Forward Commitment Procurement
Bridging the gap between theory and practice in PPI
Joram Nauta
TNO – Dutch Centre for Health Assets
Hendrik van Meerveld University of Twente / TNO
Gaynor Whyles
UK Department for Business Innovation and Skills
Consultant FCP Programme Manager (JERA Consulting)
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Forward Commitment Procurement (I)
Conceived by Environmental Innovations Advisory Group (Ref: EIAG
report UK DTI, 2006)
Demonstration projects: HMPS Zero Waste Mattress and others
Currently being applied in pilot projects as part of the Low Carbon
Building (LCB) Healthcare Project (EU Lead Market Initiative)
Following principles of action research
Identification
Market
Engagement
Procurement
Diagram from: Delivering Best Value Through Innovation, BIS, 2011
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Forward Commitment Procurement (II)
The identification stage must be carried out by the client and has two
vital characteristics:
Identifying accurately the unmet need
Examples in case examples
Expressing the unmet need as a procurement that must take place
Market engagement phase
The procurement commitment is what gives the process its energy
and distinguishes it from ‘pre-commercial procurement’
Identification phase is surprisingly difficult - requires considerable
attention (and therefore commitment) by the Client
In this presentation we will focus on the Market Engagement phase
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Problems in PPI : The client’s perspective
Innovation requires another way of procuring
Different way of specifying requirements
Different procurement procedures
Different award criteria
Risks and uncertainties of the client
Uncertain of what the market can deliver
Uncertain if it will be delivered on time, work, be affordable
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Problems in PPI : Market parties’ perspective
Innovation requires (increased) investment costs of market parties.
Risk and uncertainties of the client (e.g. Market Risk).
Uncertain about the (future) needs of the client
Reference – EIAG Report 2006.
Investments
“the mountain of risk”
Courtesy of J.C Frost
Revenues
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Will it be delivered?
Can we deal with
innovative solutions?
The client
Is it worth my
investments?
Market parties
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Towards successful PPI
Success depends on the management of risk perceived by client and
market parties.
Will it be delivered?
I have confidence in a
Can we deal with
good outcome
innovative solutions?
FCP offers a way to managing these risks.
This
Is it worth
is a good
my
business
investments?
case
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Case studies in the LCB-HEALTHCARE project
Rotherham NHS Foundation Trust (UK)
Ultra efficient lighting for future wards
Status: Nearly complete
Erasmus MC (The Netherlands)
Cleaning of 70.000 hospital beds per annum
Status: competitive dialogue procedure underway
Nottingham University Hospitals NHS Trust (UK)
Integrated Ultra Low Carbon Energy Solution
Status: Market engagement phase
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Theory & Conceptual Framework
Risk management
Includes decision moment
Identify risk
Monitor risk
Asses risk
Decide &
Respond to risk
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Theory & Conceptual Framework (II)
Decision to respond to risk (undertake action).
Actions are goal-oriented purposeful acts
Situation A
Decision & action
Consider context of risk…
Situation B
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Theory & Conceptual Framework (III)
The context of a procurement.
Agency theory, Transaction Cost Economics.
Considers actors goals, risk attitude, uncertainties & transaction
bounded investments.
Situation A
Situation B
Client’s risk
• Uncertainty
• Investments
Market parties
• Uncertainty
• Investments
Client’s risk
• Uncertainty
• Investments
Market parties
• Uncertainty
• Investments
Decision & action
(actions of FCP)
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Market Engagement phase
Actions
Communication
Sounding/Consultation
Adjusting/aligning demand
Aggregation of demand
Facilitation of network
Aligning procurement procedure
Choices
• Type of procedure
• Selection criteria
• Award criteria
• Other procedural
aspects
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Results of case study
Actions due have a (positive) effect on perception of risk.
Risks are managed
Cases reveal that clients feel that market engagement was vital for
keeping the project going and increasing the chances for success.
Results of the projects?
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Rotherham Hospital
Ultra Efficient Lighting for Future Wards
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Recommendations
More action research required (more cases)
Further development of FCP methods
Investigate different method for market engagement activities (e.g.
sounding via response form or discussion panel)
When is FCP suitable/applicable? (e.g. trade-off between managing
risks and transaction costs)
Capacity building – capable customers
Policy wish vs. capability gap
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For further information and case studies, see:
http://lowcarbon-healthcare.eu
Contact:
Joram Nauta
[email protected]
Hendrik van Meerveld
[email protected]
Gaynor Whyles
[email protected]
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Research partners
Funding partner
Case studies