Innovation procurement under the Procurement Act 2023 -- changing procurement culture on the cheap?

On 13 November 2023, the UK Government published guidance setting out its ambitions for innovation procurement under the new Procurement Act 2023 (not yet in force, of which you can read a summary here). This further expands on the ambitions underpinning the Transforming Public Procurement project that started after Brexit. The Government’s expectation is that the ‘the new legislation will allow public procurement to be done in more flexible and innovative ways’, and that this will ‘enable public sector organisations to embrace innovation more’.

The innovation procurement guidance bases its expectation that the Procurement Act will unlock more procurement of innovation and more innovative procurement on the ambition that this will be an actively supported policy by all relevant policy- and decision-makers and that there will be advocacy for the development of commercial expertise. A first hurdle here is that unless such advocacy comes with the investment of significant funds in developing skills (and this relates to both commercial and technical skills, especially where the innovation relates to digital technologies), such high-level political buy-in may not translate into any meaningful changes. The guidance itself acknowledges that the ‘overall culture, expertise and incentive structure of the public sector has led to relatively low appetite for risk and experimentation’. Therefore, that greater investment in expertise needs to be coupled with a culture change. And we know this is a process that is very difficult to push forward.

The guidance also indicates that ‘Greater transparency of procurement data will make it easier to see what approaches have been successful and encourage use of those approaches more widely across the public sector.’ This potentially points to another hurdle in unlocking this policy because generic data is not enough to support innovation procurement or the procurement of innovation. Being able to successfully replicate innovation procurement practices requires a detailed understanding of how things were done, and how they need to be adapted when replicated. However, the new transparency regime does not necessarily guarantee that such granular and detailed information will be available, especially as the practical level of transparency that will stem from the new obligations crucially hinges on the treatment of commercially sensitive information (which is exempted from disclosure in s.94 PA 2023). Unless there is clear guidance on disclosure / withholding of sensitive commercial information, it can well be that the new regime does not generate additional meaningful (publicly accessible) data to push the knowledge stock and support innovative procurement. This is an important issue that may require further discussion in a separate post.

The guidance indicates that the changes in the Procurement Act will help public buyers in three ways:

• ‘The new rules focus more on delivering outcomes (as opposed to ‘going through the motions’ of a rigid process). Contracting authorities will be able to design their own process, tailored to the unique circumstances of the requirement and, most importantly, those who are best placed to deliver the best solution.

• There will be clearer rules overall and more flexibility for procurers to use their commercial skills to achieve the desired outcomes.

• Procurers will be able to better communicate their particular problem to suppliers and work with them to come up with potential solutions. Using product demonstrations alongside written tenders will help buyers get a proper appreciation of solutions being offered by suppliers. That is particularly impactful for newer, more innovative solutions which the authority may not be familiar with.’

Although the guidance document indicates that the ‘new measures include general obligations, options for preliminary market engagement, and an important new mechanism, the Competitive Flexible Procedure’, in practice, there are limited changes to what was already allowed in terms of market consultation and the general obligations— to eg publish a pipeline notice (for contracting authorities with an annual spend over £100 million), or to ‘have regard to the fact that SMEs face barriers to participation and consider whether these barriers can be removed or reduced’—are also marginal (if at all) changes from the still current regime (see regs.48 and 46 PCR 2015). Therefore, it all boils down to the new ‘innovation-friendly procurement processes’ that are enabled by the flexible (under)regulation of the competitive flexible procedure (s.20 PA 2023).

The guidance stresses that the ‘objective is that the Competitive Flexible Procedure removes some of the existing barriers to procuring new and better solutions and gives contracting authorities freedom to enable them to achieve the best fit between the specific requirement and the best the market offers.’ The example provided in the guidance provides the skeleton structure of a 3-phase procedure involving an initial ideas and feasibility phase 1, an R&D and prototype phase 2 and a final tendering leading to the award of a production/service contract (phase 3). At this level of generality, there is little to distinguish this from a competitive dialogue under the current rules (reg.30 PCR 2015). Devil will be in the detail.

Moreover, as repeatedly highlighted from the initial consultations, the under-regulation of the competitive flexible procedure will raise the information costs and risks of engaging with innovation procurement as each new approach taken by a contracting authority will require significant investment of time in its design, as well as an unavoidable risk of challenge. The incentives are not particularly geared towards facilitating risk-taking. And any more detailed guidance on ‘how to'‘ carry out an innovative competitive flexible procedure will simply replace regulation and become a de facto standard through which contracting authorities may take the same ‘going through the motions’ approach as the process detailed in teh guidance rigidifies.

The guidance acknowledges this, at least partially, when it stresses that ‘Behavioural changes will make the biggest difference’. Such behavioural changes will be supported through training, which the guidance document also describes (and there is more detail here). The training offered will consist of:

• Knowledge drops (open to everyone): An on-demand, watchable resource up to a maximum of 45 minutes in total, providing an overview of all of the changes in legislation.

