Theme 5: Procurement for innovation

by Jamie Gamble, Penny Hagen, Kate McKegg and Sue West.

This blog is part of the Innovate for Impact blog series and explores alternative ways of resourcing to enable innovation, strengthen community partnerships and support social change.

The work we describe in the previous blog posts involves an organic – often messy – relationship between community members, professionals, and anyone who engages in the work. With many pressing challenges, communities face high stakes and a sense of urgency. At the same time, transforming the way we work in community requires sustained efforts, with room to explore, adapt and adjust.

Co-design and Developmental Evaluation (DE) are based on a principle of co-creation, which includes invitation, reciprocity, and openness, and tends to be dynamic and fluid. This approach will inevitably rub up against some of the structures and processes that guide how work is resourced and contracted. The interaction within co-creation is not a transaction, with citizens as clients, consumers or beneficiaries. The interaction is based on mutuality and relationships, and as the previous post explored, a change in what constitutes knowledge. The impetus for co-creation is reframing who gets to define what is needed, and what constitutes success.

This blog explores some of the challenges of this, as well as new approaches emerging in the context of funding and procurement.

Conventional funding arrangements

Conventional funding and project management approaches are geared towards specific outcomes and milestones, and there is an expectation to show results quickly. Co-design and DE work differently as the process is not linear, teams need to be able to respond and adjust to what they discover in the early phases.  Outcomes of changes in relationships, new learning, and a better shared understanding of issues proceed tangible changes on the ground. This initial period of learning, upskilling and alignment between partners contributes to the success of the collaboration and cohesive nature of the future interventions and prototypes. When working with complexity; time and care needs to be given to understanding and unpacking what is creating the barriers to outcomes, and then new approaches to be tested and tried. Immediate outcomes and benefits of prototypes can’t be predicted in advance.

The resourcing of work in communities is dominated by the problem-solution frame, and tends to be organized around specific programs and services. Traditional funding arrangements and contracting mechanisms, such as requests for proposals (RFPs), assume pre-ordinate clarity about goals, processes and activities. How work is commissioned and authorized faces pressures for efficiency, risk aversion, and a “value-for-money” mindset. Conventional funding structures are not set up to support collaborative ‘learning systems’ [1].

Innovation is inherently messy, and in the short-term, inefficient. Classic funding and contracting mechanisms were not developed to effectively contend with complex problems.

The evolution of public management systems has increasingly driven towards a preference for efficiency. The system has responded by becoming more prescriptive, and we have developed a system of contracting specified by outputs. In highly complex situations, the cost of efficiency is diminished effectiveness. For example, in New Zealand, it is the case that NGOs might only be funded for contact hours with ‘clients’, with no investment in time and resources to build capability, collaborate, or think critically and engage in the strategic learning that could lead to improvements in the effects of these contact hours.

The report by Collaborate for Social Change, A Whole New World: Funding and Commissioning in Complexity observed:  “We are in a world of fictional ‘transformations’ that start with a problem, deliver a service and expect a result.” [2]

RFPs have a built in assumption that we can engineer solutions, that there is a singular answer to a problem. Requirements for short-term implementation constrain innovation by pushing for early convergence rather than an exploration of novel options, which tends to result in historical framing of a problem and business as usual solutions.

Creating the space for innovation

There are signs of change. Some initiatives have successfully created a “workaround” to enable special circumstances that are more suitable to co-creation. The workaround is nothing new. In the early days of research and development (R&D) in private sector companies, skunkworks were created as an “under the radar” organisational strategy to develop highly disruptive innovations. Everett Rogers, best known for his diffusion of innovation theory, defined skunkworks as an “enriched environment that is intended to help a small group of individuals design a new idea by escaping routine organisational procedures.”

We see a similar phenomenon occurring in a community change context. For example, He Oranga Poutama is a New Zealand program aimed at the revitalization of traditional Maori sport and recreation. Community organisations were funded as part of a revitalization of sport initiative.

