DIACCESS Zoom-in 1: Developing smart city solutions using the Innovation Partnership method: how does it work? Lessons from Växjö
Introduction
Public procurement of innovation (PPI) is widely seen as a key driver of innovation in cities. In traditional public procurement, the buying party sets precise specifications on what it wants to buy. The aim is to get what you asked for, at the lowest possible price. But making exact specifications is problematic when the city wants an innovative solution that does not yet exist on the market, or when it faces a challenge but yet has no clear idea which solution would be the best to solve this.
With this in mind, in 2014 the EU adjusted the public procurement framework. The new rules are no longer only specifying how public bodies must buy in a transparent and compliant way; They also offer new tools and incentives to focus on challenges and solutions, without specifying them precisely beforehand. This opens the door to spending tax money in a way that is not only formally compliant but also generates better value in terms of cost-efficiency, environmental and social impact and whether it opens opportunities for innovative companies.
Box 1 'Public procurement of innovation' refers to the following aspects:
Buying the process of innovation; Here, the process starts with the research and development of products, services or solutions which do not exist yet. The public procurer thus becomes part of the innovation from the very beginning. It describes its need with no precise description of the solution, and supports innovators and researchers in the innovation process.
Buying new products or services. Here, the public procurer, instead of renewing or replicating existing contracts, buys a product, service or process that is new to the market or simply new to the public procurer.
This zoom-in focuses on one specific type of PPI: The innovation partnership (IP) model. This model opens new avenues for public bodies, including cities, to co-create solutions together with private companies or other innovators. It was introduced in 2014, but so far public bodies have been hesitant to adopt it: it is only scarcely used. In the UIA-funded DIACCESS project, started in 2019, the Swedish city of Växjö has embraced this model to co-develop smart city solutions with suppliers, and has so far already learned many lessons that are very relevant for other cities. In this zoom-in, we explain how the IP model works; then, we scrutinize how Växjö has adopted it: what problems were encountered in the various stages, and what lessons can be learned from that?
What is the innovation partnership model?
IP is a procurement model that is not that new (introduced in 2014) yet not widely used. The model is useful when a public authority wants to have an innovation that is not yet available on the market. It is different from “regular” procurement in the sense that the city does not purchase a well-defined and known product or service from a company; rather, it invites one or more companies to co-develop a solution for a broader defined problem or challenge. After a selection procedure, the authority signs a contract with a company (or consortium of companies), that includes an R&D phase and an implementation phase at the same time. During the development phase, a new solution is co-developed by the company and the authority. After this is done successfully, the company will become the city’s supplier and will start to make a revenue; crucially, the city authority does not have a write out a new procurement procedure to implement the solution. In the case of Växjö, the city is not interested in owning the intellectual property rights (IPR) of the new solution, product or service: that will stay in the hands of the company. So, the company can in principle also sell this solution to other cities. This should make it attractive for companies to enter in this partnership.
How does it work in Växjö: Five stages
The IP process takes shape in five stages (see figure 1).
Figure 1 Five stages of the procurement process
In stage 1, the urban challenge is formulated; Urban departments and public companies can define a challenge or a need that should be addressed by an innovative suppliers or coalition. The challenge is published in a call for proposals, and companies are invited to submit their proposals for solutions.
In stage 2 is the selection process of the suppliers. Here, based on criteria set beforehand, the best supplier is selected by the city. It does not necessarily mean that the best one is immediately selected from the desktop: Växjö made the choice to invite more than one, and then have discussions with them what the best fit would be. Also, it is possible that suppliers start to collaborate and merge their proposals.
Stage 3 is the contracting stage; the city enters in a negotiation phase with the “winning” supplier about terms and conditions regarding the expected development period, the results, the risks, the price of the development and implementation stage, and the business model that will be applied when the solution is developed.
In stage 4, the city department and the supplier enter in the actual development phase. Here, the solution is developed and tested. Currently, three projects are in this stage: one on optimizing.
In stage 5, the solution is implemented and integrated in the city’s work processes. This stage is not yet reached in Växjö.
Key challenges and lessons in the various stages
The IP method seems quite straightforward, but in fact, when a city tries it for the first time, it entails a number of problems and challenges. The city of Växjö took the step to adopt the method and apply it in the smart city domain, to co-develop smart city solutions with suppliers.
Table 1 shows, for each of the stages, what the difficulties can be, and how Växjö dealt with it. The table can be used as a checklist by other cities considering the application of IP.
