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Government technology procurement - strategies for unlocking innovation

• 06 May 2016 • 9 min read
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Government procurement of technology can be faced with particular challenges due to the fast-paced nature of technological change

There is no doubt that businesses and the public generally expect to engage with the Australian Government through technology and key government service functions, and are increasingly reliant on highly developed - or novel - technology solutions.

A key challenge for Government agencies is therefore ensuring that service delivery functions and programs have the technical and legal agility required to take-up innovations and fast-moving technology changes that have the potential to improve policy outcomes.

Government procurement of technology can be faced with particular challenges due to the fast-paced nature of technological change, continual innovation and changes in modern client (and user) expectations. To meet these challenges it is important that Government technology procurements are flexible and ‘future proofed’ as far as possible.

In this article we look at a number of legal and procurement strategies for Government agencies to increase agility and potential value in the procurement of technology, particularly relating to the acquisition of innovative or novel technologies.

Strategy 1. Explore opportunities through ‘pre-tender’ engagement

Increasingly Government agencies are incorporating detailed market research and ‘engagement’ strategies into their procurement planning, particularly where there is a requirement for more novel or innovative technology solutions. Early (and on-going) engagement between Government purchasers and key sectors of the industry can be a vital part of ensuring an appropriate range of opportunities are identified as part of developing an agency’s technology procurement requirements.

Engagement activities of this type should not only be aimed at increasing an agency’s specific market awareness, but should be aimed at ‘challenging’ an agency’s pre-conceived ideas, as a means of seeking greater innovation in the overall solution requirement. In this regard, an agency may well consider various levels of direct and indirect industry engagement with various sized suppliers. This engagement may also extend to industry sectors operating outside traditional markets, as a way of promoting innovative and (potentially) transferable ideas and options.

Pre-tender industry engagements are not without legal and probity risks, which need to be carefully managed by Government purchasers. For example, where potential suppliers are given access to specific agency information, or are able to influence a particular agency’s procurement requirement to better suit their own solution, then there is a potential for unfairness in any subsequent competitive procurement process[1]. There is also a genuine risk that potential suppliers may claim proprietary or other legal restrictions over the further use of certain information and ideas ‘shared’ or disclosed as part of their involvement in such engagements. Legal risks may arise for Government agencies if they then try to disclose, use or adapt such information in a manner that is inconsistent with those restrictions. These risks increase the potential for supplier ‘lock-in’ which effectively limits a Government agency’s future ability to go to an open, competitive market for the technology, or otherwise engage other suppliers in the development and/or support of the relevant specification or solution.

It is therefore important that pre-tender engagement activities are undertaken according to clear protocols which identify and manage the relevant risks from the very beginning, while also maximising the opportunities for open and constructive market engagement.

Such protocols should explicitly deal with:

  • the core purpose and goals of the intended procurement
including any ‘baseline’ requirements or other parameters for the procurement as determined by the agency
  • the agency’s rights to use information collected as part of the engagement
rights and restrictions on subsequent disclosure, use and adaptation (including by third parties) of information that may be subject to intellectual property, confidentiality and/or privacy
  • proper management of the information collected as part of the engagement and other ideas ‘shared’ as part of the engagement activities
creation of meeting records and information (or IP) registers to properly identify information and other ideas being ‘shared’, as well as any express restrictions relevant to that information.

Strategy 2. Look at different procurement options

Government agencies have some flexibility in how they approach the market for any procurement and detailed consideration should be given to how best to structure the procurement approach, particularly where novel or innovative technology solutions are being procured.

The following approaches to market provide agencies greater flexibility in this regard.