For the initiative to receive support, clearly defined “deliverables” were necessary as part of the tendering process. The workaround for He Oranga Poutama was to define year-one deliverables as engagement in and contribution to a framework for action, instead of the usual service delivery or reporting. From this framework, the model for services was developed, and in the following year the contracting deliverables adjusted accordingly.

This required some creativity in the contracting process, and perhaps more importantly, it required a creative and interested public service manager and director who were willing to take a risk. This is common in these workaround situations. It often takes individuals within the system who champion getting something done despite the systemic barriers. These intrapreneurs are skilled at negotiating special permissions within existing structures and can get rules to be bent. Creative approaches to funding are a form of legitimized co-conspiracy between the funder and recipient.

This can be beneficial. Special circumstances help to insulate innovators from pressures that can curtail innovation, and set boundaries around risk. The challenge of workarounds in the context of transforming communities is that they tend to be temporal, and reliant on the will and interest of key supporters on either side of the granting or contracting equation. We might gain ‘concessions’ for working in particular ways with particular partners, but this doesn’t necessarily translate into actual or sustained change in the system.

As skunkworks played out in the private sector over time, the sequestering that was pivotal for the development of the innovation ultimately limited the potential scaling of the innovations that were created.

Innovation labs

One development is the creation of a new kind of space that has growing legitimacy within the public and not-for-profit sectors. Innovation Labs – of which there are many varieties – have emerged as a way to name, and secure support for the space for collaboration and joint exploration.

An effect of the emergence of labs is that they have become a mechanism to collectively purchase the space to engage, develop and test ideas that examine ways to redistribute assets differently.

Some organisations have the development and facilitation of lab processes as one of their primary purposes and offerings – MaRS Solutions Lab in Canada, or NESTA in the UK, for example. Governments have created labs to help drive innovation on public policy challenges – Auckland Co-design Lab or the Impact and Innovation Unit in Canada, for example.

Co-design spaces can also emerge from larger initiatives. In New Zealand, the Ministry of Social Development worked with more than 500 people involved in budgeting services and those experiencing financial hardship to redesign what a spectrum of support should look like as part of the Building Financial Capability (BFC) initiative. One of the responses identified was a preventive community action initiative that aimed to support community-led economic and non-economic resource generating opportunities- called Generator.

The initial scope of the initiative was co-designed and tested with a range of stakeholders but, knowing the initiative needed to be grounded in place and co-developed with communities, what was procured was only partially developed. A container for further development was supported by an investment in a backbone organisation who will work with ten communities across New Zealand to adapt the responses so that they are optimal for the local context.

Alternative ways of procuring

One way to start building a more systematic shift that can support DE and co-design is to think about alternative ways of procuring.  If a solution is going to be co-designed, then it is difficult to tender an RFP with specifications for something that is yet to be created. Within the public sector there are experiments with innovation partnerships as an alternative to traditional RFP processes.

Another example from New Zealand’s Ministry of Social Development is the Whānau Resilience initiative, which is part of an additional 15.4 million allocated to address family violence in New Zealand.

Like other forms of social procurement, the contracting process for these funds is being approached as an opportunity for change that delivers social outcomes in and of itself [3].

The process is attempting to address challenges of traditional partial and short term funding models that focus on client volume and tend to reinforce inequity that comes from a “one size fits all” model.

Typically tenders are fast-paced and competitive, and as a result, bigger (often national) providers with resources and experience in the RFP process are advantaged. Smaller, often Māori and Pacific providers, who might be best placed to serve their communities in culturally grounded ways can continue to miss out on the opportunity to participate and grow.

A multi-stage procurement process is being used as a way to strengthen the conditions for collaborative, place-based, culturally grounded approaches and build capacity of community and local providers for change in the long term.

Rather than internally defining the problem and solution, the first phase of procurement included a discovery process working with current providers to better understand the issues on the ground and where the spend would have the most impact.