Table 1 difficulties, learning points and challenges
| Stage | Difficulties | Learning points from Växjö | Illustration |
| Challenge formulation & awareness raising in the market | Activation of city departments as “need owners”; city departments are not always ready to onboard. They can be conservative in their procurement approach; they may fear the risks; they may not understand well how it works; it may bring extra work for them | Leadership must urge city departments to take part Start with the willing ones, where the energy is Provide training/capacity building for purchasers Show that it works | The leadership in Växjö is actively pushing and promoting the project, urging departments to hand in challenges |
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| Definition/description of the challenge; The call for Proposals must be formulated in an open yet clear way so that suppliers can work with it | Let a communications professional check if the call is clear | The DIACCESS communication manager is involved in the challenge formulation |
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| Communication with suppliers. Suppliers must understand that the procedure is different from a regular public procurement; and it must appeal to them, and invite them to come up with innovative ideas | Organise training/capacity building sessions for suppliers Have very clear information provision for suppliers
| Växjö developed a clear FAQ for suppliers |
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| The complexity and systemic nature of innovation | Start with relatively “simple” smart city innovations rather than difficult ones that are interconnected | With hindsight, the smart city innovations that Växjö started were quite complex and took more time to take off |
| Selection process | Measuring the degree of innovation of the proposed solutions | IP can only be used if the solution is sufficiently innovative; so you must be sure that the offered solution is not available “off the shelf” by other suppliers, this requires homework. |
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| Defining other selection criteria | Växjö used three criteria: 1) the offered solution must be new/innovative; 2) the supplier must demonstrate competence and experience in the field and 3) it must make credible that they are able to implement the solution |
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| Making sure that also smaller companies take part | Actively reach out to smaller companies via incubators etc. Organise matchmaking meetings with smaller innovators to see if they can apply as team | Växjö actively reached out to a local incubator (part of the DIACCESS project) to recruit local small firms |
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| Brokering between potential suppliers; Coalitions of suppliers might be created to develop the solution | Organise matchmaking workshops for suppliers that have shown interest | Växjö organized well-moderated matchmaking workshops in which the need owner met the suppliers |
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| Involvement of end users in the selection process; | Engage with users, but also employees who will work in the future with the innovation |
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| Suppliers might jump too easily to contract discussions | Do not go into details about contracts during the selection phase; first you need to agree that there is a match between need owner and supplier |
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| Contracting | Dealing with risks & uncertainties | Build a relation of trust with the supplier; you are in a journey together that is to some extent unpredictable |
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| Setting criteria and conditions | Växjö contracts contain 1) delivery requitements in accordance with the bid and 2) metrics about the solution (efficiency, service improvements etc) |
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| Additional information requirements | Suppliers, especially in the field of IT, need to know about other IT systems used by the city in order to integrate. | In a project on waste collection optimization, the supplier needed much information about other IT systems in the city, these were complicated discussions because of NDAs with IT providers. |
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| Knowledge about the state of the art before the innovation | Make sure to have knowledge about the baseline situation, the current state-of-the-art in the domain where the innovation takes place; this is needed to define the KPIs | Snow clearing route optimization: before entering in a development phase, you must know quite precisely how the snowclearing is now organized and what the costs are |
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| Have a concrete idea how the innovation can contribute | Make sure to agree about what the innovation should achieve in terms of efficiency, better service, etc, and how to measure it. | In the school heating project, the need owner (city department for schools) and the supplier set targets regarding energy & CO2 savings |
| Development | Project management capacity
| For more complex innovation trajectories, you need a strong project manager to oversee and manage the co-creation process; this requires funding and commitment | In the DIACCESS project, Växjö reserved funding for a PM for two projects, but not for the ones that follow in next rounds. But now it turns out that each project needs a manager to succeed. |
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| Dealing with emerging hick-ups and changes; the development phase is very practical and might have delays, price rises, new developments etc. | Problems will always show up; a relation of trust will help a lot. | The development of the school district heating solution was hindered by delays in the delivery of sensors, and prices rising. |
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| Co-creation methods. Effective co-creation methods are needed in which city department (s) work with suppliers | Use methods such as lean start-up to have rapid prototyping and learning what works, what is needed, and how to proceed. | Växjö has invested in internal competences to develop and run co-creation workshops |
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| Co-develop a viable business model for the implementation phase; a model that brings optimal benefits for both parties. | A lean start-up approach can help here too, building fast prototypes that are assessed by the needs owner |
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| Marketing and visibility | Make sure that outside parties know what is happening in the innovation process; this might lead to new clients for the suppliers | Växjö was prominently present during the Swedish Innovation Week, where it featured its smart city innovations under development; it raised substantial interest from other cities |
| Implementation | Innovations imply changes in organization, work methods and procedures | Change management is needed to implement the innovations |
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Key lessons
The table above contains several insights and lessons. But three key lessons stand out:
Start small, then scale up. Introducing IP requires change of culture, and that does not happen overnight. It involves many actors, it requires capacity building among public officers, and credibility and understanding among market actors. Thus, it is best to start with relatively “simple” innovations that do not involve too many partners and systems, where innovation can be implemented and where you have quick and visible wins. This builds credibility and confidence as foundation for larger projects. In Växjö, with hindsight, they started with quite large and complex projects, which led to a steep learning curve but also took much time and effort.
Invest in capacity building in the city. It can only succeed if the purchasing department is ready for it and at current with the legal ins and outs. But also the other city departments, that act as “need owners” must learn how to formulate their challenges in an open way, to effectively attract innovative suppliers, and to work with them to co-develop a solution.
Invest a lot in communication, to inform and engage the city departments and the innovating companies. In Växjö, due to strong communication effort, suppliers now better understand what IP is, and how it works; Matchmaking events have been successfully held to connect suppliers to municipal need owners, and in later rounds, also smaller innovative firms have been reached. A lesson for other cities that consider to use IP is to invest heavily in communication: to suppliers, but also internally to city departments and need owners. And communication must be done by somebody who understands both the business world and the city bureaucracy.
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The Urban Innovative Actions (UIA) is a European Union initiative that provided funding to urban areas across Europe to test new and unproven solutions to urban challenges. The initiative had a total ERDF budget of €372 million for 2014-2020.
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