Some public problems cannot be solved by buying what already exists: an AI assistant to serve the residents of a municipality with no network coverage, a system that predicts leaks in a water network, a platform that digitalises a service nobody has digitalised before. For those cases, Spain’s Law 9/2017 on Public Sector Contracts (Ley 9/2017 de Contratos del Sector Público, LCSP) provides for public procurement of innovation: a set of procedures through which a public authority can procure the development of a solution that is not yet on the market, without bypassing competition or equal treatment. This guide explains what it is, what forms it takes, how to get started, how it is funded and what the public body should ask of the supplier so that the project makes it into production.

What is public procurement of innovation?

Public procurement of innovation (compra pública de innovación, CPI) is an administrative measure to foster innovation, aimed at improving public services by procuring new or significantly improved solutions. The difference from an ordinary purchase is that the subject matter is defined not as a product but as a need or an outcome: the public body describes the problem and the performance it expects, and the market proposes how to solve it. The Guide 2.0 to Public Procurement of Innovation (Guía 2.0 de Compra Pública de Innovación) published by Spain’s Ministry of Science sets out the methodology and the model documents.

It takes two main forms:

Pre-commercial procurement (compra pública precomercial, CPP): the procurement of research and development services in which the public body shares the risks and the benefits with the companies and does not reserve the results exclusively for itself. It is excluded from the Law on Public Sector Contracts by Article 8 of that law, although it is governed by the principles of publicity, competition, transparency and equal treatment. It is used to explore several solutions in parallel, in phases, and keep the one that works.
Public procurement of innovative technology (compra pública de tecnología innovadora, CPTI): the procurement of a good or service that does not exist at the time of the tender but can be developed within a reasonable period, using the procedures of the law. It is the route from prototype to deployment.

The procedures in Law 9/2017 that make it possible

Law 9/2017 on Public Sector Contracts offers several tools that, in combination, make it possible to tender innovation with legal certainty:

Preliminary market consultations (Article 115). Before tendering, the contracting authority may consult economic operators in order to prepare the tender and inform them of its plans. This is the essential first step in CPI: without a consultation, the public body does not know what is feasible or at what price. The law requires that the consultation be published, that it give no advantage to those who take part and that its conclusions be recorded in the procurement file.
Innovation partnership (Articles 177 to 182). A procedure designed for CPI: one or more partners are selected to develop the solution in phases, with intermediate targets and payments, and the public body can then purchase the result without a new tender, provided it meets the agreed performance levels and maximum costs. This is the route to take when the need cannot be met by what is on the market.
Competitive dialogue (Articles 172 to 176). For particularly complex contracts in which the public body cannot define the technical means in advance: it conducts a dialogue with the candidates until the solution has been identified and then asks for final bids.
Competitive procedure with negotiation (Article 167). Permitted, among other cases, where the contract includes design or innovative solutions, which allows the terms to be negotiated with the bidders.
Open procedure with functional specifications. The simplest option when the innovation fits within tender specifications that describe outcomes and not products, with award criteria that give credit for the technical solution.

How to get started: from the need to the tender specifications

Define the need in terms of outcomes, with measurable indicators: what the problem is, who it affects, what the solution must achieve and how that will be checked.
Early demand map (mapa de demanda temprana): publish the need so that the market knows it exists and can prepare, and to identify other public authorities with the same problem, with which demand can be aggregated.
Preliminary market consultation: a public call, sessions with companies, a questionnaire and a report on the conclusions for the procurement file. This is where it is decided whether a solution exists on the market (ordinary purchase), whether it has to be developed (CPTI) or whether research is needed first (CPP).
Choose the procedure in the light of what has been learned and draft functional specifications: performance, service levels, criteria for evaluating innovation, intellectual and industrial property, phases, milestones and payments.
Deliver in phases with decision points: prototype, pilot in a real environment, deployment. Each phase closes with measurable evidence.
Scale up: the innovation partnership allows the result to be purchased; in other procedures, the tender specifications must provide for how to move from the pilot to the service.

How it is funded

The public body’s own funds, as with any contract.
Specific CPI programmes: Spain’s Ministry of Science and the CDTI (Spain’s public agency for business R&D&I funding) have used ERDF funds to co-finance public procurement of innovation by regional and local authorities, through funding lines that foster innovation from the demand side; it is worth checking which call is open at any given time.
EU recovery and cohesion funds: many AI, IoT sensing and digitalisation projects have been tendered with Next Generation EU, PERTE (Spain’s strategic projects for economic recovery and transformation) and ERDF funds, with the technical justification as part of the project. We explain this in Next Generation EU for digitalisation projects and on our funding page.
European programmes for pre-commercial procurement and for innovation in consortia of public buyers.

