Stretching the limits for innovative and sustainable procurement Innovative and sustainable clothing for hospitals – a Dutch show case

Current situation of hospital clothing procurement Traditional procurement methodologies based on ‘lowest price’ Purchase of hospital clothing from priced catalogues Higher costs for contracting authorities, lower quality, lack of satisfaction for the clothing users (e.g., nurses) Gap between the demand and supply side

The Care Project MVO Nederland – to act as an intermediary to bridge the gap between supply and demand CSR network for the health care sector, in which care and cure organisations participate, including health insurance companies and suppliers in the health care sector work wear / hospital uniforms as a show case for innovation and sustainability in the health sector MVO Nederland partners with Corvers and economic advisors for the scope of implementing the Care Project

The Care Project - Aims To develop sustainable and highly functional hospital uniforms: which are based on a circular design which contain innovative technical functionalities, as for example physical support (of the spine), anti-bacterial functions or bacterial detection functions. which are produced in developing countries with respect of relevant CSR standards using TCO / LCC approaches through a co-operative approach between academic hospitals, health care institutions and SMEs (working in the whole supply chain of textiles from raw materials, to spinning, colouring, sewing to dry cleaning) to bridge gap between demand and supply

The Care Project - Challenges Pre-requisites for a successful implementation: How to formulate a procurement strategy How to bring all stakeholders together Type of procedure needed to ensure procurement of technologically innovative and sustainable products Protection of IPRs Compliance with state aid rules Potential competition issues – how to make sure SMEs will enjoy equal chances in the procurement

Is there a Solution to address these challenges?

Public Procurement of Innovative Solutions (PPI) Developing technologically innovative solutions tailored to procurers needs Improvement of quality, effectiveness and efficiency of public services Increased competitive environment (more access for SMEs) Best value for money Wider economic, environmental and social benefits Closing the technological gap between demand and supply and addressing market failures

Public Procurement of Innovative Solutions (PPI) BASIS: definition of innovation in article 2(22) of the New Procurement Directive “Innovation means the implementation of a new or significantly improved good, service or process, including but not limited to production, building or construction processes, a new marketing method or a new organizational method in business practices, workplace organization or external relations inter alia with the purpose to help solving societal challenges or to support the Europe 2020 strategy for smart, sustainable and inclusive growth.”

PPI - Legal basis and policy support New public procurement directives WTO GPA (World Trade Organization Government Procurement Agreement) Policy documents linked to Europe 2020 strategy for smart and sustainable growth New R&D&I rules CSR instruments

Designing PPI

Relation between public and commercial demand Reasons for public intervention Kind of innovation involved Choice of modalities

Designing PPI Relation between public and commercial demand – co-operative procurement Modes of interaction Aspects of user interaction Interactive learning Context (networks) Demand structureNeeds Addressed Direct Procurement Development Pairs (simple networks) Monopsony (markets with a single buyer) Intrinsic Needs (pertaining solely to buyer organization) Co-operative procurement Knowledge Networks (horizontally extended) Oligopsony (markets with several buyers) Congeneric Needs (shared by buyer and other organizations) Catalytic procurement Trade Networks (vertically extended) Polypsony (markets with many buyers) Extrinsic Needs (pertaining to other actors then buyer)

Designing PPI Relation between public and commercial demand – Market Consultation – 1 st step

Designing PPI Market Consultation – 1 st step – WHY? Powerful instrument to close gap between demand and supply sides Creates awareness across industry about procurers needs Sheds light on: Project feasibility Market’s ability to accomplish what’s needed Market’s capacity to achieve it in a timely and costly efficient manner

Designing PPI Market Consultation – 1 st step – WHO? Hospitals Care institutions Technology vendors (SMEs) Users of hospital clothing (e.g., nurses) Best practices: Rawicz Hospital in Poland

Designing PPI Market Consultation – 1 st step – WHEN & HOW? In the pre-tendering phase Pro-active communication of needs from the demand side Fair and open competition by safeguarding trade secrets and confidential information Legal assurances for protecting suppliers’ IPRs / compensation mechanisms available Transparency, non-discrimination, equal treatment, proportionality Clear distinction b/w market consultation and tendering phase

Designing PPI – setting clear requirements and technical specifications Based on market consultation outcome Reference to standards In terms of performance Not technically descriptive Variants Award criteria based on MEAT CSR requirements included in the award criteria

Designing PPI Reasons for public intervention – from EU GPP to CSR criteria in procuring sustainable hospital clothing EU GPP criteria – limited in scope Sustainability included in the tender specifications – 3P People – social sustainability & ethical considerations (e.g., labor conditions & standards) Planet – environmental sustainability (e.g., product life cycle analysis) Profit – economic sustainability (e.g., value for money)

Designing PPI Types of innovation involved Process innovation > Process innovation 3P sustainability dimensions All stages in the supply chain covered

