“How Award Criteria Slow Innovation“

Public procurement is a central pillar of the German economy and, at around 500 billion euros per year, accounts for close to 15 per cent of gross domestic product. It also offers enormous potential for promoting innovation. Economist Dr. Bastian Krieger, head of ZEW Mannheim’s Junior Research Group “Co-Creation”, explains that public tenders can encourage companies to develop and offer innovative products and services by applying specific award criteria.

“The way the award criteria are designed is key: Additional requirements can encourage innovation by rewarding creative and novel solutions. But this effect is reversed if the criteria become too numerous or too detailed. While a moderate number of requirements puts companies on an innovation course, an exceedingly long list of requirements hampers innovation.

Our analysis shows that around a quarter of the companies investigated that win public contracts with additional requirements are hampered in their ability to innovate by an excessive list of criteria. These findings are important, especially against the background of the procurement law reform underway in Germany. The current draft reform proposal already addresses the need to make procurement processes more efficient and reduce their complexity. Our findings confirm this approach and underline the importance of finding a balance between clear guidelines and excessive complexity.

If public tenders are designed in such a way that they promote innovation instead of slowing it down, they will make a significant contribution to the long-term competitiveness of the German economy. The ongoing reform offers a unique opportunity to exploit this potential.”