Fostering innovation in public procurement through public private partnerships

Date03 September 2018
Published date03 September 2018
Pages257-280
DOIhttps://doi.org/10.1108/JOPP-09-2018-016
AuthorNunzia Carbonara,Roberta Pellegrino
Subject MatterPublic policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public finance/economics,Taxation/public revenue
Fostering innovation in public
procurement through public
private partnerships
Nunzia Carbonara and Roberta Pellegrino
Polytechnic University of Bari, Bari, Italy
Abstract
Purpose The prevailing view in the studies on Public Private Partnerships (PPPs) is that PPPs can
improve the quality and efciency of infrastructure services and facilitates innovation in infrastructure
developments.Although researchers highlight thepotentiality of PPP models for stimulatinginnovation, they
do not prove whether and in which conditions the PPPmodel is capable of developing innovative solutions.
This paper aims toprovide answers to the following key research questions:Which are the PPP features that
favor innovation?How properly structure a PPP to fosterinnovation?
Design/methodology/approach With this aim, drawing upon the main streams of studies on
innovation,the authors develop a conceptual framework that identies the PPP featuresthat can inuence the
innovativeness.Second, they dene how these PPP features have to be structuredto foster innovation.
Finding The authors nd that a wider involvement of the private sector will increase the level of
innovation. The industrystructure exerts opposite forces on innovation: the dominanceof large-sized rms is
positively related to innovative output, whereas the market concentration negatively affects innovation.
Performance-basedcontracts should be used in the context of PPP instead of traditionalcontracts. Finally, the
authors nd that, to fully exploit the networking effects on innovation, cooperation and trusting among
partnersinvolved in PPPs should be enhanced.
Originality/value The developed framework identiesthe relations existing between each PPP feature
and the level of innovation and allows to dene how these PPP features have to be structured to foster
innovation.The authors contribute to ll the gap in the academic literatureon PPP and innovation by proving
whether and in which conditionsthe PPP model is capable of developing innovative solutions. Furthermore,
they providemeaningful guidelines to those called to structurethe PPP arrangements.
Keywords PPP, Innovation, Public procurement, Public private partnerships
Paper type Research paper
Introduction
Public procurement is a powerful instrument for innovation (Edler and Georghiou, 2007).
This is consistent with the demand-driven innovation approach (Nelson, 1982;Lundvall,
1988,1992) and it is conrmed by the numerous empirical studieson the theme. Comparing
R&D subsidies and state procurementcontracts without direct R&D procurement, Rothwell
and Zegveld (1981) conclude that, over longer time periods, state procurement contracts
triggered greater innovationimpulses in more areas than did R&D subsidies. Geroski (1990)
also analyzes the quantitative and qualitative meaning of state demand for innovation and
concludes that procurement policy is a far more efcient instrument to use in stimulating
innovation than anyof a wide range of frequently used R&D subsidies.
In a more recent survey of more than 1,000 rms and 125 federations,over 50 per cent of
respondents indicatethat new requirements and demand are the main source of innovations,
while new technological developments within companies are the major driver for
innovations in only 12 per cent of rms (BDL, 2003). An analysis of the Snno data base,
Fostering
innovation in
public
257
Journalof Public Procurement
Vol.18 No. 3, 2018
pp. 257-280
© Emerald Publishing Limited
1535-0118
DOI 10.1108/JOPP-09-2018-016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1535-0118.htm
collecting all innovations commercialized in Finland during between 1984 and 1998
(Palmberg, 2004;Saarinen,2005), shows that 48 per cent of the projects leading to successful
innovation weretriggered by public procurement.
The increased interest in public procurement to spur innovation is also evident both at
European Union (EU) level and at national level. At EU level, procurement for innovation
was incorporated as an element of the European CommissionsResearch Investment Action
Plan to raise R&D expenditure to the 3 per cent Barcelona target (European Commission,
2003a). At national level, the UK Governments InnovationReport of 2003 proposed a series
of measures aimed at increasing the research and innovation impact of public procurement
(DTI, 2003). Studies and/or promotional activities for spurring innovation through
procurement have been also carriedout by the Irish Science and Technology Policy Agency,
Forf´as, in Spain, by the COTEC Foundation, and in The Netherlandsby an internal group
of experts set up by the government. In Germany the Impulse Group Innovation Factor
Statehas been working on the possibility of promoting innovation dynamics from the
market place by adjusting procurement practice in general, as well as through strategic
procurement measures in selected technology areas (BMWI/BME, 2006). Recognizing the
relevance of public procurement for improving public infrastructure and services, recent
literature on public management focuses on the relationship between the public
procurement delivery methods and innovative solutions and products and analyses in
particular the role played by Public Private Partnerships (PPPs) in fostering innovation
(CBI/Qinetiq, 2006;Eaton et al.,2006;Edler and Georghiou, 2007;Barlow and Koberle-
Gaiser, 2008a). PPPs are agreements where public sector bodies enter into long-term
contractual agreements with private sector entities for the construction or management of
public sector infrastructurefacilities by the private sector entity, or the provision of services
by the private sector entity to the community on behalf of a public sector entity (Grimsey
and Lewis, 2002). The idea of allowing private rms to nance projects of public sector
infrastructure results in the emergence of PPPs (Li and Akintoye, 2003;Tang et al.,2010).
The worldwide experience has shown that the PPP can provide a variety of benets to the
government. In particular, PPP can increase the value for moneyspent for infrastructure
services by providing more-efcient, lower-cost, and reliable services; PPP promotes local
economic growth and employment opportunities and allows the public sector to transfer
risks related to construction, nance, and operation of projects to the private sector and to
keep public sector budget decienciesdown (Kwak et al., 2009). In terms of innovation, most
of PPP studies assume that PPP improves the quality and efciency of infrastructure
services, encourages the adoption of advanced practices in the construction phase and
creates a business environment that facilitates innovation in infrastructure developments
(Akintoye, et al.,2003;Kwak et al., 2009). Some studies nd that one justication for public
funding of PPPs lies in innovation, asserting that the innovator (the private investor) does
not appropriate theconsumer surplus that results because of an innovationitself, although it
represents a gain for society (Martin and Scott, 1998). In line with this, other authors prove
that the innovator of a product or process will not only fail to appropriate that surplus, but
also will typically be unable to appropriatethe consumer and producer surpluses created by
subsequent innovationsthat build on the technology and knowledge introduced by itsinitial
innovation (Baldwinand Scott, 1987;Scotchmer, 1991;Barzel, 1968).
Although these studies highlightthe potentiality of PPP for stimulating innovation, they
do not prove whether and in which conditions the PPP model is capable of developing
innovative solutions (Barlow et al.,1997;Davies and Salter, 2006;Green et al.,2004;
Leiringer, 2006).
JOPP
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