Meld. St. 30 (2019–2020)

An innovative public sector — Culture, leadership and competence

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11 Innovative procurements and industry partnerships

Figure 11.1 

Figure 11.1

To be able to address major societal challenges, realise the potential offered by new opportunities and develop more innovative solutions, it is important that public agencies seek new forms of collaboration. The business sector is a key partner of the public sector in connection with procurements, partnerships and other forms of collaboration. To exploit the full potential of the business sector, the public sector should collaborate with established enterprises and utilise the innovative drive of start-ups and social entrepreneurs.

11.1 The current situation

11.1.1 Division of roles between the public and private sectors

The public sector provides administrative and welfare services to the population and the business sector. Some services are produced by the public sector and some are purchased, while some deliveries are a combination of self-produced services and procured goods and services. Looking to and collaborating with businesses on solutions does not mean that the public sector will become like the business sector. It is about how private enterprises, with their work methods and framework conditions, can help the public sector to achieve its objectives. In Norway, discussions are taking place in several areas about when solutions should be procured from the private sector and when the public sector should develop and produce its own solutions, including in relation to ICT and digitalisation. How far should the public sector go in producing services in-house? The digitalisation strategy emphasised that, in principle, the public sector should not do what the market can do better. The public sector shall play a leading role by communicating needs and entering into dialogue with the market on possible solutions. Innovation and cooperation with the business sector are not objectives in themselves, but tools to promote better goal attainment in the public sector. At the same time, business development and competitiveness in the business sector can also be a positive side effect of work on public sector innovation. Stimulating business development is otherwise a task assigned to the business-oriented policy instrument system.

11.1.2 Public-private partnerships and collaborations

Equal, mutual partnerships between public and private actors have become more common and received widespread attention in recent years. Private actors can be involved in physical or digital arenas, through long-term collaborations or short-term projects. An example of a long-term collaboration is the Inn på tunet program, in which farms are used as venues for adapted, quality-assured welfare services. There are about 400 such approved farms throughout Norway. They offer adapted services for children and young people, education, training and work practice, and health and care services. In the Innovation Barometer surveys, about 20 per cent of central and local government agencies state that they have collaborated with private enterprises.1

Examples include initiatives where public and private parties collaborate on the smart cities and communities of the future (Box 11.1). The county authorities have long experience of collaborating on regional development with a range of different representatives from the business sector, the social partners, policy instrument agencies, NAV (the Norwegian Labour and Welfare Administration) and research and educational institutions. The county authorities are expected to contribute to good analyses of challenges and to ensuring that the parties involved pull in the same direction. These partnerships can be arenas for joint efforts to address societal challenges. KS, Innovation Norway and Ferd Social Entrepreneurs are testing local arenas to find innovative solutions to societal challenges (Box 11.2).

Textbox 11.1 Smart, sustainable cities and local communities

Smart cities and communities are about developing and introducing new solutions that make cities and local communities better places to live and work. This often entails using technology and digital solutions, as well as collaboration between the public sector, business sector, organisations and research institutions.

The roadmap for smart and sustainable cities and communities in Norway defines smart cities and communities as places that focus on people, while using new technology, innovative methods, collaboration and co-creation to become more sustainable, attractive, productive and resilient.

The roadmap sets out eight principles for smart, sustainable cities and local communities. They are: 1) place people in the centre, 2) focus on the big picture, 3) prioritise climate and the environment, 4) promote inclusion and co-creation, 5) focus on next generation businesses, 6) share and use open data, 7) develop competencies and embrace change, and 8) act local, think global.

Stavanger Smart City is an example of a smart city initiative. It sees the Smart City approach as a new way of working in the municipality and carries out small and large projects relating to health, art and democracy.

Smart solutions are not just relevant for towns and cities; rural and local communities also need an innovative approach to, for example, welfare solutions and public transport. Transparent rural communities can serve as ‘living labs’ where new solutions are tested and citizen participation plays a central role. The EU has put this on the agenda through the Smart Villages initiative.

Source City of Stavanger, Roadmap for smart and sustainable cities and communities in Norway, Vestland county authority

Textbox 11.2 Pilot for local arenas for cooperation

KS, Innovation Norway, SoCentral and Ferd Social Entrepreneurs are testing regional arenas for municipalities, social entrepreneurs, private enterprises, non-profit actors and citizens for the purpose of addressing local challenges. They believe that physical meeting places, whether local or regional, can make it easier to establish contact between resources and society, and to lower the threshold for co-creation across sectors and the traditional dividing lines in society.

In the organisers’ experience, thorough preparation is necessary in order to turn such meeting places into arenas for co-creation. This involves defining a specific, local challenge, creating a knowledge base that gives the participants a shared point of departure, and identifying and inviting representatives of all target groups. Genuine co-creation is dependent on clearly defined local needs and an open dialogue about possible solutions in which all participants play an equal part. For example, meetings have been organised on the topic of how local actors can co-create a society that fosters increased participation by young people, where exclusion and dropout rates are reduced and where new communal values are established in the municipality.

Source KS, SoCentral

Cooperation can boost innovation, but it can also challenge the roles of both the private and public sectors. Awareness and openness are required on both sides to ensure good, transparent processes and decisions.

An increasing number of cluster projects in the business sector include public agencies, for example the Norwegian Tunnel Safety Cluster, in which municipalities, the fire service and the company Nye veier work together to ensure safer road tunnels.2 The public sector can also make arrangements for the business sector to deliver solutions, by developing platforms such as Fellestjenester Bygg (Box 11.3).