What to require of the supplier in an innovation procurement

Innovation does not exempt anyone from providing assurances; it calls for more of them:

Demonstrated capacity to innovate: R&D&I projects delivered with results in production and, as third-party evidence, an innovation management system certified to ISO 56001, which we explain in what ISO 56001 is and which companies should obtain it.
A phased development method with verifiable deliverables, and a pilot in a real environment before deployment.
Clear intellectual and industrial property: what the public body keeps (code, data, models, documentation) and what the supplier exploits, defined in the tender specifications and not at the end.
Security by design: the result will be one of the public body’s systems and must comply with the National Security Framework (Esquema Nacional de Seguridad, ENS), with a certified supplier, as we set out in what the ENS is.
Regulatory compliance in the field concerned: if the solution uses artificial intelligence, the EU AI Act; if it processes personal data, the GDPR; if it is an e-office (sede electrónica) or a service to citizens, accessibility.
A scale-up and exit plan: how the solution goes into production, who maintains it, what it costs and how to change supplier without losing it.
A stable team: in a development that does not yet exist, the knowledge is in the people; it is worth requiring a named team and penalising substitutions.

These requirements do not favour large integrators: they favour whoever genuinely innovates and can demonstrate it. We compare the two in large integrator or mid-sized company.

Common mistakes

Tendering innovation with product specifications: if the specifications describe a particular solution, it is no longer CPI and better alternatives are shut out.
Skipping the preliminary consultation: the tender goes out without anyone knowing what exists, and the result is an unsuccessful tender or an unrealistic price.
Confusing CPP and CPTI: procuring research as if it were a supply contract, or a supply contract as if it were research.
Not planning for scale-up: the pilot works and there is no procedure for deploying it.
Leaving intellectual property for later: it is the main source of disputes.
Measuring success by the deliverable and not by the outcome: CPI is justified by the improvement in the service, and that is how it must be measured.

CEDESA’s experience

A good many of CEDESA’s projects with the public sector have in practice been innovation procurement: the conversational AI virtual assistants for 33 rural municipalities in Extremadura with the Regional Ministry of Digitalisation (Consejería de Digitalización), financed by Next Generation EU and PERTE; the prediction algorithms for the water supply networks of the Consorcio de Medio Ambiente de Badajoz (the environmental consortium of the province of Badajoz), financed by PERTE Agua, the strategic project for digitalising the water cycle; and smart NFC labelling for agri-food traceability with the Diputación de Burgos (provincial council). We describe them on our innovation page and in the article on artificial intelligence applied to the public sector. CEDESA is one of the first software companies in Spain to be certified to ISO 56001, and it takes part in the preliminary market consultations of public authorities looking for solutions that do not yet exist.

Frequently asked questions about public procurement of innovation

What is public procurement of innovation?

A form of public procurement in which the public body describes a need or an outcome, not a product, and procures the development of a new or significantly improved solution that is not on the market. It takes two forms: pre-commercial procurement, which procures research and development, and procurement of innovative technology, which procures a good or service that can be developed within a reasonable period.

Which procedure in the Law on Public Sector Contracts is used for innovation procurement?

It depends on the case: the innovation partnership (Articles 177 to 182) when the need cannot be met by what is on the market; competitive dialogue for particularly complex contracts; the competitive procedure with negotiation when the contract includes innovative solutions; or the open procedure with functional specifications. Pre-commercial procurement is excluded from the law by its Article 8, while respecting its principles.

Is the preliminary market consultation mandatory?

Not as a general rule, but in innovation procurement it is the step that tells you what exists, what is feasible and at what cost. Article 115 requires it to be published, advantages for participants to be avoided and its conclusions to be recorded in the procurement file.

Who keeps the intellectual property in an innovation procurement?

Whatever the tender specifications say. In pre-commercial procurement the public body does not reserve the results exclusively for itself and shares risks and benefits; in procurement of innovative technology, the public body normally receives the code, the data and the documentation it needs to operate and evolve the solution. It must be defined before tendering.

How is public procurement of innovation funded?

With the public body’s own funds; with programmes to foster innovation from the demand side, co-financed by the ERDF through the Ministry of Science and the CDTI; with Next Generation EU and PERTE funds in digitalisation projects; and with European programmes for pre-commercial and innovation procurement. It is worth checking which call is open at any given time.

Conclusion

Public procurement of innovation allows a public authority to procure what does not yet exist without giving up competition: describe the need, consult the market, choose the right procedure, develop in phases and require of the supplier a demonstrated capacity to innovate, security by design and a scale-up plan. It is the route by which the AI, IoT sensing and traceability projects that CEDESA has delivered with EU funds have made it into production. If your organisation has a problem with no solution on the market, tell us about it via our contact page.