Scaling Govtech Innovation: open innovation as a special performance condition

In previous Insights articles, I've talked about how to foster competition between large and small companies in the world of government procurement. Today, I bring something new: how to promote collaboration between traditional government suppliers and startups in bidding.

Current scenario

Companies such as Telefónica, Inetum, Deloitte and Indra are giants in the field of public administration. They have in-depth knowledge of ministries and departments, implement massive projects and advise on complex digital transformation plans. These companies are essential for the Administration, and in many cases, public services and their provision depend on these suppliers.

This is what it is, and we are not going to advocate in this article for a radical change in the system (although we would like to). In this scenario, we have encountered clients who, although they want to bet on the govtech space, want to do so hand in hand with these large companies. And after a lot of thought, we think it makes sense. BUT, with a big BUT.

DIRECT knowledge of the ecosystem

Channeling the purchase of new solutions into large contracts works, BUT only if the public customer meets the new vendors directly, performs proof-of-concepts and evaluates their impact. Public customers cannot rely exclusively on their traditional vendors to learn about new technologies. Institutions must create their own innovation ecosystem, understanding the offer and what works best for them.

This direct knowledge of the ecosystem has a clear impact on market dynamics. Imagine that a small startup has an innovative solution that the government loves. If Accenture (or any other large company) knows that the government values this solution, it will negotiate differently with the startup. The government should know and directly value these new solutions to incentivize large suppliers to collaborate with small companies.

A two-pronged intervention strategy

With this in mind, we propose a two-pronged strategy: on the one hand, to encourage direct connection with the ecosystem, and on the other, to create spaces for large corporations to meet and collaborate with small ones.

How would this two-pronged approach work?

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1. Direct connection: public institutions can create govtech innovation teams, from where they can test new solutions directly with startups. The payment of PoCs or pilots is done using minor contracts or Article 183 of the Contest of Projects and Ideas, applying it to carry out pilots of more than 15 thousand euros. Thanks to CTTI we already have several precedents that follow the path marked by Renfe and Aena at State level. Just the day I am writing these lines, five Competitions of Ideas and Projects are presented with the aim of piloting new digital solutions.

2. Open innovation clauses govtech: we propose that open innovation should be a special condition of execution in large tenders. According to the LCSP, it is mandatory to include special performance conditions related to innovation, environment or social issues. We propose the systematic inclusion of the govtech open innovation clause in the scope of all contracts, making the awarded companies work with niche technology companies, on challenges set by the public client and collaborating with the public client in the choice of the solution and in the evaluation of its impact. The clauses may require:
   • Development of Open Innovation Processes: Successful bidders must include processes to identify, test and scale new digital solutions that respond to specific challenges related to the object of the contract.
   • Source of Solutions: Solutions must come from startups, scaleups and digital SMEs, thus reinforcing the institution's innovation and entrepreneurship policies.
   • Decision of Challenges and Use Cases: These must be decided by the public administration bidding, ensuring that the solutions tested are aligned with real needs.
   • Methodologies and Quantity of Open Innovation: Establish clear methodologies and the number of open innovation processes to be developed per year.
   • Clear Payments and Conditions: Define the amount to be paid per pilot, payment times and conditions, prohibiting downgrades in this part of the budget.
   • Payment by Result: If it is decided to buy the solution after the pilot and implement it, an extra payment can be paid as payment by result, further incentivizing quality and innovation.

Impact of the govtech open innovation clause:

When we think of technology providers and government, large companies such as T-systems or NTT Data come to mind. Undoubtedly, the formula we propose here can be interesting to apply in large digital transformation, system maintenance or technology integration projects. However, this formula is not only interesting for this type of projects, but also to digitize the service of traditional providers that work with the administration in non-digital services such as care for the elderly, immigrants or disadvantaged groups. Having a nursing home concessionaire identify annual challenges and pilot innovative solutions has a great impact. If an institution implements this clause systematically in all its projects, the impact is multiplied.

A maturing market

Govtech innovation is growing and maturing. With clear policies and strategies, we expect to see soon several examples and precedents of open innovation clauses in tenders. Which institution will be the first to be encouraged? ‍