Textbox 11.3 Fellestjenester Bygg facilitates – the market delivers the solutions

In 2014, the Norwegian Building Authority (DiBK) launched the ByggNett strategy, with the goal of facilitating the digital construction sector of the future. The sector was fraught with challenges, and the regulations were complicated. Around 40 per cent of building applications received by municipalities had shortcomings or errors that meant that the case officer had to ask the applicant for additional information. A number of measures have been implemented to digitalise the building application process and address these challenges. One of the initiatives was Fellestjenester Bygg, a digital platform based on common components that checks building applications against the applicable regulations and ensures a good flow of information between all the parties involved. The system uses Altinn to carry out automatic checks of building applications before they are forwarded to the right municipality. Fellestjenester Bygg was developed in close cooperation with the industry. DiBK has facilitated digital use of the regulations and built the infrastructure, while it is the industry that has developed the end-user solutions. The goal has been to create an attractive market for commercial service providers that wish to develop good solutions for applications from both professional and public users. So far, five suppliers in the market have developed digital solutions for submitting building applications. Several of the solutions are adapted to different groups of applicants, such as architects and plumbers. A solution has also been developed for digital neighbour notifications, resulting in great gains for private and professional applicants.

11.1.3 Innovative procurements

Every year, the public sector purchases goods and services for a total amount of NOK 560 billion.3 How this money is spent has a bearing on how green, digital and innovative the public sector will be. The Government would like public procurements to contribute to innovation and the restructuring of the Norwegian economy. Public procurers have a great potential to contribute to innovative thinking and development in the supplier market, by demanding new and better solutions.4 The description and size of the desired procurement will largely determine what type of commercial providers can offer solutions.

New, simpler procurement regulations entered into force on 1 January 2017.5 The regulations set out important requirements and framework conditions for how competitive tenders for public contracts are to be carried out. Overall, the new regulations are much simpler and more flexible than the previous regulations.

Innovative public procurement is a way of fostering innovation through procurements (Box 11.4). The National Program for Supplier Development has analysed the benefits achieved by 15 of the innovative procurements it has assisted in. The analyses show savings of a total of NOK 429 million, in addition to the creation of 390 new jobs.6

Textbox 11.4 What is innovative public procurement?

Innovative public procurement1 is a method that facilitates the establishment of collaborative relationships with the market for the purpose of developing new, improved solutions in close contact with users and the surroundings. In an innovative procurement process, public clients enter into dialogue with the market in advance to communicate their needs rather than stipulating detailed requirements specifications. Through dialogue with the market, suppliers learn about the public client’s needs and challenges, while the client gains insight into how a competitive tender can be designed to enable the procurement of innovative solutions.

The public procurement regulations define the framework within which competitive tenders for public contracts are to be carried out. As a method, innovative procurement is therefore about how public procurers can realise the potential for innovation within a framework that also promotes predictability and openness. In the white paper on public procurement, the Government distinguished between procurements that facilitate innovation and procurements that actively seek innovation, by introducing the following two categories:

Innovation-friendly procurements are procurements that facilitate innovative solutions without making this a requirement. A relevant example of this is the state-owned railway company Bane NOR, which challenged the market to develop new drone services that enable faster observations to be made in the event of unforeseen incidents, avalanches or landslides. The technology was available, but had not been used for that purpose before.

Procurements of innovation are procurements in which the client actively seeks a product or service that is not available on the market. An example of this is the municipal enterprise Bergen Vann KF, which initiated a development project to create new technology for cleaning drinking water reservoir tunnels. Removing sludge is currently an expensive and dangerous process, and the new method will open up for completely new possibilities.2

1 The terms innovative public procurements and innovative procurements mean the same and are used interchangeably in this document.

2 White paper on public procurement (Meld. St. 22 (2018–2019) Smartere innkjøp – effektive og profesjonelle offentlige anskaffelser)

Status of the use of innovative procurements

The use of innovative procurements has shown a positive trend during the past ten years. Since work on innovative procurements started in Norway in 2010, the proportion of public agencies that have defined innovation as a goal in their procurement strategies has increased from 6 per cent in 2011 to 30 per cent in 2018. The proportion of organisations that have actively sought innovative solutions in the past few years is 27 per cent, while about 40 per cent state that they engage in supplier dialogue before initiating competitive tender procedures.7

It is more difficult to estimate figures for procurements of innovation, where the client actively seeks a product or service that is not available on the market. The use of procurement procedures for the purpose of promoting new solutions and innovation could be a relevant indicator. Data extraction from tenders announced through the Doffin base in 2019 suggests that about one per cent of the procurements were carried out based on an innovation-friendly procedure.8 Although the procedure is not the only factor influencing innovation, this is an indication that the public sector is not doing enough to exploit the possibilities for innovative solutions offered by the regulations.9 The public sector still lacks good statistics for systematically measuring and monitoring developments in innovative public procurements.

