Functional procurement for innovation, welfare and the environment

Public procurement represents a very large share of most economies worldwide. Besides its direct purchasing power, public procurement has an enormous potential to become one of the most important mission-oriented policy instruments in the context of the Sustainable Development Goals. The paper argues that the key to achieve more innovations when pursuing public procurement is to describe problems to be solved or functions to be fulfilled (functional procurement) instead of describing the products to be bought (product procurement). We contend that if products can be described in the procurement documents, it is because they exist, and hence, they cannot be regarded as innovations. Innovations cannot be described ex ante, simply because they do not exist. It is thus not accurate to talk about ‘innovation procurement’. Accordingly, the only way to achieve an innovation by means of procurement is by describing the functions it shall fulfill or the problems it shall solve. For public procurement to become an effective policy instrument supporting innovation, product procurement should thus be transformed into functional procurement. Hence, contracting authorities need to identify the problems to be addressed by policy. The new products (innovations) solving the problems are to be designed by the potential innovators/suppliers, not by public procurers. Hence, the societal needs and problems must be translated and transformed into functional requirements. Functional procurement is allowed in EU regulations, and hence, there are no legal obstacles to use it for innovation policy purposes. Above and beyond, the European directives recommend using functional requirements “as widely as possible”. Besides, it leads to increased competition, not only among potential suppliers of similar products, but also among different products that solve the same problem. Functional procurement thus not only supports innovation but also serves as a powerful instrument of competition policy.