How can innovations be procured if they are not yet commercially available? The public sector often needs specialized goods and services that are usually not required by private households and companies. As a result, there is a limited supply and little pressure to innovate in this specific area. Innovation partnerships between public agencies and innovative companies can contribute to providing the needed innovations for the public sector.


What is an innovation partnership?

Introduced in Germany in 2016, the innovation partnership is a procurement procedure that supports research and development. Its goal is to bridge the so-called “valley of death”, the financing gap often found in innovation funding: After completing publicly funded basic research, companies have to make high investments to develop a marketable product from the previous research results. They weigh the associated costs against the expected revenues of the final product. The estimation of the future demand, however, is linked to high uncertainties. Therefore, a lot of companies refrain from investing in the innovation process.

The innovation partnership tries to solve this through sharing the development costs and risks between the public contractors and the companies which enter a long-term cooperation to develop of innovative goods or services. By this means, the procurement authorities can cover their needs with innovative products or services in a tailor-made manner. The innovation partnership thus combines the pre-commercial phase (development) with the commercial phase of procurement in an innovative procurement procedure.


Which process does an innovation partnership follow?

An innovation partnership usually consists of three phases. After it has been identified that no suitable solution exists on the market, the procurement authority publishes an announcement in the form of a call for tenders in the first phase. Companies apply for the tender, which are first examined with regard to the suitability criteria (e.g. technical competence, price, capabilities) and then evaluated on the basis of their offers. In the next phase, the research and development phase, the chosen partner(s) develop the desired solution together with the public contractor in several intermediate steps. The partner(s) receive partial payments for their work in research and development if specified interim goals are achieved or if the product is accepted by the public contractor.

The final phase is the commercial phase in which the partner(s) present the jointly developed solution. The product gets procured and implemented in the planned area of application which concludes the innovation partnership.


What are the advantages of an innovation partnership and for which applications is it suitable?

One advantage of innovation partnerships is that the public buyers can develop and acquire a perfectly fitting solution, while complying with the principles of transparency, equal treatment and non-discrimination. It is assumed that as there is little demand the highly specialised product (e.g. innovative fire-fighting vehicles, trains with innovative propulsion) would not be developed without the joint development and procurement in the innovation partnership.

Due to the special relationship between public buyers and companies as partners in the development of innovations, the handling of intellectual property rights must be regulated: On the one hand, the use of the innovative product must be guaranteed for the procurement authority, on the other hand, companies want to protect their expertise. The property rights can be shared between all partners or only be held by one party, either the client or the partner. The regulation can already be stipulated in the tender or during the negotiations.

Another advantage of innovation partnerships is the combination of the development process and the purchasing process. This means that both procedures do not have to be carried out separately, as is the case with other procurement methods (e.g. pre-commercial procurement).


What is the difference between innovation partnerships and other procurement procedures?

The innovation partnership offers public buyers an open, less formalised framework to actively participate in the solution, thereby achieving a very high degree of innovation of the product as well as a good fit for the public buyer.

In other procurement procedures, such as the negotiated procedure or the competitive dialogue, procurement authorities also have some freedom to actively contribute to the process, but to a lesser extent. In the negotiated procedure, for example, they can communicate with the bidders about the entire content of the contract.

The competitive dialogue even allows a little more room for creative and innovative ideas: in this procedure, solutions are available on the market, but as the requirements are complex, the procurement authority is not objectively able to assess what the market can offer in terms of technical, financial, or legal solutions. Together with the potential contractors, the procurers specify the requirements in dialogue and discuss solutions for their needs.

In the case of the innovation partnership, a suitable solution does not yet exist on the market and is developed together with the companies. Since this case is somewhat rare and since the process was only introduced a few years ago, innovation partnerships have not been used that often so far.


How are innovation partnerships used in Europe?

A study by the European Commission in 2022 indicates that the number of innovation partnerships has increased since 2016. According to a data analysis from the European tendering portal TED, in 2016 the number of innovation partnerships was below five; but in 2021, there were already 20 innovation partnerships launched. However, the COVID pandemic reduced this growth: the number of innovation partnerships dropped in 2021 compared to the peak year of 2019 (35).

In the five years studied, a total of 125 innovation partnerships from 17 European countries were concluded, with a total value of eight billion euros. The most common sectors for innovation partnerships are mobility (16%), environment (16%), construction (11%) and information and communication technology (11%). The contracting authorities in Finland and France established the most innovation partnerships, with 18 each. With 16 innovation partnerships, Germany is also one of the frontrunners in Europe.

Small and medium-sized enterprises were involved in over 60 percent of the contracts. Within the thematic categories (e.g. green, digitalisation, artificial intelligence), SME participation was relatively evenly distributed. Overall, most partnerships were allocated to the categories of green (33 out of 125) and digitalisation/efficiency (29 out of 125), with over 30 percent of total contract values spent on innovation partnerships with a green or social purposes.


1European Commission: Study on the Innovation Partnership procedure