Electric ferries are one area where the public sector has played a leading role and made innovative purchases of great importance to the development of new technology. The world’s first electric ferry, ‘Ampere’, saw the light of day in 2015 and was built as a result of a development contract. In connection with its development, there was close cooperation between the participants in the competitive tender, the Norwegian Public Roads Administration as client and the Directorate for Civil Protection and Emergency Planning and the Norwegian Maritime Authority as the authorities responsible for safety. This partnership has given the Norwegian maritime industry a better foundation for realising other low and zero-emission projects.10 Several counties are now working on developing electric express boats (Box 11.5). This represents an important follow-up of the Government’s action plan for green shipping, which cements the ambition of halving emissions from domestic shipping, encourages zero and low-emission solutions in all vessel categories, and identifies requirements in public procurements as a possible instrument for other segments of the shipping industry as well.

Textbox 11.5 The world’s first electric express boats in Trøndelag?

Trøndelag county authority aims to see the world’s first emission-free express boats in operation in Trøndelag. In 2017, Trøndelag and ten other county authorities challenged Norwegian and international industry to develop the world’s first zero-emission express boat. The initiative received support under the PILOT-E scheme, which is a collaboration between the Research Council, Innovation Norway and Enova. The goal is to accelerate the transition to a greener economy by offering a fast track from concept to market. The year after, 5 groups consisting of 19 companies were awarded a contract for developing and demonstrating that zero emission maritime transport is possible. The groups presented their solutions in autumn 2019. They all concluded that emission-free express boats are feasible. A company called Flying Foil AS was established as a result of this work. The county authorities will continue their dialogue with the funding agencies, the supplier industry and other important partners leading up to the next call for tenders.

Trøndelag is building on previous experience of innovative procurements. In 2015–2016, Sør-Trøndelag county authority carried out a procurement process for climate-friendly ferries that resulted in four new hybrid ferries. The tender not only resulted in new ferries, it also led to Siemens deciding to locate its new maritime battery factory in Trondheim, as well as patenting a unique high-output charging system suitable for places with little available power.

Source Trøndelag county authority, NRK

Barriers to innovative procurements

Experience and reports from Norway and other countries show that there are barriers to innovative procurements. Four main barriers were identified in a study conducted by Menon Economics in 2016 (Figure 11.2). The barriers are interrelated and mutually reinforcing.

Figure 11.2 Four main barriers to innovative public procurements

Figure 11.2 Four main barriers to innovative public procurements

Source Menon (2016) Utredning om insentiver/ordninger for risikoavlastning for innovative offentlige anskaffelser (‘Study of risk relief incentives/schemes for innovative public procurements’ – in Norwegian only). Report 12/2016

Knowledge lacking about innovative procurements. As clients, public agencies have too little insight into the procurement regulations, especially about the possibilities for innovation. There is also a lack of specific expertise, which makes it difficult to stipulate relevant, good criteria for a procurement. In addition, the organisation of procurement functions in small entities means that time and resources are not devoted to utilising the possibilities that exist. In Norway, each public agency carries out its own procurements, which means that there are approximately 3,000 clients. Some clients have big, professional procurement functions, while others have limited resources and little knowledge about public procurements. It can also be a challenge that the organisation’s procurement personnel are not sufficiently in contact with the service in question, which means that the description of the assignment or the order does not sufficiently meet the organisation’s needs.

Risk aversion among public sector employees. Public procurers are afraid of making mistakes. One reason for this is that they are unsure about the regulations, and therefore choose the familiar path. Another is a lack of incentives. Public sector actors do not see the upside of seeking new solutions. They may perceive suppliers as aggressive and on the lookout for errors in public competitive tender procedures.

Lack of coordination. There are challenges as regards the diffusion of best practice and coordination between administrative levels and sectors. The procurement units are often small, with limited capacity to diffuse and coordinate best practices. Taken together, this means that the public sector is unable to realise economies of scale.

Weak support and leadership. It can be difficult to ensure support for innovative procurements in an organisation. The reasons could be weak incentives for taking ownership of the process, time pressure, and that the budget and myriad different performance indicators distract attention from innovative procurements.

In 2016, KS commissioned a report that looked at the diffusion of innovative procurement processes in Norwegian municipalities.11 The report indicated that there was a lack of systematic work on the sharing and diffusion of solutions between municipalities. The municipalities seemed to be more concerned with ensuring that the innovative procurement process was carried out in accordance with the procurement regulations. Correspondingly, there was very limited experience of coordinating procurement processes across municipalities.

Measures to achieve innovative procurements

In order to succeed with innovative public procurements, public agencies must master both procurement and innovation methodology. Several parties help public agencies to carry out innovative procurement processes, such as the National Program for Supplier Development, Innovation Norway, the Research Council and the Norwegian Digitalisation Agency (the Norwegian Agency for Public and Financial Management from the second half-year 2020).

The National Program for Supplier Development helps public sector clients with innovation methodology, and to spread good examples and help other clients with the same needs to coordinate their dialogue with the market. Zero-Emission Construction Sites is an example of such an initiative. It started in the City of Oslo’s municipal agency Omsorgsbygg and has spread to several other countries. An important measure to ensure more diffusion is that the program mobilises several municipalities with the same needs to carry out a dialogue and development process.

The Program for Supplier Development has led to the establishment of a partnership between the central government, local authorities, businesses and research institutions that is regarded as unique. Norway is one of the first countries to systematically implement the Pre-Commercial Procurement and Innovation Partnership procedures.