Multi-staged tenders
  • Provide a sound basis for a Government agency to initially test an open market in order to identify baseline capability of potential suppliers before proceeding to a subsequent, more detailed (or pre-qualified), procurement stage.
  • An initial broad-based market approach can foster highly innovative ideas and solutions and can also potentially tap into less ‘traditional’ industry sectors.
  • A key is to ensure that the initial tendering stage identifies an agency’s ‘core’ requirement, but also provides for maximum flexibility around the possible technology solution design and delivery models.
  • The second stage of the procurement can then be used to better, test, refine and evaluate the suitability and overall value of a broader range of possible solutions offered.
  • Similar outcomes can also be achieved by establishing a ‘panel’ of suppliers that is able to offer a broader range of relevant capabilities, skills and approaches, from which the Government agency may subsequently refine and acquire a specified technology outcome.
Limited tenders
  • Limited tenders may offer distinct advantages in circumstances where Government agencies are investigating or trialling the use of new or novel technology solutions that are aimed at meeting specific policy and/or program objectives.
  • Limited tendering enables Government agencies to identify an idea or need and set about directly acquiring the relevant development, evaluation and testing services.
  • Commonwealth exemptions from open tendering for procurements of prototypes, research or a ‘first good or services’ have particular application for a range of technology procurements as government requirements are often ‘bespoke’, or otherwise don’t sit squarely within existing commercial-off-the-shelf markets.

Strategy 3. Consider contract models that better ‘capture’ potential value

In any procurement, the contracting model is critical to a Government agency achieving its particular procurement ‘goals’, as well as managing its associated risks. It is perhaps less recognised that the choice of contracting model can also be a key factor in identifying and capturing value. While ‘standard form’ contracts have a sensible place in ‘standard’ technology procurements, Government agencies should give consideration to alternative contracting models – including ‘collaborative’ models – for procurements that involve novel or highly developed technology.

For example, in contrast to a more traditional ‘fee-for-service’ contracting model, alternative models may provide opportunities for:

Sharing of investment
  • Contractual terms that expressly recognise valuable ‘co-contributions’ made by one or more suppliers (e.g. in-kind specialist resources or necessary background intellectual property) are common in R&D and project-style agreements particularly where mutual, but distinct, benefits arise as between the parties.
  • Contracts that value co-contributions can provide a greater sense of ‘investment’ from all parties, and can also effectively lower the direct costs to Government purchasers of developed or novel technology.
Sharing of ‘outputs’
  • Novel technologies have the potential to offer value outside the immediate purchaser requirements against which they are originally procured.
  • Contractual terms that recognise potential opportunities for further development, use or commercialisation of such technologies (including opportunities for the supplier) can enhance innovation generally, capture greater value and potentially lower the overall development cost of the technology in the first place.
  • Licensing and commercialisation rights should be closely considered regarding all outputs as a way of identifying and capturing value to the parties.
  • In the Government context, value capture is not necessarily about exclusivity or commercial return, but may well include the value associated with enhanced ‘open’ or public access to particular technologies or outputs where this could potentially promote public policy objectives or benefits to Australian business generally.
(Re)allocation of certain risks
  • Close consideration of all key risks, and the party best placed to bear those risks, is essential to all contractual models.
  • Inappropriate risk allocation under technology contracts can result in increased development costs, restrict potential innovation and therefore undermine overall customer value.
  • While the allocation of risk under technology contracts should rightly focus on satisfying a Government purchaser’s requirements, a key is to also ensure that it is not done in a way that unnecessarily ‘locks-in’ an overly conservative approach to continuous improvement and innovation by the supplier.
  • By accepting a ‘low’ (or ‘no’) blame regime relating to the identification of delivery or solution ‘weaknesses’ throughout development, a Government purchaser potentially enhances opportunities for improvements and innovations which may realise greater value overall.


Procurement considerations for Government agencies will vary depending on the scale, complexity, value and risk of the procurement activity being undertaken. Agencies should be alert to the procurement planning strategies and considerations outlined above, particularly in the context of ensuring that procurements are appropriately agile and, where necessary, can best leverage competitive market forces, technical knowledge and potential value.

When it comes to novel or innovative technology acquisition, ‘future proofing’ should be seen as an ongoing project objective rather than some form of contract deliverable. Through appropriate planning and diligence, Government agencies will be better informed and can leverage technology procurement opportunities that may arise.

[1] The Commonwealth Procurement Rules mandate that the involvement of any potential suppliers in the development of the specifications must not provide an unfair advantage over other potential suppliers (CPRs, s10.11).

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