Pre-Commercial Procurement (PCP) and Public Procurement of Innovative Solutions (PPI) Lieve Bos European Commission DG CONNECT F2 unit (“Innovation”)

Rationale Health care Climate Change Energy Efficiency Transport Security … 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 Health Inclusion Government Security eInfrastructure

Underutilisation demand driven innovation RTD expenditure as % of GDP 0,5 1 1,5 2 2,5 3 3,5 EU US R&D Procurement Basic +applied R&D funding 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 3 3

Overcoming the barriers 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 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 4

PCP 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 Health Inclusion Government Security eInfrastructure

PPI – 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. Health Inclusion Government Security eInfrastructure

How does it work 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 Public Procurement of Innovative Solutions (PPI) R&D / Pre-commercial Procurement (PCP) Phase 0 Curiosity Driven Research Phase 1 Solution design Phase 2 Prototype development Phase 3 Original development of limited volume of first test products / services Phase 4 Deployment of commercial end-products Diffusion of newly developed products / services Supplier A Supplier B Group of European procurers Pool public demand and specify needs Manage procurement process Share risks and benefits together and with suppliers Cost shared, IPR shared, knowledge shared Compatible with procurement directives and state aid Exception to procurement directives Legally defined as procurement of ‘R&D Services’ Possibility to restrict to ‘European wide offers’ Possibility to apply at European and Member States level Need for incentive to support the framework Supplier B Supplier B Supplier(s) A,B,C,D and/or X Supplier C Supplier C Supplier D (COM/2007/799 & SEC/2007/1668) Supplier D Supplier D Also normally multiple sourcing here to keep competition going … in line with WTO proc. rules, EU Treaty, State aid free

Win-win for all stakeholders Politicians Suppliers Quality of public services Focus on political priorities Improve innovation climate Attract foreign investment Increase employment Better products Economies of scale Wider market size Shorter Time to market - New lead markets Increase export Global competitiveness First buyer in early R&D Pre-commercial Procurement Reduce cost of procurement Shared risks & benefits - Reduce risk of innovation … at the ‘Lowest Price’ Get the ‘Best Product’… Pooling of resources - Economies of scale No licensing costs ‘First time right’ product ‘EU interoperable’ Attractive to venture capitalists - Reduce unforeseen expenditure Address ‘public market innovation failure’ Shape product development to public needs Increase technology knowledge Reduce risk in commercial tendering Favour supplier competition Procurers

Status of PCP implementation across Europe Update June 2012 status Awareness Raising Exploring possibilities Working on framework Framework identified Pilots started Slovenia SILVER Latvia Denmark Malta Portugal Germany Romania Sweden Greece Spain Ireland Cyprus Finland France Luxembourg UK Bulgaria Netherlands Lithuania Hungary (Eszak-Alfold) Austria Italy Slovakia Estonia Poland Czech Republic Norway BE (Flanders) Switzerland More Info about national PCP initiatives in Member States: http://cordis.europa.eu/fp7/ict/pcp/msinitiatives_en.html 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) 9

Example PCP-like pilot Water management, Netherlands 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 Satellite based solution approach Chip technology based solution Optics/sensor based solution Camera based solution Helicopter based solution

Example PCP-like project in Healthcare Potential £160m p.a. saving www.nic.nhs.uk Potential £19m p.a. saving £4,000 per HCAI avoided Potential £17m p.a. saving Potential £30m p.a. saving 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). 11 11

PCP example on CO2 emissions Carbon capture – Norway Statoil/Gassanova 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)

Rotherham Ultra Efficient Lighting FCP PPI Example Low Carbon Healthcare Ultra Efficient Lighting Rotherham Ultra Efficient Lighting FCP 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) Discuss Pan European collaboration of designers, engineers, manufacturers & researchers. Discuss research and the realisation of research into product design. Requires multi-discipline teams to truly create / deliver innovation, Brings curiosity driven research and market needs / product development together. 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 New SME created through the FCP process. 13

PPI example Environmental/energy efficiency field Sweden NUTEK / STEM Technology procurements PPI example Environmental/energy efficiency field 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

EC support to PCP & PPI Today Horizon 2020 proposal (2014…) 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 Health Inclusion Government Security eInfrastructure

EU PCP/PPI support today… … and tomorrow FP7 and CIP Horizon 2020 Fundamental Research Industrial research and (FP7) Experimental Development Commercialisation (CIP) Commercial Development Phase 0 Curiosity Driven Research 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 5 Sales of off-the-shelf products Demand driven PCP “FP7 CP-CSA grants to procurers for joint PCPs” Demand Driven Fostering wider diffusion Supply driven “FP7 grants to univs & suppliers” CIP grants to procurers for cross-border PPIs VC & other financers Input to standardisation & regulation 16

(in complementarity to PCPs called for under objective 5.1(d)) Health/active ageing 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) Health Inclusion Government Security eInfrastructure 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 EC PCP support? Example CP-CSA for PCP grant 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) 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 Example of €5,066-7,6 Mio PCP P1 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 suppliers P5 Group of European procurers Pool public demand and specify needs Manage procurement process Share risks and benefits together and with suppliers Cost shared, IPR shared, knowledge shared Compatible with procurement directives and state aid Exception to procurement directives Legally defined as procurement of ‘R&D Services’ Possibility to restrict to ‘European wide offers’ Possibility to apply at European and Member States level Need for incentive to support the framework P2 Preparation Joint PCP One Joint PCP call for tender Supplier A P4 P3 Supplier B Supplier B Supplier B Consortia of public procurers P1->P5 (min 3) Supplier C Supplier C Supplier D Supplier D Supplier D Supplier E Supplier E Supplier E

How to use EC PPI support? Example PPI pilot 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 Public Procurement of Innovative Solutions (PPI) One Joint or several coordinated (jointly defined tender specs) PPI call for tenders Phase 4 Deployment of commercial end-products Early adoption of new to the market products / services P1 P10 Preparation Joint or coordinated PPIs P2 Procurer 1 buying e.g. €2 Mio solutions from supplier A … Group of European procurers Pool public demand and specify needs Manage procurement process Share risks and benefits together and with suppliers Cost shared, IPR shared, knowledge shared Compatible with procurement directives and state aid Exception to procurement directives Legally defined as procurement of ‘R&D Services’ Possibility to restrict to ‘European wide offers’ Possibility to apply at European and Member States level Need for incentive to support the framework Procurer 2 buying e.g. €1,5 Mio solutions from supplier B P4 P3 Procurer 3 buying e.g. €5 Mio solutions from supplier D Consortia of public procurers P1->P10 (min 3) Procurer 4 buying e.g. €2 Mio solutions from supplier E … … Procurer 10 buying e.g. €2 Mio solutions from supplier X

Info about PCP/PPI initiatives in MS and AC Background info PCP website: Info on calls, EU funded projects, background docs, FAQs, PCP initiatives in Member States and Associated Countries etc http://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 AC http://cordis.europa.eu/fp7/ict/pcp/msinitiatives_en.html