• E-learning (for skilled practitioners within the public sector only): a learning & development self-guided course consisting of ‘10 1-hour modules and concludes with a skilled practitioner certification’.

• Advanced course deep dives (for public sector expert practitioners only): ‘3-day, interactive, instructor-led course. It consists of virtual ‘deep dive’ webinars, which allow learners to engage with subject matter experts. This level of interaction allows a deeper insight across the full spectrum of the legislative change and support ‘hearts and minds’ change amongst the learner population (creating ‘superusers’).’

• Communities of practice (for skilled and expert practitioners only): ‘a system of collective critical inquiry and reflection into the regime changes. Supported by the central team and superusers, they will support individuals to embed what they have learned.’

As an educator and based on my experience of training expert professionals in complex procurement, I am skeptical that this amount of training can lead to meaningful changes. The 45-minute resource can hardly cover the entirety of changes in the Procurement Act, and even the 10 hour course for public buyers only will be quite limited in how far it can go. 3 days of training are also insufficient to go much further than exploring a few examples in meaningful detail. And this is relevant because that training is not only for innovation procurement, but for all types of ‘different’ procurement under the Procurement Act 2023 (ie green, social, more robustly anti-corruption, more focused on contract performance, etc). Shifting culture and practice would require a lot more than this.

It is also unclear why this (minimal) investment in public sector understanding of the procurement framework has not taken place earlier. As I already said in the consultation, all of this could have taken place years ago and a better understanding of the current regime would have led to improvements in the practice of innovative procurement in the UK.

All in all, it seems that the aspirations of more innovation procurement and more innovative procurement are pinned on a rather limited amount of training and in (largely voluntary, in addition to the day job) collaboration for super-user experienced practitioners (who will probably see their scarce skills in high demand). It is unclear to me how this will be a game changer. Especially as most of this (and in particular collaboration and voluntary knowledge exchange) could already take place. It may be that more structure and coordination will bring better outcomes, but this would require adequate and sufficient resourcing.

Whether there will be more innovation procurement then depends on whether more money will be put into procurement structures and support. From where I stand, this is by no means a given. I guess we’ll have to wait and see.

Response to the UK’s March 2023 White Paper "A pro-innovation approach to AI regulation"

Together with colleagues at the Centre for Global Law and Innovation of the University of Bristol Law School, I submitted a response to the UK Government’s public consultation on its ‘pro-innovation’ approach to AI regulation. For an earlier assessment, see here.

The full submission is available at https://ssrn.com/abstract=4477368, and this is the executive summary:

The white paper ‘A pro-innovation approach to AI regulation’ (the ‘AI WP’) claims to advance a ‘pro-innovation, proportionate, trustworthy, adaptable, clear and collaborative’ model that leverages the capabilities and skills of existing regulators to foster AI innovation. This model, we are told, would be underpinned by a set of principles providing a clear, unified, and flexible framework improving upon the current ‘complex patchwork of legal requirements’ and striking ‘the right balance between responding to risks and maximising opportunities.’

In this submission, we challenge such claims in the AI WP. We argue that:

• The AI WP does not advance a balanced and proportionate approach to AI regulation, but rather, an “innovation first” approach that caters to industry and sidelines the public. The AI WP primarily serves a digital industrial policy goal ‘to make the UK one of the top places in the world to build foundational AI companies’. The public interest is downgraded and building public trust is approached instrumentally as a mechanism to promote AI uptake. Such an approach risks breaching the UK’s international obligations to create a legal framework that effectively protects fundamental rights in the face of AI risks. Additionally, in the context of public administration, poorly regulated AI could breach due process rules, putting public funds at risk.

• The AI WP does not embrace an agile regulatory approach, but active deregulation. The AI WP stresses that the UK ‘must act quickly to remove existing barriers to innovation’ without explaining how any of the existing safeguards are no longer required in view of identified heightened AI risks. Coupled with the “innovation first” mandate, this deregulatory approach risks eroding regulatory independence and the effectiveness of the regulatory regimes the AI WP claims to seek to leverage. A more nuanced regulatory approach that builds on, rather than threatens, regulatory independence is required.

• The AI WP builds on shaky foundations, including the absence of a mapping of current regulatory remits and powers. This makes it near impossible to assess the effectiveness and comprehensiveness of the proposed approach, although there are clear indications that regulatory gaps will remain. The AI WP also presumes continuity in the legal framework, which ignores reforms currently promoted by Government and further reforms of the overarching legal regime repeatedly floated. It seems clear that some regulatory regimes will soon see their scope or stringency limited. The AI WP does not provide clear mechanisms to address these issues, which undermine its core claim that leveraging existing regulatory regimes suffices to address potential AI harms. This is perhaps particularly evident in the context of AI use for policing, which is affected by both the existence of regulatory gaps and limitations in existing legal safeguards.

