Procurement Pioneers Benefit from Innovation Partnership

The public sector is coming under increased pressure to pioneer new services and adopt innovative operating models. This pressure is not just coming from structural reforms being made to services, such as the ongoing social and health service overhaul. Part of it is coming from the underlying political goal to open development opportunities in the public sector for corporate ideas, and thus provide companies with reference cases, speed up their growth and improve their opportunities to export new products and services.

To date, innovation-positive public contracting authorities in Finland were stuck between a rock and a hard place. Procurement regulations did not allow for product development cooperation with private companies to lead to a finished commercial product or to the purchase of a service directly from the partner company. Many projects were stifled before they could get off the ground.

New Innovation Partnership Offers Solutions

Fortunately, the reform of the Public Procurement Act has changed things. Innovation partnership is a new concept allowing contracting authorities to combine the product development phase and the contract for the finished solution into a single whole.

A public-sector purchaser can choose innovation partnership when there are no ready solutions on the market for the contracting authority’s needs—in other words, when it is necessary to create something new. The object of innovation can be very different in different procurement projects. For example, innovation partnership could be used to develop robotics or artificial intelligence solutions for welfare services or to seek new solutions for the energy efficiency and comfort of buildings.

The contracting authority can choose one or more innovation partners with which to engage in development work. The contracting authority can reduce the number of partners during the development phase of the product or service and can purchase the solution from the company whose results are best suited to the authority’s needs.

Innovation Partnership Raise New IPR Challenges in Public Contracts

Innovation partnership also poses new contractual challenges. The contracting authority needs to decide in advance the model according to which the authority and its partners will share any IPRs that may be created in the partnership. The Public Procurement Act also requires that the contracting authority state the IPR arrangements in the request for tender documentation.

Though contracting authorities may be tempted to demand all rights to inventions or software for itself, this contractual model is one that corporate partners rarely find acceptable. It makes more sense to find a middle ground in which the contracting authority’s competitive edge (if such is being sought) is secured without preventing the partner from commercialising its development work elsewhere. Ownership of IPRs is rarely a financially sound choice contracting entities, and sufficient rights can be secured through extensive rights of use. After all, contracting authorities seldom plan on commercialising the results of development work themselves.

In a situation with several innovation partners, the definition and protection of existing IPRs takes centre stage. Only by making sure that none of the parties’ existing rights are abused can the willingness of each partner to contribute their expertise to the project be ensured and an open and innovative development environment created. The best results are always obtained when it is a win-win situation for everyone involved.