Innovation partnership – when no ready-made solution exists on the market
The innovation partnership under section 38 of the Public Procurement Act is perhaps the most exceptional of the procedures, because in it the public buyer does not acquire an existing product or service. The procedure is designed for situations where the contracting authority has an identified — often socially significant — need, but no ready-made solution exists on the market.
The essence of an innovation partnership is to combine the research and development (R&D) of a new solution with its final commercial procurement in a single continuous contract. For companies, especially in technology and software, the procedure offers a unique route to developing new business partly funded by the public sector — and to securing the first major customer for a finished product without a new tender.
1. How does the process proceed?
An innovation partnership is not a traditional purchase but a long-term model of collaboration. The contracting authority may choose one or several companies as partners. The process is built in stages:
- Selection of candidates: As in the other restricted procedures, the process begins with requests to participate. The contracting authority selects the candidates whose capacity, references and R&D expertise are sufficient to produce the innovation.
- Negotiation stage: Negotiations are held with the selected candidates, on the basis of which the innovation partnership contract itself is concluded.
- Research and development stages (R&D): The development work itself is divided into successive stages with intermediate targets (building a prototype, testing and production readiness, for example). The contracting authority pays the partners for completing these stages.
- Commercial procurement: If the development succeeds, the performance targets set are met and the costs stay within the agreed limits, the contracting authority buys the finished solution directly from its partner. No new tender is held at this stage.
2. Key points for the bidder
For a bidder an innovation partnership is a significant strategic decision that demands persistence. If your company is considering taking part in such a procedure, pay particular attention to the following:
- Intellectual property rights (IPR): For expert and software companies this is the single most important negotiating question in the process. Because the product is developed together with a public buyer, the contract must define precisely who owns the rights to the resulting code, solution or patents. Ideally for the bidder, the company retains the IPR and can later scale and sell the solution to other customers as well, while the buyer receives broad rights of use.
- Sharing risks and costs: Although the contracting authority funds the R&D stages, innovation always carries a risk of failure. The authority has the right to end the partnership after each development stage if the intermediate targets are not met. A bidder must be able to estimate its own development costs realistically, so that the payments tied to the milestones cover the actual expenses.
- No new tender at the end: The greatest attraction of the procedure for a seller is its outcome. Once the solution is finished and meets the objectives originally set, the buyer procures it directly. This removes the risk that your company develops the solution but loses the actual delivery contract to another company on price.
- Committing resources: Innovation partnerships can last for years. A bidder must be able to commit to the project for a long time and ensure that the company's key people are available throughout the development cycle.
An innovation partnership is not suited to selling commodity services or off-the-shelf software licences. For growth-oriented companies with development capability, however, it is an exceptionally strong instrument for building entirely new business together with front-runners in the public sector.
Frequently asked questions
What is an innovation partnership?
A procedure under section 38 of the Public Procurement Act in which a public buyer combines the research and development of a new solution with its final commercial procurement in a single contract — used when no ready-made solution to an identified need exists on the market.
Who owns the rights to the solution developed?
Intellectual property rights are agreed in the partnership contract, and this is a bidder's single most important negotiating question. Ideally the bidder retains the IPR and grants the buyer broad rights of use — that way the solution can also be scaled to other customers.
Can the finished solution be sold without a new tender?
Yes. If the performance targets of the development stages are met and the costs stay within the agreed limits, the contracting authority buys the finished solution directly from its partner without a new tender.