Functional procurement for innovation, welfare, and the environment

Public procurement accounts for a very large share of most economies worldwide. This conceptual article argues that the key to achieving more innovations when pursuing public procurement is to describe problems to be solved or functions to be fulfilled (functional procurement) instead of describing the products to be bought (product procurement). Contracting authorities need to identify the problems that policy should address. The new products (innovations) solving the problems are to be designed by the potential innovators/suppliers, not by public procurers. Hence, the societal needs and problems must be translated and transformed into functional requirements. Functional procurement is allowed in European regulations, and therefore, there are no legal obstacles to use it for innovation policy purposes. Furthermore, it leads to increased competition not only among potential suppliers of similar products, but also among different products that solve the same problem.