Innovation contracts12 are grants for demanding innovation projects in small and medium-sized Norwegian enterprises that require cooperation with a client in the public or private sector. The funds can be allocated to both public agencies and private actors. The enterprise is awarded a grant to reduce risk and to ensure that the project culminates in a market-ready product or a solution or service that customers need. The pilot customer is a reference customer and an important agent for ensuring that the process results in a solution that matches their challenge or need. Innovation contracts aimed at the public sector are pre-commercial partnerships where good solutions do not already exist in the market. The grant scheme is administered by Innovation Norway.

Innovation Partnership is a procurement procedure that was introduced in Norway through the new Public Procurement Act of 2017. Innovation Partnership is another scheme administered by Innovation Norway, which facilitates the whole innovation process from needs clarification to the purchase of completely new solutions. The aim of the scheme is to address societal challenges by developing new, scalable solutions through close public-private cooperation. A public actor owns and leads the innovation processes, and invites businesses by announcing a call for tenders through the tender portal. The scheme includes options to procure turnkey solutions, both for the project owner and for associated enterprises, and is designed in accordance with the statutory procurement procedure. With this scheme, Norway is the European country with most ongoing projects under the Innovation Partnership procedure. The scheme has also shown that it paves the way for start-ups (Box 11.6).

Textbox 11.6 Purchasing robots from a start-up

In 2018, the City of Stavanger entered into an innovation partnership with the start-up Innocom AS. The municipality wanted patients in short-term respite care in nursing homes to be more physically active, resulting in increased recovery and more people living at home longer.

Innovation Norway’s Innovation Partnership scheme made it easier for the municipality to choose the most innovative solution, even though it was provided by one of the smallest, least established enterprises. Innocom AS was formed after the founding entrepreneur participated in a workshop in 2017, at which the City of Stavanger presented the challenge it needed help to address. Together, the municipality and the start-up developed a robot that makes it easier to follow up and motivate more patients to be active – a solution tailored to the municipality’s needs. The robot can remind patients to eat their breakfast or take their medicine, show them workout videos and set up video conversations between health personnel and patients. The City of Stavanger has purchased several activity robots that are now being introduced in local nursing homes.

Source Innovation Norway

The Research Council awards funding for pre-commercial procurements, which are procurements of innovation where both businesses and research organisations are invited to resolve a specific challenge. Pre-commercial procurements are covered by the exemption in the procurement regulations for certain R&D contracts.

The Norwegian Digitalisation Agency (the Norwegian Agency for Public and Financial Management from the second half-year 2020) is the body responsible for public procurements, including innovative procurements. The Agency administers the regulations, develops written guidance material and grants support for the implementation of innovative procurements.

The Innovation Partnership scheme and the Program for Supplier Development were evaluated in 2019. In its final evaluation, Menon concluded that the program has been and continues to be an important contributor to innovative procurements and innovation in the public sector.13 Furthermore, the report points out that the program plays a role in raising the level of innovation in procurements.

The evaluation of the Innovation Partnership scheme emphasises results in the short term, since it is too soon to measure any long-term value creation effects. The evaluation shows that both public and private participants are very satisfied with the scheme and would recommend it to others. Public-private cooperation is challenging, and the evaluation proposes making a simpler process possible in some projects.

Another measure that was initiated to strengthen the procurement discipline was the decision by the Norwegian Digitalisation Agency, NHO, LO, Virke, KS and the higher education sector in 2017 to establish Anskaffelsesakademiet (‘the procurement academy’). The academy was established for the purpose of educating public procurers, by contributing to the establishment of national research-based higher education programs in public procurement. It also develops and diffuses new knowledge through research, cooperation and knowledge sharing between the public administration, businesses and academic institutions.

11.1.4 Start-ups

New, cheap technology, especially cloud-based services, provides new market opportunities for start-ups. We are therefore seeing a rapid increase in new market players, which in some cases have the potential to transform entire industries. This type of transformation based on new technology has already taken place in areas such as entertainment, retail and finance. Innovative start-ups and technological solutions also have the potential to save a lot of resources in the public sector, and the ability to offer new, better solutions. The Government wishes to pursue an industrial policy that provides good framework conditions for a wide spectrum of entrepreneurs and start-ups. Norway is one of the most equal countries in the world, but women and men are not equally represented in the entrepreneurship context. Among other measures, the Government has therefore presented the Action Plan to Increase Entrepreneurship among Women in 2019.

If the public sector is to find the best solutions offered by suppliers, it needs to know the market. An increasing number of central and local government agencies have acknowledged this, and are currently looking into the possibility of cooperating with start-ups. In 2018, 43 per cent of clients stated that they engage in early dialogue with the market in connection with new procurements.14

Instruments to promote the use of start-ups

Several other countries have established new instruments to facilitate cooperation between the public sector, start-up environments and GovTech providers. GovTech refers to digital technology the public sector can use to perform its tasks, for example infrastructure, tools and ICT solutions. CivTech is a term used synonymously with GovTech. It emphasises technology that involves citizens. Examples of such instruments are the CivTech Program in Scotland, Start Up in Residence in Amsterdam and the Netherlands, and the GovTech program in Denmark (Box 11.7). The instruments differ in their design, but they contain common components such as simpler, more adapted procurement processes and competence-raising measures for both the public agency and the suppliers.

Textbox 11.7 Programs for the use of start-ups in other countries

CivTech in Scotland

The CivTech program started in Scotland in 2015, based on the following findings:

  • The public sector is unable to exploit the development that is taking place in start-ups.

  • There is a need for more innovation in both the private and public sectors.

  • There is a need for more agile digitalisation processes.

