Forward Commitment Procurement Bridging the gap between theory and practice in PPI Joram NautaTNO – Dutch Centre for Health Assets Hendrik van MeerveldUniversity of Twente / TNO Gaynor WhylesUK Department for Business Innovation and Skills Consultant FCP Programme Manager (JERA Consulting)

Forward Commitment Procurement (I) Conceived by Environmental Innovations Advisory Group (Ref: EIAG report UK DTI, 2006) Demonstration projects: HMPS Zero Waste Mattress and others Currently being applied in pilot projects as part of the Low Carbon Building (LCB) Healthcare Project (EU Lead Market Initiative) Following principles of action research Identification Market Engagement Procurement Diagram from: Delivering Best Value Through Innovation, BIS, Eu-SPRI Conference

Forward Commitment Procurement (II) The identification stage must be carried out by the client and has two vital characteristics: Identifying accurately the unmet need Examples in case examples Expressing the unmet need as a procurement that must take place Market engagement phase The procurement commitment is what gives the process its energy and distinguishes it from ‘pre-commercial procurement’ Identification phase is surprisingly difficult - requires considerable attention (and therefore commitment) by the Client In this presentation we will focus on the Market Engagement phase Eu-SPRI Conference

Problems in PPI : The client’s perspective Innovation requires another way of procuring Different way of specifying requirements Different procurement procedures Different award criteria Risks and uncertainties of the client Uncertain of what the market can deliver Uncertain if it will be delivered on time, work, be affordable Eu-SPRI Conference

Problems in PPI : Market parties’ perspective Innovation requires (increased) investment costs of market parties. Risk and uncertainties of the client (e.g. Market Risk). Uncertain about the (future) needs of the client Reference – EIAG Report Investments “the mountain of risk” Revenues Courtesy of J.C Frost Eu-SPRI Conference

Will it be delivered? Can we deal with innovative solutions? Is it worth my investments? The clientMarket parties Eu-SPRI Conference

Towards successful PPI Success depends on the management of risk perceived by client and market parties. FCP offers a way to managing these risks. I have confidence in a good outcome This is a good business case Will it be delivered? Can we deal with innovative solutions? Is it worth my investments? Eu-SPRI Conference

Case studies in the LCB-HEALTHCARE project Rotherham NHS Foundation Trust (UK) Ultra efficient lighting for future wards Status: Nearly complete Erasmus MC (The Netherlands) Cleaning of hospital beds per annum Status: competitive dialogue procedure underway Nottingham University Hospitals NHS Trust (UK) Integrated Ultra Low Carbon Energy Solution Status: Market engagement phase Eu-SPRI Conference

Theory & Conceptual Framework Risk management Includes decision moment Identify riskAsses risk Decide & Respond to risk Monitor risk Eu-SPRI Conference

Theory & Conceptual Framework (II) Decision to respond to risk (undertake action). Actions are goal-oriented purposeful acts Consider context of risk… Decision & action Situation A Situation B Eu-SPRI Conference

Theory & Conceptual Framework (III) The context of a procurement. Agency theory, Transaction Cost Economics. Considers actors goals, risk attitude, uncertainties & transaction bounded investments. Decision & action (actions of FCP) Situation B Client’s risk Uncertainty Investments Market parties Uncertainty Investments Situation A Client’s risk Uncertainty Investments Market parties Uncertainty Investments Eu-SPRI Conference

Market Engagement phase Actions Communication Sounding/Consultation Adjusting/aligning demand Aggregation of demand Facilitation of network Aligning procurement procedure Choices Type of procedure Selection criteria Award criteria Other procedural aspects Eu-SPRI Conference

Results of case study Actions due have a (positive) effect on perception of risk. Risks are managed Cases reveal that clients feel that market engagement was vital for keeping the project going and increasing the chances for success. Results of the projects? Eu-SPRI Conference

Rotherham Hospital Ultra Efficient Lighting for Future Wards Eu-SPRI Conference

Recommendations More action research required (more cases) Further development of FCP methods Investigate different method for market engagement activities (e.g. sounding via response form or discussion panel) When is FCP suitable/applicable? (e.g. trade-off between managing risks and transaction costs) Capacity building – capable customers Policy wish vs. capability gap Eu-SPRI Conference

For further information and case studies, see: Contact: Joram Nauta Hendrik van Meerveld Gaynor Whyles Eu-SPRI Conference

Case studiesResearch partners 17 Funding partner 2012 Eu-SPRI Conference