Public procurement law: innovative procurement is gaining ground

Whereas practical examples of the innovation partnership award procedure could be counted on the fingers of one hand until recently, and innovative procurement were not common, 2021 will be the year in which the Netherlands is overwhelmed with initiatives involving procurement by public authorities and trade and industry that differs from the standard procedures. The innovation partnership award procedure offers many advantages to both principals and contractors, and is gradually conquering various market sectors, such as construction, mobility, ICT and healthcare. Procurement officers are increasingly open to a different manner of procurement: partly because of the advantages and possible proceeds that it offers, and partly because the various current developments so require.

Healthcare

There are two important developments in the field of healthcare. The first is pricing, which is giving rise to legal actions between healthcare purchasers (such as municipalities and healthcare administration offices) and healthcare providers, because the rates in the procurement procedures were forcing healthcare providers to work below cost. Healthcare providers have successfully argued in court and before the Court of Appeal that such rates are not in accordance with the Jeugdwet (Youth Act) and are disproportional (in light of the public procurement law principles). A case in point is the legal action between Parnassia Group and Curium LUMC regarding the youth care rates of ten municipalities in the Haaglanden region (H10 municipalities). Another example that is likely to have an impact is the legal action taken by 19 mental healthcare providers and their trade association, the Nederlandse ggz, challenging the rates under the Wet langdurige zorg (Long-Term Care Act) applied by various healthcare administration offices. Also in that case the court recently found that healthcare procurement officers must apply fair rates. But what are fair rates and how should they be established in a complex healthcare landscape? A different award procedure is then required.

Secondly, the manner of healthcare procurement will develop further, not only because of the need to consult on the rates with healthcare providers, but also to determine in what manner costs can be cut and legislation and regulations can be observed. Whereas administrative procurement and the Zeeuws model were popular in the past among healthcare procurement officers, such as municipalities, under the Wet maatschappelijke ondersteuning 2015 (Social Support Act 2015) and the Youth Care Act, they have now been taken over by open house procedures (as referred to in the Falk Pharma judgment and the Tirkkonen judgment of the European Court of Justice) and SOS procedures (procurement procedures for social and other specific services under Annex XIV to Directive 2014/24/EU). Those procedures will be used more frequently, but it remains to be seen whether that will suffice to achieve the policy objectives: better care for more healthcare clients at a lower budget. As the municipality of Rotterdam previously announced, procurement in the social domain (under the Social Support Act and the Youth Act) must be simplified and requires dialogue with healthcare providers, among others, to promote innovation and to cut costs without that being detrimental to the healthcare provided. The south-east region of Utrecht also recently started a pilot for a different and simplified manner of residential youth care procurement. Such initiatives will become increasingly common.

In the private sector (in particular at general hospitals) and at UMCs, the trend towards innovative procurement commenced long ago. An example of an innovation partnership is that between the Flevo Hospital and Phillips, which will set up projects for patient monitoring and for the improvement of transmural and extramural healthcare. Philips previously entered into an innovation partnership with Städtische Klinikum München for the innovation of medical imaging studies. Several hospitals and suppliers now work together in such procurement processes that lead to innovation partnerships with the same objectives, instead of the traditional principal-contractor relationships: partnerships that create a win-win situation for all those involved.

Transport

The first innovation partnerships in the Netherlands arose shortly after the implementation of this procedure as recorded in Directive 2014/24/EU, Directive 2014/25/EU and Article 2.31a of the Aanbestedingswet (Public Procurement Act). First by the Ministry of Infrastructure and Water Management for the CHARM programme, aimed at making traffic management at traffic control centres future proof, and then by the Ministry of Infrastructure and Water Management together with 12 local authorities for Partnership Talking Traffic, aimed at improving the flow of traffic. In the coming years the innovation partnership may be of help in implementing the Fourth Railway Package: in terms of railway planning, but also with regard to the procurement of equipment and for winter management purposes, particularly now that different sustainability objectives call for innovations.

ICT

There are also new developments in the field of ICT. Whereas there were only a few examples in the 2015-2019 period, such as Charm en Charm PCP of Rijkswaterstaat (the Directorate-General for Public Works and Water Management) and the Highway Agency (currently named Highways England) for an advanced traffic management system, there will be many new developments in this field as from this year. A first recent effort is the cooperation between municipalities that have joined forces in search of a technical innovation partner to help vulnerable citizens with their finances: an innovation partnership with Buddy Payment, a Rotterdam Fintech. That innovation partnership has given rise to the Buddy Internet Banking App: an app that shows a list of income and expenses, to help people take their regular outgoings into account in a debt counselling context. Such apps will be helpful to public authorities in many fields.

Construction

Several innovation partnerships have already been established in the field of construction. Years ago, for instance, the municipality of Hof van Twente entered into the Groene Droom partnership with three parties with a view to the construction of two climate-neutral buildings. Those buildings were recently put to use. After a tendering procedure, the municipality of Amsterdam has now entered into an agreement with the innovation partners for the Canal Walls innovation partnership. The Sterke Lekdijk Project, finally, appears to be the start of a series of innovation partnerships in light of the High Water Protection Programme scheduled for the coming years. Lekdijk is one of the main river dykes in the Netherlands and must be reinforced across a length of 55 km. Water authority De Stichtse Rijnlanden (“HDSR”) has set the bar high: the dyke must be reinforced in such a way that it is not only safe, but also fits into the landscape and the environment, taking into account the problems in the fields of CO2, PFAS, nitrogen, corona, etc. In other words, sustainable and innovative solutions are required. The objectives set can be achieved by means of the HDSR innovation partnership with its three innovation partners Van Oord, Mourik and De Lekensemble (a consortium of Heijmans, GMB and De Vries en van de Wiel). The Sterke Lekdijk Project has attracted considerable media attention: see here, for instance, for HDSR’s own press releases, the FD newspaper for an interview and an article of H2O Waternetwerk. A visual explanation of innovation partnership Project Sterke Lekdijk can be found here and here.

Different award procedure in 2021

The innovation partnership procedure offers many advantages. There is ample opportunity, for instance, for consultation between contracting authorities and tenderers, it is possible to prematurely terminate the partnership, and it is easier for innovative companies to develop their ideas into a usable solution that can then be procured (without a tendering procedure). The innovation partnership is not the only means of procuring innovative concepts (products, supplies, processes or works). There are different ways of doing so in both the private and the public sectors: private procurement procedures, but also other European tendering procedures, such as the competitive dialogue and the competitive procedure with negotiation offer numerous possibilities. The innovation partnership is exceptional because the legislation and regulations in question offer more scope for customisation than other tendering procedures. That does not imply a complex or lengthy tendering procedure by definition. On the contrary, it may in fact be a simpler and shorter procedure, depending on the contracting authority’s requirements and wishes regarding the contract.

We expect that innovation partnerships will become even more common in the future. The annual increase in the number of innovation partnerships points in that direction: there were 3 in 2017, 10 in 2018 and 13 in 2019. The European Commission is also encouraging the use of innovation partnerships in its recent Guidance on Innovation Procurement, offering public authorities practical examples and tools to interest innovative companies in public contracts and to inspire public authorities. Finally, innovation is essential: in order to cope with cutbacks in healthcare, but also to achieve the various sustainability objectives.

More information on innovation procurement can be found at www.innovatiepartnerschap.info.

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