This engagement led to an understanding of how previous procurement rounds have negatively impacted the sector and identified the opportunity to put new money into long term, place-based, whānau led recovery.

A two stage RFP process was designed to bring forward the providers best placed to respond to the opportunity and to community need. It put emphasis on provider’s connection to culture and community, and required providers to have, or commit to establishing a local base. Initial paper applications were followed up with face to face presentations, doubling as an opportunity for relationship building between different providers in the region.

First year funding is not for delivery; instead, providers are funded for a regional design phase to build their own local knowledge of the region and co-design with their community what is needed. If both partners choose to move forward, the contracts are extended for four more years, recognising the need for security and a long term view on change.

The process is experimental as the team seeks to learn what a more collaborative, transparent and community strengthening procurement processes looks like. The ability to adapt and refine the service and contract over time is built in, with roundtable reflection processes supporting ongoing learning across providers.

Innovation partnerships

Innovation partnerships is another approach that can help address the difficulties of navigating both the complex network of stakeholders and decision makers involved in the development and implementation of innovation, and the purchasing process.

There are emerging models where organisations put forward a challenge statement and then select an innovation partner based on a pitch from prospective vendors on how they would go about solving the challenge. Vendor selection is based on a track record for innovation, the proposed approach, and in some cases, existing assets or resources that are thought to be beneficial towards a possible solution. The procurement is not based on a highly specified solution; instead there is an agreement to work together on a solution, and a commitment to procure something if certain outcomes can be met.

In 2016-2018, MaRS Solutions Lab helped healthcare providers such as hospitals and long-term care facilities to implement an innovation partnership. The program – Innovation Partnership: Procurement by Co-Design (IPPCD) helped selected healthcare providers and vendors to apply user-centred design principles and other rapid prototyping methods to deal with the risks of introducing innovation in a complex healthcare setting.

Teams were supported with hands-on co-design workshops and grants to help scope and evaluate minimal viable product and business model which would then be used to make a final decision whether to move forward with procurement.

Within the public sector, other procurement tools and instruments are emerging as well. For example, in the UK, Public Contracts Regulations have evolved to, “achieve broader and better social benefits for our communities. They are a licence to collaborate.”[4]

In addition to Innovation Partnerships, the authors of Exploring the New World identify mechanisms already within the UK’s contracting rules that support collaborative and exploratory efforts:

  • pre-tender market consultation
  • reserved Contracts to engage with voluntary and civil society
  • embed social value considerations in the marking scheme
  • get external inputs from providers and users on what social value looks and feels like; and how it should be evaluated.

Resourcing Developmental Evaluation

Contracting for DE is also difficult. The up-front specificity needed to scope out a traditional evaluation framework is challenging when the initiative, and as a result, the evaluation is expected to adapt and evolve. The challenge of accurately scoping a developmental evaluation and the long and uncertain duration can make them potentially costly to resource.

The evaluation framework tends not to be fixed and as a result the scope can change as new questions emerge. The pace of the DE can accelerate and slow down, in sync with how the initiative is developing. In a blog post on budgeting for DE [5], Michael Quinn Patton identifies some different contracting strategies can be used to guide to some of ways we might build flexibility into the contracting process:

  1. Retainer fee contracts: The scope of work is open-ended, and the evaluator and contracting organisation agree on total amount. The evaluator draws on the retainer pool as required, and if needed, new funds added to the pool over time.
  2. Stepwise funding: The evaluation design and funds are negotiated in steps or phases.
  3. Plan and adjust: The evaluator and contracting organisation speculate on the DE design and budget based on a best-guess, but with a substantial contingency (e.g. 25-50%).

Michael describes, “Under optimal circumstances, my work with clients is characterized by a long-term relationship, regular interaction and responsive deliverables. DE requires a transparent process of identifying the available resources and then iteratively discussing how best to apply them. It’s more like a consulting contract than a pre-specified evaluation design contract. Trust and communication are essential.”

