Public Procurement as a Tool to Stimulate Innovation: Science and Technology Report

Lord Kestenbaum Excerpts

Tuesday 13th September 2011 Grand Committee

[Lord Kestenbaum]

My Lords, I congratulate the noble Lord, Lord Krebs, and his distinguished committee on this most important report. It could not have been more timely and we would do well to treat its recommendations with great urgency. I begin by declaring my own interests. Until last year I was chief executive of NESTA. I still serve on the governing board of the TSB but, perhaps most pertinent to this report, I am now the chief executive of Lord Rothschild’s family investment interests—a large and imaginative investor in UK technology businesses.

What we all learnt from this report is the increasing consensus that Governments around the world see innovation as the key component to economic growth, and they have pledged, as has our Government, to shape public policies accordingly. Therefore, right at the outset, the report conclusively debunks the sterile argument that when it comes to innovation you have two policy choices, either a constant flurry of well intentioned interventions or staying firmly out of the way.

As noble Lords have remarked, we should consider the United States. The conventional wisdom is that, in the US, government does best when it is invisible. Yet procurement was the major factor in the growth and development of Silicon Valley. Military spending funded that generation of microwave technology companies, which were a mainstay of the region before the semiconductor industry arrived. It is no exaggeration that whether it is the GPS navigation system that we all use or internet protocol technology, the public procurement of technology has been the basis of some of the most transformational global innovations of recent decades.

The noble Lord, Lord Krebs, covered the ground thoroughly, but with his permission I should like to emphasise two points. The first relates to intelligent customers. The report speaks convincingly of government as an intelligent customer, and from my perspective as an investor, and an investor in technology, I wish to stress how vital these intelligent demanding customers can be in transforming the opportunities for small entrepreneurial companies in particular—companies that at a time such as this will be the absolute lifeblood of recovery. Intelligent customers, as the TSB evidenced in the report, allow procurement to be the vehicle in which companies—technology companies in particular—can step up to the task of solving major national challenges. Surely, government departments must increasingly frame their procurement needs as challenges for small businesses to solve, rather than as bureaucratic hoops to jump through.

The noble Lord, Lord Willis, referred to the SBRI scheme as an example, and I am sure he is right in suggesting that progress is being made. It is worth noting NESTA’s evaluation of the SBRI since its relaunch in 2008: that it is beginning to deliver on its potential to provide clever new solutions for government that generate business opportunities for private sector innovators. That is certainly encouraging. I cannot help thinking that to build on this we might want to focus on one or two areas of real scale that could have great and lasting impact that would generate evidence for others and encourage imitation. NESTA has spoken of a centre of excellence for innovative procurement, and that is certainly something worth considering.

I should also welcome the Minister’s views on the issue of focus. Most obviously, the lead candidate for focus is the prospect of the NHS—an enormous customer. As a potential lead and intelligent customer, the NHS would perhaps have a strong mandate to work with the TSB. That would surely provide the health service with a real way to drive innovative solutions to healthcare challenges.

The second point that I wanted to emphasise was that of leadership. I am concerned at how such a dramatic cultural shift that the report encourages can genuinely get embedded in the procurement system without the strongest of directives and—I know they are not fashionable these days—central directives. We know that there are insufficient incentives within the system to reward the intelligent customer. We therefore seem increasingly dependent on dynamic leadership, either in government departments or in the public sector, informally to influence customer behaviour. I shall give an example, which of course can work.

Only yesterday evening in preparation for this debate, I met the winners of the Times national procurement award. The winner was an institution very close to the Minister’s heart, Plymouth University, which won the national procurement award. When I met its representatives, they told me an inspiring story of how Plymouth University, working with the city council, while not compromising on standards or value for money, transformed the prospects for innovative entrepreneurial technology companies bidding for public sector contracts. As I listened, I understood that yes, there was procurement expertise in the exercise and greater simplification—all the formulas were there—but ultimately it was driven, cajoled and inspired by the institution’s dynamic leadership, who would not take no for an answer.

So what is the point? The point is that such leadership is not always widely distributed across this field, so I respectfully ask the Minister: where appropriate departmental leadership is absent or where civil service incentives to procure intelligently are inadequate, how will the procurement revolution be driven? How will this cultural change genuinely take root? I cannot help thinking that this is an instance where the laudable aims of localism need a little more than a gentle steer.