  • Public procurement processes take too long, and too many procurements involve detailed specifications.

The program is a framework that includes assistance and expertise. It matches public sector expertise with private sector creativity to solve real problems, develop new solutions and offer better, quicker and simpler services. Co-creation with citizens plays a key role in the approach, as does support from academia and private investors.

The Scottish Environment Protection Agency has used the program to develop a flood alert system for small river systems. Scotland has effective alert systems in place for the big cities, but needed small-scale solutions for use in smaller places and to notify people of floods in local rivers. The company RiverTrack developed a robust measurement and alarm system that monitors water levels based on acoustic sensors and innovative design.

Start-Up in Residence in Amsterdam and the Netherlands

Start-up in Residence is an initiative by Startup Amsterdam and the City of Amsterdam’s own innovation unit – Chief Technology Office Amsterdam. The purpose of the program is to build bridges between the public sector and start-ups. It is based on a similar program in the USA. The program has also been established in other cities and municipalities in the Netherlands.

The public agencies involved in the program experience challenges relating to sustainability, mobility, the circular economy, public health and digitalisation. The program matches challenges with start-ups that can contribute to innovation and new solutions. Public agencies are the first customers.

Under the auspices of the program, entrepreneurs try to address the challenges in cooperation with staff from the participating public agencies. This gives them influence over the solutions proposed by the start-ups. The whole process takes place within the bounds of the procurement regulations, based on simplified, unbureaucratic procurement processes. Among other things, the program offers

  • assistance for public agencies to identify suitable issues and describe them, so that start-ups can offer matching solutions

  • an adapted, simplified and unbureaucratic procurement process

  • an accelerator process, which is a period of collaboration to learn about each other’s work methods and process, in which a pilot is developed

The public agency considers whether it wishes to realise and start using the results of the pilot, depending on whether it meets expectations and the cooperation works satisfactorily. The program has contributed to developing an app that motivates locals and tourists to make full use of the city’s geographical area, and software that citizens and employees can use to find both formal and informal care and support services.

GovTech in Denmark

In Denmark, the Ministry of Industry, Business and Financial Affairs has launched the GovTech Program together with an organisation called PUBLIC. The goal of the program is to get start-ups to find solutions to public sector challenges. Introducing new technology and public sector innovation also helps to create new growth opportunities for start-ups. The program helps to identify challenges and selects start-ups to develop matching solutions. The program teaches start-ups how the public sector works, including procurement practices. Barriers to start-ups and small and medium-sized suppliers are identified in cooperation with the public agency. Denmark is working on putting in place an accelerator program for start-ups. It is a continuation of the GovTech program and includes physical arenas for a complete ecosystem for cooperation between the public sector and start-ups, and a public investment fund.

Source Norwegian Digitalisation Agency

11.1.5 Social entrepreneurs

It is characteristic of social entrepreneurs that they focus their efforts on a social cause where there is an unmet need, propose new solutions to challenges, and involve users, employees and other key stakeholders. They are driven by social results, but also by a business model that can make the business viable and sustainable. They collaborate across disciplines and types of organisation.15 Social entrepreneurs can contribute to public sector innovation.

Social entrepreneurs often operate under different assumptions than bigger players in the market when dealing with public sector clients, and often need more information about the organisation’s business operations, tender design, public policies etc. Social entrepreneurs can use expert and advisory services for start-ups, but dedicated tools and guidance documents have also been developed for social entrepreneurs. Among other things, Innovation Norway has a dedicated guide for social entrepreneurs on its website, and the Ministry of Local Government and Modernisation has developed an inspirational leaflet for cooperation with social entrepreneurs called Veier til samarbeid (‘Roads to collaboration’). In cooperation with a number of different parties, Ferd Social Entrepreneurs has developed a legal guide for public sector clients who wish to purchase goods and services from a social entrepreneur. The guide was developed for use by public sector clients in their dealings with social entrepreneurs, making it easier for the parties to find opportunities for collaboration. The guide explains the legal room for manoeuvre for clients in the procurement regulations.16

Innovative funding schemes

In many cases, social entrepreneurs may have too little documentation that their solutions are effective for the public sector to want to work with them. This is the reason for new funding support solutions, such as social impact bonds and bridge funding. Social impact bonds are performance-based contracts between multiple parties, usually public authorities, investors, foundations and private or non-profit service providers. The purpose of social impact bonds is to find new ways of solving social problems.17 Private investors finance a social program with quantifiable, pre-defined outcomes, and receive payment from the authorities if the outcomes are achieved. Social impact bonds thereby reduce the risk for the public agency. Bridge financing is another term used for the same concept. Such funding schemes are under development in both Norway and other countries.18

The Directorate of Labour and Welfare administers a grant scheme that aims to encourage the development of social entrepreneurship to combat poverty and social exclusion. The Directorate has joined forces with the Directorate of Norwegian Correctional Service to carry out a pilot project involving the use of social benefit bonds. The main purpose is to test social benefit bonds as a model for the development and funding of new measures to prevent recidivism. Lier municipality has used funding support to procure innovative services for young people (Box 11.8).