• The AI WP does not describe a full, workable regulatory model. Lack of detail on the institutional design to support the central function is a crucial omission. Crucial tasks are assigned to such central function without clarifying its institutional embedding, resourcing, accountability mechanisms, etc.

• The AI WP foresees a government-dominated approach that further risks eroding regulatory independence, in particular given the “innovation first” criteria to be used in assessing the effectiveness of the proposed regime.

• The principles-based approach to AI regulation suggested in the AI WP is undeliverable due to lack of detail on the meaning and regulatory implications of the principles, barriers to translation into enforceable requirements, and tensions with existing regulatory frameworks. The minimalistic legislative intervention entertained in the AI WP would not equip regulators to effectively enforce the general principles. Following the AI WP would also result in regulatory fragmentation and uncertainty and not resolve the identified problem of a ‘complex patchwork of legal requirements’.

• The AI WP does not provide any route towards sufficiently addressing the digital capabilities gap, or towards mitigating new risks to capabilities, such as deskilling—which create significant constraints on the likely effectiveness of the proposed approach.

Full citation: A Charlesworth, K Fotheringham, C Gavaghan, A Sanchez-Graells and C Torrible, ‘Response to the UK’s March 2023 White Paper "A pro-innovation approach to AI regulation"’ (June 19, 2023). Available at SSRN: https://ssrn.com/abstract=4477368.

New working paper on EU Public Procurement Policy and the Fourth Industrial Revolution

I have submitted a paper to the call for papers of the Annual EU Law and Policy Conference ‘EU Law in the era of the Fourth Industrial Revolution’ that will take place in January 2020 (the CfP is still open until 8 September 2019, in case you are interested too).

The theme of the conference invites a reflection on the dual role of the EU as a Regulatory and Industrial ‘State’, so I have put together some thoughts on recent trends in EU procurement policy from that perspective in a new SSRN working paper: ‘EU Public Procurement Policy and the Fourth Industrial Revolution: Pushing and Pulling as One?‘ (6 Aug 2019). The abstract of the paper is as follows:

Innovation in digital technologies is triggering a variety of regulatory and policy responses by the EU. Fostering innovation is at the core of the EU’s industrial strategy and public procurement is becoming one of its main tools. The EU has reactivated its efforts to promote (digital) innovation procurement and is harnessing procurement market access as a trade defence for its innovation industry. The EU is clearly trying to use its buying power as an innovation pull to increase the readiness of the EU’s economy for the fourth industrial revolution. However, this effort is somehow constrained by the Member States’ diverging approaches and levels of engagement.

At the same time, innovative digital technologies hold the promise of a significant impact in the governance and practice of public procurement, and the EU is pushing for digitalisation as a lever to improve public services and to facilitate data analysis experimentation. However, a much-delayed and patchy implementation of eProcurement in most Member States and an inconsistent and timid approach to the regulation of public procurement data stand in the way of a true revolution and can prevent the public sector from leading by example.

In this paper, I reflect on the tensions inherent to this dual use of public procurement as an innovation pull through market power and trade leverage, and as a push for the digitalisation of procurement in the EU, as well as on the tensions between EU and Member State responses.

This is still very much an exploratory draft, so I would welcome comments and feedback, as I plan to revise the paper if it is accepted for the conference.

Procurement sandboxes, mock procurements and some other thoughts on trying to create space for ‘real world’ experimentation

One of the issues discussed at the most recent meeting of the European Commission Stakeholder Expert Group on Public Procurement (SEGPP) concerned the difficult balance between, on the one hand, promoting integrity in procurement, imposing strict record-keeping requirements (in line with Art 84(2) Dir 2014/24) and ensuring procedural soundness and, on the other hand, avoiding stifling discretion and killing procurement innovation by imposing an excessively rigid straitjacket on procurement professionals (ie how to ensure procurement probity without scaring procurement professionals into following a narrow well-trodden tick-boxing path). In the background, the worry was that procurement professionals that tried to do something 'differently' would be under the Damocles sword of litigation and liability--which would prevent most of them from exploring the boundaries of existing regulation, or possibly induce the most daring to do things under the radar and either not document or not share their practices.

In this context, I suggested that it could be interesting to follow the example of UK financial regulation of FinTech and RegTech innovation (of which I only know a bit thanks to the work of my Bristol colleagues Prof Stanton & Dr Powley, see here) and consider the possibility of creating sandbox experimentation programmes at national level (with the oversight and support of the European Commission). These would be pilot initiatives where, following an application for an exemption from standard enforcement procedures (that is, both infringement procedures under Art 258 TFEU and domestic remedies systems), contracting authorities wanting to explore innovative procedural approaches could seek to take ‘challenge worries’ out of the equation and concentrate on experimenting around innovative procurement processes or on trying out approaches that may not necessarily (easily) fit within the existing regulatory constraints.

