Redesigning Public Procurement Guidelines: Opening the way to startups

In our opinion, changing the way public procurement specifications are designed could have a transformative impact on our system. Public Procurement of Innovation (PPI), project competitions and approval systems are useful tools, but if we really want to open up the digital supplier market for entrepreneurial innovation in public administration, we need to rethink how bids are validated and assessed. The best thing is that Law 09/2017 on Public Sector Contracts (LCSP) allows this, and even encourages it.

In this article, we share some crucial points to keep in mind when designing a tender that allows small companies offering technological innovation to compete fairly. In doing so, we not only open up the market to startups, scaleups and digital SMEs, but also ensure that we acquire the best innovation. We hope these tips will be useful both for government teams looking to expand their offerings and for startups, scaleups and digital SMEs looking to sell their solutions to public administrations.

1. Solvency: is it really necessary to ask for the moon?

Economic solvency: Disproportionate economic solvency requirements are often demanded for low value contracts. The LCSP establishes a maximum limit, but not a minimum in terms of economic solvency. A young company that has spent time on research and development may have a more solid solution than a company that is just starting to develop a technology from scratch. In addition, for contracts that are not subject to harmonized regulation, the LCSP allows companies with less than five years of existence to present civil liability insurance in lieu of specific economic solvency (Article 86 LCSP).

Technical solvency: Many specifications accept technical experience based on the Common Classification of Products and Services (CPV), which covers a wide range of categories. However, it would be beneficial to also require experience in the development of a specific product or service as technical solvency. Many start-ups, despite having little experience as an entity, accumulate years of technological expertise among their employees. In fact, for contracts not subject to harmonized regulation, the Law allows companies with less than five years to demonstrate their technical capacity in other ways (Article 90 LCSP).

2. Award Criteria: Beyond price

Price and formula: The LCSP states that at least 51% of the criteria must be automatic, but does not specify that price must have at least 51% weight. However, many institutions end up giving disproportionate weight to price, which turns public procurement into auctions. This is inappropriate for the acquisition of technological innovation, where quality is paramount. The LCSP grants flexibility and does not establish a minimum weight for price. In our opinion, the price should not exceed 35% and, in some cases, even less.

Regarding the formula for calculating price points: Instead of linear formulas that reward any price reduction, we suggest formulas that discourage excessive discounts beyond a certain point. This avoids rewarding companies that compete only on price and not on quality.

Improvements: If price has a weight of 35%, it is necessary to allocate an additional 16% to automatic criteria. Instead of asking for more quantity for the same price, improvements should focus on quality. For example, hours of training, coaching and consulting, or specific professional profiles. These improvements should be affordable for both large and small companies.

3. Subjective Criteria: Assessing Quality

Assessing Quality: Comparing software or technological innovation is not a simple task when reading a 100-page written report. It is essential to interact with the supplier and perform proofs of concept to assess quality. This approach also applies to consulting services, especially in the area of innovation. Interviews demonstrating compliance with 80% of the required functionalities or knowledge of methodologies can be useful to ensure the technical capability of the supplier.

Proof of concept and online or face-to-face meeting is even more relevant in the ChatGPT era. Thanks to generative artificial intelligence anyone can create a memory of anything from scratch. What value do technical memories have today in bid proposals to assess the quality of the bidder's work? Not much. Fortunately, there are already references for all this, but it is still a little known practice.

4. Payment schedule: never at the end

The payment schedule can be a major obstacle for startups and scaleups, which are dependent on cash flow. To attract these suppliers, it is beneficial to establish a monthly or bi-monthly payment schedule rather than concentrating all payment at the end of the project.

These changes in the way tenders are designed allow for more inclusive competition and ensure that the best bidders are selected based on the quality and value they offer. Shifting from price-centric to quality-based public procurement is crucial, especially when it comes to technological innovation.

At GOBE, we are committed to fostering this cultural shift in public procurement. If you have additional ideas to promote this transformation, please do not hesitate to contact us at hello@gobe.studio. Together we can make a significant change in technology innovation procurement!