Textbox 11.8 Social impact bonds providing services for young people

Lier municipality wishes to improve its preventive life skills services for children and young people. They see a particular need to offer better services to young people who are struggling to cope with their lives and risk dropping out of upper secondary school. The local authorities wanted to establish a partnership with the social entrepreneur Trygg av Natur, which organises nature schools for pupils with various adaptation problems or other life-coping challenges. The partnership has been prevented by the fact that Lier municipality does not have the finances to pay for the service without knowing that it will be effective. Bridge financing, or social impact bonds, is an instrument that enables the municipality to test the pilot project without too much risk. The social investor Ferd Social Entrepreneurs fully finances the Trygg av Natur initiative for three years. If the parties have achieved the agreed objectives by then, the municipality will take over funding responsibility, undertake to continue the initiative under its own auspices and refund part of the investment. In other words, the municipality does not run a risk if the measure does not work as intended.

The short-term goal of the initiative is for teachers and students to report improvements relating to life skills, reduced stress and pressure. The long-term goal is a lower drop-out rate from upper secondary school for students who have attended the nature school. Both the short-term and long-term goal will be evaluated based on pre-defined indicators.

Source Ferd

Forms of organisation and labelling schemes

Social entrepreneurs can be associations, cooperatives, foundations or limited liability companies with not-for-profit or normal articles of association.

There is no separate legal framework or form of incorporation for social entrepreneurship or social entrepreneurial activities in Norway. On assignment from the Ministry of Labour and Social Affairs, the University of South-Eastern Norway has mapped schemes in six European countries. The results do not indicate that a separate form of incorporation for social entrepreneurs will resolve the challenges they are facing.19

11.2 Assessment of the situation

The full potential for public-private cooperation on innovation has yet to be realised. This is true for both cooperation through partnerships and other new forms of collaboration, but also for innovative procurements and partnerships with start-ups and social entrepreneurs. Among other things, innovative procurements have proven to be a good way of stimulating the market for low-emission solutions. Public innovative procurements of zero-emission vessels are one example. They have resulted in a large proportion of electric ferries on ferry crossings in Norway, thereby also enabling technology development and other market opportunities. It can be assumed that there is a huge potential for further stimulating low-emission solutions through public procurements, for example in the construction, transport and retail industries. Experience shows that public clients often specify in detail the solutions they want when they put assignments out to tender, instead of defining the problem to be solved or the effect they wish to achieve. In addition, the procurement processes are often prolonged and time-consuming. This means that start-ups and other small enterprises with innovative solutions to public needs rarely come into consideration. To achieve a more modern public sector, public sector clients need to define their needs and actively invite innovative solutions. The Government believes there is already some freedom of action in the regulations and budgetary framework that could be better utilised.

11.2.1 Innovative procurements

Innovative public procurements are one important driver of innovation. Through innovative procurements, the public sector can become a stronger engine for innovation in society.20 Innovative procurements have a positive impact on the public sector as client, the business sector as supplier and people in general. Norway is among the leaders in the field in Europe when it comes to investments in innovative procurements.

The public sector lacks good statistics for monitoring developments in innovative public procurements. There is a need for relevant target figures and pertaining indicators to document the effects of innovative procurements.

Assessment of measures to achieve innovative procurements

The goal of an innovative procurement process is to arrive at a new solution that effectively meets needs and generates added value. Realising this goal requires facilitation from the planning stage through to implementation, and, if relevant, diffusion of the new solution. The measures currently available are primarily aimed at the planning stage, the development stage and, in part, the diffusion of developed solutions. Figure 11.3 provides a simplified overview of how the measures are currently designed. The whole policy instrument system is involved in the planning stage. If new solutions are to be taken into use, efforts are also needed after the development stage. In innovation partnerships, the procurement is part of the procedure, but not the actual implementation. A similar challenge was identified in the evaluation of the Program for Supplier Development, which proposed putting more effort into following the process all the way through to the actual procurement, implementation and upscaling.21

Figure 11.3 Current measures for achieving innovative procurements

Figure 11.3 Current measures for achieving innovative procurements

Source National Program for Supplier Development. Design: Halogen AS

Having more parties involved in promoting innovative procurements also gives rise to a need to coordinate measures and activities. The various agencies in the policy instrument system currently work well together. There is nonetheless a potential for a clearer division of roles and more cooperation to avoid duplication of efforts, better utilise the overall resources and be more user-friendly. It can be difficult for both public procurers and suppliers to understand who does what in the policy instrument system.

The instruments need to be further developed, while at the same time building on what works well in the current ecosystem for innovative public procurements. If public procurements are to lead to change and restructuring, we need to develop more professional, robust procurement functions with sound expertise and enough resources to effectively address these tasks.22

11.2.2 Start-ups and social entrepreneurs

Stringent requirements of suppliers, highly detailed specifications of solutions and long procurement processes are unsuitable for procuring solutions from start-ups and social entrepreneurs. Purchasing niche solutions developed by these environments can carry an increased risk, for example relating to whether the companies have the implementation capacity needed to deliver the solution. That companies of this type often go into liquidation or end up being acquired by other companies is another risk. Carrying out a procurement from such market players therefore requires closer follow-up of suppliers and good risk management. If the supplier goes into liquidation, it will affect the delivery to the public sector. In addition, many public agencies know little about what start-ups and social entrepreneurs have to offer, how they work and what it takes to get them involved in procurement processes. We therefore need more knowledge about these types of companies in the public sector, and support for procurement processes adapted to this target group.

11.3 The way forward

The Government believes that the public sector should not do what the market can do better, and it would therefore like to see the public sector making even better use of the resources available in the business sector. To be able to address the big societal challenges of our time, the Government believes that new types of collaboration between the public and private sectors should be explored.

