective (a 15–20 percent improvement in energy efficiency) and sustainability criteria. The success of this tender triggered others, helping create a market for low-carbon ferries.
But it can be difficult to define desired outcomes and develop the right performance indicators. A lack of relevant and enforceable metrics is often cited as the biggest challenge. The success of these procurements requires a cultural shift in organizational thinking, and relinquishment of a large degree of control on the part of the procuring organization. Achieving adoption of this new approach will require capacity-building initiatives for both procurers and supply chain players.
Despite these challenges, the potential benefits are significant. The Canadian government has committed to modern, clean, and scalable procurement that benefits Canadian businesses. Outcomes based procurement is a key part of the solution.