Forward Commitment Procurement Know How Programme Part 1

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Forward Commitment Procurement Know How Programme Part 1. Introduction to Innovation and Forward Commitment Procurement KHP 1A : Innovation and FCP: Introduction, concepts and background. - PowerPoint PPT Presentation


  • Forward Commitment Procurement

    Know How Programme Part 1Introduction to Innovation and Forward Commitment Procurement

    KHP 1A : Innovation and FCP: Introduction, concepts and background

    These materials remain the property of BIS. They constitute part of a learning by doing programme and are unsuitable for stand alone use. They must not be used or passed to other individuals or organisations without the express and written permission of BIS

  • BIS, Innovation and ProcurementBIS and innovation: We want to make sure that Britain is the best place in the world to run an innovative business or service - this is critical to the UK's future prosperity, our quality of life and future job prospects

    BIS and procurement: Developing a public procurement culture that stimulates innovation in the economy and delivers improved value for money to the taxpayer

    BIS Innovation for Sustainability Programme Developed to support these objectives and to meet the Governments commitment to scale up and replicate to use of Forward Commitment Procurement across the public sector

    The challenge is to use public procurement and public services to lead the way, shape the market for innovative solutions and equip society to meet the challenges of the future. Innovation White Paper 2008: Innovation Nation

  • Forward Commitment Procurement Know How Programme Part 1Part 1: Introduction to Innovation and Forward Commitment ProcurementBy the end of this section you will be able to explain the rationale of FCP and outline the FCP process

    OverviewKHP 1A : Innovation and FCP: Introduction, concepts and background KHP 1B : FCP principles into practiceKHP 1C : FCP process: overviewActivities and resourcesWork through the key pointsComplete the activitiesComplete and submit the worksheetsReview and coaching sessionOptional reading and activities

  • Know How Programme Part 1Part 1A Contents

    This section is longer and more theoretical than subsequent sections.It is divided into two parts which you can treat as two separate sections if you wish:

    Innovation and the public sector.Forward Commitment Procurement: introduction and origins.

    The section will cover:Why innovation?The role of the public sector in innovationDefinitions: Innovation, Forward Commitment ProcurementConcepts: Market Failure, Information Failure, Demand PullWhy FCP?

    By the end of this section you will be able to define innovation and explain the role of publicsector and FCP in addressing the market failures the impede innovation for the social good.

  • About InnovationDefining Innovation Innovation is often confused with research.

    They are in fact very different processes.

    Research is a way of turning money into knowledge.Innovation turns knowledge into money.

    Research is about doing things for the first time.Innovation is about using known things for a new purpose.

    You dont know the results of research in advance.Innovation is always targeted on known outcomes.

    A key success factor for innovation is an accurate understanding of the unmet need it is targeting. Research is the conversion of money into knowledge; you dont know what the outcomes will be when you begin, but it cant fail you always end up knowing more than when you started. Research is a low risk activity.Innovation is the conversion of knowledge into money: you know what new outcomes you want to achieve before you start but you can fail to achieve them. Innovation is risky.

    Jack Frost, Chairman EIAG

  • About InnovationInnovation: why bother? Change happens because a previously unrecognised, unmet need becomes apparent.These unmet needs drive innovation.Necessity is a key driver for innovation.

    Innovation is hardIt takes time to come to fruition.It requires us to think ahead.It is inherently risky.

    Innovation for innovations sake is not a good ideadont innovate unless it is really necessarybut it is necessary more often than we admit, for example:escalating costs = service reductions or higher charges unable to deliver policy targets or ambitions = unacceptable political or economic costpressing societal problems needing new approaches, etc.

  • About InnovationDefining Innovation Definition: Innovation

    Innovation is the process of translating technology and knowledge, into new usable products and servicesInnovation is the process of translating technology and knowledge into new usable products and services. It has been said that we have all the technology we need to convert to a low carbon economy. Arguably this is true but we still need innovation to translate this technology into the new products and services that we can buy.

    Jack Frost, Chairman EIAG

  • About InnovationHarnessing innovation for the public goodWithout new goods and services we will be unable to bring about the transformational change of society to a low carbon economy and a sustainable future.

    The difference between these new goods and services and current goods and services is the extra social benefits (e.g. low carbon, sustainability) they provide. These are new unmet needs that require innovation to be delivered.

    But very often the process of innovation for the social good fails, and these new goods and services face significant barriers to market.

    Many fall by the wayside, others remain too expensive or get stuck as impractical prototypes, while even the successes make only slow progress into the market place.This means companies fail and society doesnt get the products and services it needs to bring about transformational change, a loselose situation.

    Innovation will be the key to some of the biggest challenges facing our society, like global warming and sustainable development. We need use all the tools at our disposal to unlock solutions.

  • ConceptMarket FailureThis failure of innovation for the social good happens when the market doesnt operate efficiently in the interests of the social or common good.

    When the market doesnt take account of the full costs or value of an economic activity, or doesnt deliver what society as a whole needs, economists call this market failure.

    Definition: Market FailureMarket failure occurs when market prices are not equal to the social opportunity cost of resources. External effects or externalities are evidence of market failure.

  • ConceptMarket FailureMarket failure, occurs because individuals are reluctant to pay for, or do not value, social (as opposed to individual) benefits.

    Market failures provide a rationale for government intervention to influence and/or adjust the market for the benefit of the social good.

    Market failure is a broad, catch all term that economists use to explain why the free market is failing to deliver what society needs and explain why the market needs to be managed and regulated in some way to protect the social good market failures are all too common...

  • ConceptTypes of Market FailureMarket failures are quite common, and there are many types of market failure.

    Externalities Where the market does not take into account the social costs of production (e.g. pollution).The environment is often undervalued, as is public health, good governance of countries and companies etc.

    Information failures Where information is not freely available markets will be inefficient.

    Free rider problemsIt is rational to let someone else do new things and take the risk and copy them. It is rational for procurers to wait until someone else has bought a new product and taken the risk this entails before adopting them. If everyone does this new products only arrive in the market slowly or fail to penetrate the market with sufficient depth or pace to justify investment and often fail to reach the market. In the case of environmentally beneficial goods and services this is to the detriment of society as a whole.

  • ConceptExamples of Market Failure Negative externalities (effects) occur when the consumption or production of a good causes a harmful effect to a third party.

    In the past we regarded clean air and water as free and consequently this created problems such as the London smog or polluted rivers.

    If a company produces chemicals, but cause pollution, then local fishermen will not be able to catch fish. This loss of income will be the negative externality.

    Government intervened to regulate the free market with measures such as the Clean Air Act and the problem was largely solved.

    Today emitting carbon dioxide is free, despite the problems it is now known to cause, and there are attempts to correct this by putting a price on carbon dioxide emissions.

    Can you think of any others?

  • ConceptMeasures to correct market failuresAs we have seen markets often undervalue social benefits and the common good. Government and the public sector in general are societys agents and can intervene in the market to protect the common good.Government intervention to correct so called market failures can take different forms:Policy and regulation (e.g. the Clean Air Act). Fiscal incentives / disincentives (e.g. lower road tax for low carbon cars). Grants and subsidies (e.g. the Renewables Obligation).Procurement. A combination of these measures works best.

    Britain is home to a large number of companies involved in low carbon innovation. However, there is a number of areas where strategic action from government is required to further strengthen Britains potential. Targeted policy measures will be essential to tackle market failures preventing innovation and growth.

    UK Low Carbon Industrial Strategy

  • Forward Commitment ProcurementUsing public procurement to correct market failurePublic Procurement is gaining ground a


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