Innovation Partnership

The innovation partnership is a procurement procedure introduced by Directive 2014/24/EU that enables contracting authorities to establish a long-term structured partnership with one or more economic operators for the development of an innovative product, service, or works not yet available on the market, followed by the subsequent purchase of the resulting supplies, services, or works without the need for a separate procurement procedure. This procedure uniquely bridges research and development with commercial procurement, allowing the contracting authority to take an innovative solution from concept through development to delivery within a single integrated process.

How It Works

The innovation partnership is designed for situations where a contracting authority has identified a need that cannot be satisfied by any product, service, or works currently available on the market. The procedure integrates the development of the innovative solution with its subsequent purchase, structured in successive phases that mirror the research, prototyping, and commercialization cycle.

The process begins with the publication of a contract notice in TED, describing the unmet need and the minimum requirements that the innovation must satisfy. The contracting authority must clearly define the need in terms of the problem to be solved rather than the solution to be delivered, since the purpose of the partnership is to develop a solution that does not yet exist. The notice also establishes the selection criteria for identifying qualified partners and the award criteria for evaluating proposals.

Interested economic operators submit requests to participate, demonstrating their research and development capability, technical expertise, and financial capacity to sustain a multi-phase partnership. The contracting authority evaluates these requests and selects a shortlist of candidates. Article 31(1) of Directive 2014/24/EU requires that at least three candidates be invited to participate, provided a sufficient number of suitable candidates are available.

Selected candidates submit their initial proposals, which describe their approach to developing the required innovation, the proposed phases and milestones, the resource plan, and the pricing structure for both the development and commercial phases. The contracting authority then enters into negotiations with the candidates, following the rules applicable to the competitive procedure with negotiation. Negotiations may address all aspects of the proposals except the minimum requirements and award criteria published in the contract notice.

Following negotiations, the contracting authority selects one or more partners and establishes the innovation partnership. The partnership agreement defines the successive phases of the development process, including research, prototyping, testing, and validation. Each phase concludes with an intermediate milestone against which the contracting authority evaluates progress and decides whether to continue to the next phase, reduce the number of partners, or terminate the partnership.

The phased structure serves a critical function. After each phase, the contracting authority may reduce the number of partners by terminating the partnership with those whose solutions have not met the agreed milestones. This mechanism maintains competitive pressure throughout the development process and protects the contracting authority against investing in solutions that prove unviable.

Upon successful completion of the development phases, the contracting authority purchases the resulting product, service, or works from the successful partner. This purchase occurs within the framework of the innovation partnership itself, without the need for a separate procurement procedure. The performance levels and maximum costs agreed during the partnership set the parameters for this commercial phase.

The entire innovation partnership, from notice publication to commercial delivery, typically spans two to seven years depending on the complexity of the innovation required.

Legal Framework

Article 31 of Directive 2014/24/EU establishes the legal framework for innovation partnerships. This procedure was a new addition in the 2014 reform of the EU procurement directives, reflecting the EU's policy emphasis on using public procurement as a lever for innovation.

Article 31(1) provides that contracting authorities may use the innovation partnership where they have identified a need for an innovative product, service, or works that cannot be met by purchasing products, services, or works already available on the market. The article explicitly requires that the contracting authority must not use the innovation partnership to prevent, restrict, or distort competition.

Article 31(2) establishes that the innovation partnership is structured in successive phases following the sequence of steps in the research and innovation process, which may include the manufacturing of products, the provision of services, or the completion of works. The partnership must set intermediate targets that partners must reach, and the contracting authority may decide to terminate the partnership or reduce the number of partners after each phase.

Article 31(3) and (4) address the commercial phase. The contracting authority must ensure that the structure of the partnership and the duration and value of the different phases reflect the degree of innovation of the proposed solution, the sequence of research and innovation activities required, and the need for the authority to receive the product, service, or works at competitive prices. The estimated value of supplies, services, or works must not be disproportionate in relation to the investment required for their development.

Article 31(5) establishes the negotiation rules, referencing the provisions applicable to the competitive procedure with negotiation (Article 29). During negotiations, the contracting authority must not reveal confidential information communicated by one candidate to another without consent, and must treat all candidates equally.

Article 31(6) addresses intellectual property rights. The contracting authority must establish an appropriate arrangement for intellectual property rights in the partnership agreement. The allocation of IP must reflect the respective contributions of the partners and the contracting authority, ensuring that the authority has sufficient rights to use the developed solution while respecting the partners' legitimate interest in their innovations.

Within the EU, innovation partnerships remain relatively uncommon compared to established procedures. The European Commission has published guidance documents to encourage their use, noting that the complexity of establishing and managing an innovation partnership can be a barrier for contracting authorities that lack experience with R&D partnerships.