Let’s say that the proposal was met with scepticism, but (hopefully) noted for future discussion and consideration.

On further reflection, I truly think that this would be an important contribution to the improvement of public procurement practice and, in the long term, an important input for more practice-oriented regulation. It would, first and foremost, avoid ‘innovative’ or ‘risk-seeking’ public authorities the pains of having to take the issue in their own hands and possibly engage in non-compliant (ie illegal) procedures for the sake of commercial or operative considerations. It would also allow participating undertakings to test the limits of the system and to contribute to a more business-friendly regulation of public procurement. Finally, it would provide a useful space for ‘natural’ experimentation and avoid procurement policy-making (and scholarship!) being always based on theoretical constructions, or on ex post facto conceptualisations/justifications. All in all, in such an applied field of public law/public administration/public management activity, the possibility of resorting to ‘real world’ experimentation would be most welcome and, if done well, potentially very productive.

Thus, I think it may be appropriate to spell out my proposal in some more detail and to invite you all, dear readers, to engage in the discussion—which I will do my best to bring to the attention of my colleagues at the SEGPP and the European Commission in future meetings.

A fuller sketch of my proposal for the creation of procurement sandbox programmes

In compliance with a voluntary general framework created by the European Commission, Member States would create their ‘procurement experimentation programmes’, which would include a choice of options amongst the creation of procurement sandboxes, opportunities (and funding) for mock procurement, and other similar alternatives aimed at facilitating procurement innovation (mind, not the procurement of innovation) by limiting the risk of legal challenge and liability due to an open and transparent engagement in ‘real world’ experimentation with ideas for an improvement of procurement practice—and, on the basis of the learning derived from that practice, of procurement regulation too. Ideally, there could be a prize for best procurement innovation and best contribution to innovation by a participating undertaking, as well as clear pathways for researchers to feed ideas and seek support for experimentation and/or use of the data resulting from the programme.

In order to be ‘allowed to play in the procurement sandbox’, contracting authorities would need to provide a clear rationale of the benefits they sought to obtain with the experiment, as well as a clear description of the specific issues with which they thought compliance would be impossible or tricky, their initial plan of how to deal with them, and a method for the assessment, reporting, and dissemination of insights. In view of such application, the European Commission and the competent domestic authority would decide whether to grant authorisation, as well as the scope of the experiment (in terms of value, duration, and conditions for the experiment). Approved ‘sandbox procurement’ would be advertised as such and participating tenderers would explicitly have to provide a waiver of their right to challenge the final decision on the basis of any of the ‘sandboxed’ issues.

For example, if the contracting authority wanted to experiment around modes of delivery of a specific service, then challenges on the basis of the evaluation of delivery services or the award of parallel contracts (or lots) to providers using different delivery alternatives would not be justiciable—while other issues, such as breaches of transparency requirements or the duty to provide reasons for the specific decisions would be open to challenge.

Similarly, if the contracting authority wanted to experiment around documentary requirements, or around the possibility of doing trial runs in parallel with different suppliers as part of an extended negotiation, or if the contracting authority wanted to trial some ‘sophisticated’ information management strategy during an electronic auction, etc – then, interested undertakings would need to ‘be game’ and accept that their participation in the procedure was primarily for the purpose of experimentation, but would not give them enforceable rights. Of course, in order to incentivise participation, sandbox procurement could (and should) be sweetened by the contracting authority through the payment of participation fees.

Sandbox procurement could also be (randomly) conducted in the context of mock procurement trials not leading to the award of an actual contract—provided the tenderers did not know whether there was a contract to be gained at the end of the process or not (in which case, they would receive a compensation for the participation costs)—similarly to the carrying out of medical experiments involving the use of placebo—although in this case the issue would not necessarily be aimed at creating a control group, but rather at allowing for procurement experimentation with limited financial implications (in particular if the experiment went badly).

Needless to say, sandbox procurement would be most appropriate in scenarios involving scalable procurement innovations, and coordination on an EU-wide basis could allow for the replication of experiments in the context of different legal and business settings, as well as a reduction (if not avoidance) of duplication of innovative efforts.

Upon conclusion of the experiment, the contracting authority and the participating tenderers would draw a report that would be publicly accessible and, progressively, contribute towards the creation of a database of procurement experiments. This would allow for cross-dissemination of innovative best practices, as well as provide good insights into procurement improvement, both at policy-making and legislative levels.

I am aware that this is a controversial, and definitely only half-baked proposal, but I think this is one worth discussing and exploring in the future. Please let me know your thoughts.