Designing PPI Types of innovation involved ……..……………..…coupled with Product innovation Assesses total cost performance of a product over time Internal costs (R&D, acquisition, production, transport, energy consumption, maintenance and end- of-life disposal). Externalities (emission of greenhouse gases, pollution caused by manufacturing / maintenance processes). Tool for economic evaluation of alternative sustainability options Helps evaluating competing offers

Designing PPI Types of innovation involved ……..……………..…coupled with Product innovation a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs

Designing PPI Choice of modalities Political decision making Political decision making Masterplan Platform: Interaction with the market Platform: Interaction with the market Innovation matrix Innovation matrix Pre-commercial Procurement Phase Pre-commercial Procurement Phase Commercial Procurement Phase Preparation Execution Finalization Option 1 Option 2

Pre-commercial Procurement (PCP) – COM (2007)799

PCP – Characteristics and advantages Procurement of R&D services only Risk-benefit sharing vs. exclusive development -> lower costs Public purchaser shares R&D results with other CAs and industry through publication and standardization Compliance with competition rules: Competitive procurement in 3 phases -> better quality products at lower price Does not allow the direct uptake of developed solutions -> preservation of EU wide competition and reduced risk of supplier lock-in

PCP – Characteristics and advantages IPR arrangements specifically regulated under the 2007 Commission Communication on PCP IPR benefits are not exclusively retained by the public purchaser The public purchaser has two options: (i) it can ask participating companies to license IPRs to third parties under fair and reasonable terms or (ii) it can demand a free license to use R&D for internal use

PCP – Characteristics and advantages A priori compliance with state aid regulations, pursuant to meeting of conditions under the new framework for state aid for R&D&I : the price paid for the relevant services fully reflects the market value of the benefits received by the public purchaser and the risks taken by the participating providers the conduct of R&D services procurements via open, transparent and non-discriminatory procedures, based on objective selection and award criteria provided upfront in the tender documentation; the upfront provision of contractual arrangements describing all rights and obligations of the parties, including with regard to IPR; strictly avoiding giving any of the participant providers any preferential treatment in the supply of commercial volumes of the final products or services to a public purchaser in the Member State concerned

PCP - Challenges The need to conduct a new procurement procedure to purchase the results of the R&D Lack of knowledge among public authorities PCP is regulated by a Commission Communication and not by law

Innovation partnership – Main features Newly regulated procedure – art. 31 of the New Procurement Directive 2014/24/EU Structured, long term partnership between contracting authorities and one or several private undertakings Development in successive stages and subsequent purchase of new, innovative products Intermediate targets – potential exclusion of private undertakings Final products must correspond to pre-agreed performance levels and maximum costs

Innovation partnership Innovation partnership (PCP + PPI) Phase 0 Award procedure Partner A Partner B Partner C Partner D Phase 1 R&D activities / Solution design Phase 3 Test series or pilot Partner D Partner B Phase 2 Prototype development Partner B Partner C Partner D Partners B and D Phase 4 Large deployment of product/service Intermediate target and payment

Innovation partnership – Main challenges Compliance with State aid rules is questionable Competition could be affected Risk of supplier lock-in Risk of foreclosing the market Lack of clear provisions regulating the treatment of IPRs CAs will no longer be incentivized to act as first customers and pull innovative products to the market

Innovation partnership – Main challenges A priori compliance with State aid pursuant to the same conditions as mentioned in case of PCP However: Public finance of R&D projects PCP covers only R&D services, whereas innovation partnerships cover both R&D services and procurement of supplies Increased scope for negotiations that increase the discretion of the CA

Innovation partnership – Main challenges Compliance with competition rules (narrow sense vs. broader sense) Increased flexibility, simplification and modernization of the procurement laws vs. ensuring a level-playing field for private entities and avoid distortions of competition in the broader sense Art. 18 of the New procurement directive: “the design of the procurement shall not be made with the objective … of artificially narrowing competition” Recital 49: “CAs should not use innovation partnerships in such a way as to prevent, restrict or distort competition.” However, it provides for procurement activities which refer to future goods and the CA funds/sponsors the required R&D activities => potential for deferred anti-competitive effects Market foreclosure Supplier lock-in

Innovation partnership – solutions Ensure open, transparent competition, based on public procurement and TFEU principles Include clear provisions regulating the treatment of IPRs in the tender documentation upfront Limit the purchase of developed products to a first batch thereof Notify the partnership to the EU Commission to ensure compliance with state aid rules

Joint procurement Specifically provided under the New Procurement Directive Coordinated procurement - preparation of common technical specifications for products/services procured by CAs conducting separate procurements Joint procurement – one single procedure, managed by one CA acting on behalf of the others

Future debates – Impact measurement

Thank you! Köszönöm! Oana Pantilimon Senior Legal Advisor Corvers Procurement Services b.v.