Practical Examples

A national transport authority identifies a need for a new type of electric bus capable of operating a full day of service on a single charge in extreme weather conditions, a capability not offered by any manufacturer currently on the market. The authority launches an innovation partnership, pre-qualifying four bus manufacturers with strong R&D capabilities. Over a five-year partnership, the manufacturers develop prototype vehicles, which are tested under real operating conditions. After the second phase, two manufacturers are eliminated because their prototypes fail cold-weather performance tests. The remaining two manufacturers complete final development, and the authority purchases 50 buses from the partner offering the best combination of performance and price.

A hospital network needs a patient monitoring system that uses artificial intelligence to predict deterioration in real time, a capability not available in existing commercial systems. The hospital launches an innovation partnership with three IT procurement companies, structuring the partnership into three phases: algorithm development and clinical validation, prototype system integration, and production deployment. After the clinical validation phase, one partner is eliminated because its algorithm does not meet the agreed accuracy targets. The remaining two partners develop integrated systems, and the hospital selects the superior solution for deployment across its network of 15 facilities.

A city government seeks an innovative solution for real-time air quality monitoring and automated traffic management to reduce pollution in urban areas. No integrated system combining sensor networks, predictive analytics, and traffic signal optimization is commercially available. The city establishes an innovation partnership with two technology consortia to develop competing solutions over a three-year period, with the expectation of purchasing and deploying the winning system at the end of the development phase.

Key Considerations for Suppliers

Suppliers considering an innovation partnership should assess whether they have the research and development capacity to sustain a multi-year development programme alongside their commercial operations. The development phases require genuine R&D investment, dedicated technical personnel, and the ability to iterate and refine solutions based on testing results and contracting authority feedback.

Understanding the risk profile is essential. Innovation partnerships involve uncertainty inherent in any R&D process. The contracting authority may terminate the partnership after any phase if agreed milestones are not met, and the supplier may not recover all development costs through the partnership payments alone. Suppliers should carefully evaluate the financial terms of the partnership, including milestone payments, cost reimbursement, and the commercial value of the eventual purchase.

Intellectual property considerations are critically important. Suppliers should negotiate IP terms carefully, ensuring that they retain sufficient rights to commercialize the developed innovation beyond the partnership contract. The ideal outcome for a supplier is developing a solution that not only meets the partnering authority's needs but can also be sold to other customers. Clarifying IP ownership, licensing rights, and exclusivity arrangements early in the negotiation phase is essential.

The partnership model rewards suppliers that can demonstrate strong R&D methodology, transparent milestone reporting, and collaborative working practices. Contracting authorities selecting innovation partners look beyond immediate technical capability to assess an organization's capacity for sustained research collaboration, its approach to risk management, and its ability to scale from prototype to commercial production.

Suppliers should also consider forming consortia for innovation partnerships, particularly where the required innovation spans multiple technology domains. A consortium combining specialist R&D capability with manufacturing capacity and domain expertise may present a stronger candidacy than any single organization.

Competitive Dialogue - A related procedure for complex procurements, but unlike innovation partnership, it does not integrate R&D development with subsequent purchase
Competitive Procedure with Negotiation - The negotiation rules for innovation partnerships follow those of this procedure
Framework Agreement - An alternative mechanism for ongoing supply relationships, but not designed for developing new products
Design Contest - Another procedure that seeks creative solutions, but limited to plans and designs rather than full product development
Award Criteria - The evaluation framework used for selecting innovation partners and assessing milestone achievement

Frequently Asked Questions

How does an innovation partnership differ from pre-commercial procurement?

Pre-commercial procurement (PCP) is a research and development procurement approach where the contracting authority purchases R&D services from multiple suppliers to develop competing solutions, but the PCP itself does not include the purchase of commercial volumes. A separate procurement procedure is required to purchase the resulting products or services. The innovation partnership, by contrast, integrates both the development and the commercial purchase within a single procedure. This means the innovation partner can move directly from successful development to commercial supply without competing again in a new procurement.

Can a contracting authority use an innovation partnership for incremental improvements?

The innovation partnership is intended for developing genuinely innovative solutions that are not currently available on the market. If the contracting authority's need can be met by adapting or customizing existing market solutions, the competitive procedure with negotiation or competitive dialogue would be more appropriate. The European Commission's guidance emphasizes that innovation partnerships should not be used to circumvent normal competitive procurement for requirements that could be met through existing products or services with minor modifications.

What happens to the partnership if all remaining partners fail to meet a milestone?

If all partners fail to meet the agreed milestones at a phase boundary, the contracting authority has the discretion to continue the partnership with modified milestones, terminate the partnership entirely, or adjust the scope of the remaining phases. The partnership agreement should include provisions for this scenario, including any termination payments due to partners for work already completed. The contracting authority would then need to reassess its procurement strategy, potentially launching a new procedure or reconsidering whether the innovation requirement is achievable.

Want to monitor procurement opportunities? Start your free trial or subscribe to our newsletter for weekly insights.