If the private sector is to be part of developing good, innovative solutions for the public sector, they need access to test facilities for trying out new technology, new products and new solutions. The white paper The health industry – Working together on value creation and better services (Meld. St. 18 (2018–2019)) points out that steps must be taken to increase the possibilities for trial and testing of information solutions and welfare technology. Access to data, systems and users to test and validate products based on actual needs is important to enable suppliers to develop good solutions.

Test arenas that facilitate public-private cooperation on the evaluation of e-health solutions will provide important insights into what works and what needs to be improved. One example is the test centre I4Helse, a centre for innovation and service development in healthcare technology, located at the University of Agder (Campus Grimstad). It brings together representatives of education, development, business, research and innovation to create new, innovative health services in an environment with good test facilities. The centre works closely with hospitals and local authorities, and provides good conditions for practice-based, user-centred service development.

Several arenas for testing and verifying digital health solutions may be needed. In cooperation with the health industry, regional health authorities and municipalities can facilitate test environments for the development, piloting and quality assurance of e-health solutions. The Government also encourages the public sector and businesses to work together on test environments for the development, piloting and quality assurance of innovative solutions in other areas that will benefit citizens.

11.3.1 Innovative procurements

The Government wants public procurements to be a driving force for innovation and restructuring of the Norwegian economy.23 To achieve this, a larger proportion of the approximately NOK 560 billion the public sector spends on procurements must go to facilitating innovation, and the level of innovation in each procurement must be increased. The Government therefore encourages public agencies to actively assess whether their procurements have the potential to contribute to innovation and should be carried out as an innovative procurement.

The white paper on public procurement (Meld. St. 22 (2018–2019)) identified a need for better access to data and statistics on public procurements, and the Government will therefore ensure that more data are extracted from Doffin and made accessible as the basis for statistics on public procurement. Various indicators show a positive trend in the use of innovative procurements, but the statistical basis does not provide adequate control information. It is not sufficient to look at the frequency of certain keywords in tender documents. A more comprehensive assessment is needed. The Ministry will therefore continue working on establishing a better data basis.24 In this context, it can also be relevant to consider whether it is possible to measure the extent to which procurements help increase the market share for low-emission solutions, since innovative procurements are an important tool in the work on the green transition. The Government is preparing an action plan for increasing the proportion of green and innovative procurements.25 The Government will consider whether targets should be set for innovative procurements, and, in such case, what they should be.

The Government will strengthen guidance and continue with measures aimed at achieving innovative procurements. In the white paper on public procurement (Meld. St. 22 (2018–2019)), the Government announced that the National Program for Supplier Development will be further developed and that the program design will be assessed based on the results of the review of industry-oriented policy instruments. The Government will also continue to focus on risk relief through innovation contracts, innovation partnerships and pre-commercial procurements.

As a way of addressing the challenges relating to procurement expertise in the public sector, the white paper stated that the Government, in cooperation with the municipalities and county authorities, will look into coordinating county and municipal-level procurements. Another important step taken by the Government was to decide to assign responsibility for the disciplines of public procurement, management, organisation and governance to the Norwegian Agency for Public and Financial Management in the second half-year 2020. The Government believes this will make it possible to achieve important synergies between these disciplines, in addition to developing better competence-building services for public sector managers and procurers.

Small rural municipalities have carried out fewer innovative procurements, and have not incorporated innovative procurements in strategic governing documents to the same extent as other municipalities.26 The Program for Supplier Development is working to upscale the use of innovative public procurements all over the country, among other things in cooperation with the county authorities and the city municipalities.

The Government will also implement several measures aimed at providing a better user experience and greater coherence between the measures, such as establishing an innovation council and considering how the measures can be made available as a user-friendly package (Chapter 5).

11.3.2 Program for innovative procurements from start-ups

The Government will take steps to ensure that the public sector makes better use of the opportunities start-ups represent, and will therefore establish a program for this purpose. The Norwegian Digitalisation Agency (the Agency for Public and Financial Management from the second half-year 2020) will be given chief responsibility for developing and running the program, which will facilitate cooperation between public agencies and start-ups by

  • 1. identifying and collating public sector needs and challenges

  • 2. developing procurement methodology adapted to new operators in the supplier market

  • 3. advising projects and assisting in the practical execution of procurements

  • 4. facilitating development cooperation adapted to the client’s needs

  • 5. offering competence-building packages for start-ups and public clients

Figure 11.4 Program for innovative procurements from start-ups

Figure 11.4 Program for innovative procurements from start-ups

The figure shows the plan for the program for innovative procurements from start-ups, illustrated as a service journey.

Design: Halogen AS

The core of the program will be that public agencies formulate challenges and needs that start-up environments and other innovative actors can develop solutions to, for example social entrepreneurs. In order to succeed, a new procurement methodology is needed that is adapted to the new supplier markets, as well as clear guidance that clarifies the regulations. There is also a need for support and guidance in how to secure the transition from experimentation and testing of new solutions to subsequent procurement and upscaling.

The public sector and start-up companies need to learn more about each other and how to cooperate, and they need guidance and assistance in the practical execution of the procurement process. The program will also help to link start-ups with existing policy instruments for business development and growth, for example from Innovation Norway and private initiatives established to support start-ups.