What then does it take to make this transition to a different kind of contracting and funding relationship with community?

Genuine co-design and collaboration between stakeholders requires time for building trust, relationships and alignment. Time and care needs to be given to understanding and unpacking what is creating the barriers to outcomes, and then new approaches to be identified, tried and tested.

Conventional funding structures and contracts with a focus on service delivery do not naturally encourage conditions for collaboration, innovation and learning. As we work to shift how we effectively contract and commission for experimentation and learning at practice and systems level, there are several areas we think should guide this shift:

  • Include the time it takes to build alignment between partners that allows them to collaborate, and most importantly reconfigure skills, assets, resources and eventually structures and policies towards outcomes-focused delivery.
  • Build in resources and time for learning and ongoing reflection over the long-term.
  • Trying to support collaboration between potential partners and those working in communities rather than a competitive approach.
  • Set up the conditions for success (including space, knowledge, relationships, trust, time) not the specifications, set up relationships but not prescribe them.
  • Build a new measurement vocabulary that helps the procurement and granting process move away from more conventional measures and expectations about outputs, throughput and activities.
  • Commit to addressing inequity through procurement conditions and deliberately challenging bias that privileges those that can follow the RFP process and the bias within the process. This includes things like diversifying the pool of who is invited to respond to tender requests, how people respond and the phasing and timing of payments, who is on the panel for decision-making and emphasizing criteria like connection to community and cultural connectedness.
  • Strengthening local capability and connections of community and providers through the procurement process.
  • Fund networks and peer-to-peer relationship building and recognize its value as a stand-alone outcome.

In shifting the way contracting and funding is done, we contribute to the shifting of decision-making to the community for deciding what is needed to proceed. This is disruptive to existing authority and resource flows, and changing the funding and contracting systems is a major shift for public systems.

These systems are not as rigid and inflexible as we sometimes imagine them to be, and there are many pockets where there is a keen interest to move from business as usual approaches.

Not surprisingly, the same advice that applies to any change in large organizations applies here: build shared understanding, genuine relationships and gain support from senior leadership. It also involves engaging parts of the system that we historically might not be looking to as we attempt to shift a complex system – legal, finance, audit, and procurement.

The possibilities of place-based approaches, and the role of co-design and developmental evaluation in these will be further explored in our upcoming post – Opportunities in Place.

The Innovate for Impact blog series is co-authored by Jamie Gamble (Imprint Consulting), Penny Hagen (Auckland Co-design Lab) and Kate McKegg (The Kinnect Group) in collaboration with Sue West from the Centre for Community Child Health.

Innovate for Impact blog series

This blog post is part of a series identifying shifts the co-authors believe are emerging and important to community service and systems change. Links to the other posts (as they published) are below.

More Innovate for Impact resources

Contact Sue West for Innovate for Impact blog series enquiries.

 [1] Developing an ‘effective learning systems’ was a key part of the New Zealand Productivity Commission’s 2015 Report into more effective social services which looked at ways to improve how government agencies commission and purchase social services and what is needed to better serve families experiencing greatest disadvantage.

[2] Knight, Lowe, Brossard and Wilson. A Whole New World: Funding and Commissioning in Complexity. Newcastle University, Kite Centre for Knowledge Innovation, Technology and Enterprise, and Digital Civics.

[3] Social procurement is the inclusion of social and economic objectives in the procurement process in order to create additional socio-economic value above and beyond the primary purpose of what you are buying. See for example and in New Zealand and in Australia – enabled in part through Indigenous Procurement Policy

[4] Lowe,T and Plimmer, D. Exploring the New World: practical insights for funding, commissioning and managing in complexity. Collaboration for Social Change and Northumbria University.

[5] Michael Quinn Patton. Budgeting for Developmental Evaluation.

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