The design and development of the program must be seen in conjunction with other policy instruments for innovative procurements. For example, the National Program for Supplier Development and Innovation Norway both have experience of linking public sector bodies with start-ups through their policy instruments. Lessons learned from the work on social entrepreneurs can be relevant in the further development of the program. The Government will also develop a marketplace for cloud services, and will consider whether this solution can also facilitate digital diffusion of newly developed solutions for the public sector.

The Government is concerned with improving the conditions for the use of social entrepreneurs, and wishes to enable them to address societal challenges. This involves, for example, facilitating purchasing, grants and legal framework conditions. The program for start-ups will be one important measure, but it is also about making the opportunities that exist better known, both among social entrepreneurs and in the public sector. The Ministry of Local Government and Modernisation has therefore developed an inspirational leaflet on cooperation with social entrepreneurs27 that describes ways of cooperating with social entrepreneurs and how to measure the benefits. More knowledge is needed about this field, however. The Ministry will therefore, in cooperation with the Centre of Competence on Rural Development, KS and Innovation Norway, take the initiative to explore barriers to and opportunities for social entrepreneurship in small municipalities. In addition, the Directorate of Labour and Welfare is mapping the scope of and lessons learned from cooperation between the Labour and Welfare Administration and social entrepreneurs.

11.4 The Government’s aims

Public-private cooperation can contribute to more innovation, more radical innovation projects, a speedier transition to a low-emission society and the diffusion of successful innovations.

The Government will:

  • explore new types of cooperation between the public and private sectors

  • encourage the public sector and businesses to work together on test environments for the development, piloting and quality assurance of innovative solutions

  • encourage public agencies to actively consider the need for innovation when making a procurement, and whether it should be carried out as an innovative procurement

  • ensure that more data are extracted from Doffin and made accessible as the basis for statistics on public procurement

  • strengthen guidance and continue measures to achieve innovative procurements

  • assign responsibility for the disciplines of public procurement, management, organisation and control to the Norwegian Agency for Public and Financial Management

  • establish a program for innovative procurements from start-ups

  • develop a marketplace for cloud services, and consider whether the solution can also facilitate digital diffusion of newly developed solutions for the public sector.



Difi (2018) Innovation Barometer for the public sector 2018, KS (2020) Innovation Barometer 2020




Report No 27 to the Storting (2016–2017) A greener, smarter and move innovative industry


The new regulations comprise the Public Procurement Act, the Public Procurement Regulations and the Concession Contracts Regulations. Some amendments were also made to the Regulations relating to the Public Procurement Complaints Board.


White paper on public procurement (Meld. St. 22 (2018–2019) Smartere innkjøp – effektive og profesjonelle offentlige anskaffelser)


Difi and Rambøll Management Consulting (2018) Modenhet i anskaffelser (‘Maturity in procurements’ – in Norwegian only). Report


Extractions from Doffin of competitive tenders under the Public Procurement Regulations based on the ‘innovative partnership’ and ‘competitive dialogue’ procedures




Insight articles on the green transition at


Menon (2016) Spredning av innovative offentlige anskaffelser i norske kommuner (‘Diffusion of innovative public procurements in Norwegian municipalities’ – in Norwegian only). Publication 13/2016.


Formerly Industrial and Public Research and Development Contracts (R&D contracts)


Menon (2017) Midtveisevaluering av Nasjonalt program for leverandørutvikling (‘Midway evaluation of the National Program for Supplier Development’ – in Norwegian only). Publication 55/2017


Difi and Rambøll Management Consulting (2018) Modenhet i anskaffelser (‘Maturity in procurements’ – in Norwegian only). Report


Nordic Council of Ministers (2015) Social entrepreneurship and social innovation. Report


Ferd Social Entrepreneurs (2018). Veileder for offentlige oppdragsgivere i møte med en sosial entreprenør. Hvordan slippe sosiale entreprenører inn i en offentliganskaffelsesprosess (‘Guide for public clients in dealings with social entrepreneurs – how to give social entrepreneurs access to a public procurement process’ – in Norwegian only)


Also called social benefit bonds


Kobro (2019) Sosialt entreprenørskap – Økt synlighet og større handlingsrom (‘Social entrepreneurship – Increased visibility and greater freedom of action’ – in Norwegian only). Report


Kobro et al. (2017) Statlige rammevilkår på ramme alvor. Sosialt entreprenørskap i norsk offentlig kontekst (‘Government framework conditions. Social entrepreneurship in the Norwegian public context’ – in Norwegian only). USN series of publications, leaflet 14/2017


Menon (2017) Midtveisevaluering av Nasjonalt program for leverandørutvikling (‘Midway evaluation of the National Program for Supplier Development’ – in Norwegian only). Publication 55/2017




White paper on public procurement (Meld. St. 22 (2018–2019) Smartere innkjøp – effektive og profesjonelle offentlige anskaffelser)


Report No 27 to the Storting (2016–2017) A greener, smarter and move innovative industry


White paper on public procurement (Meld. St. 22 (2018–2019) Smartere innkjøp – effektive og profesjonelle offentlige anskaffelser)




Telemarksforsking (2020) Små distriktskommuners deltakelse i innovasjonsvirkemidler (‘Small rural municipalities’ participation in innovation policy instruments’ – in Norwegian only). Report 540


Ministry of Local Government and Modernisation (2017) Veier til samarbeid. Sosiale entreprenører som samarbeidspartnere i offentlig sektor – eksempler og ideer. Inspirational leaflet

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