Does market engagement in public procurement foster innovation? Results from a Pan-European survey

Abstract

Market engagement during tender preparation is assumed to positively impact innovation in public procurement, as it facilitates demand articulation and interactive learning between procurers and potential suppliers. At the same time, early-stage market engagement is found to be comparatively underused in the European Union (EU). This makes it all the more important to obtain a better understanding of whether and how market engagement fosters innovation. Differentiating between static versus dynamic and one-to-one versus group-based engagement formats, this paper examines the extent to which deploying distinct formats and engaging different actor types influence learning and innovation in public procurement. We employ structural equation modeling to examine a mediation model, in which we hypothesize that market engagement informs suppliers about upcoming opportunities, thereby directly affecting innovative bids. We also hypothesize that procurers will learn from market engagement activities and adapt the tender and procurement process accordingly, which might lead indirectly to innovation. To assess this model, we use data (N = 1613) collected through a survey disseminated among procurers with a project tendered on the EU's tender platform Tender Electronics Daily in 2022. We find that distinct market engagement formats have diverse and sometimes adverse effects on innovation. This demonstrates that market engagement is not a singular practice, nor always advisable. We also find that interactive learning is essential for market engagement to positively impact innovation. Innovation-enhancing procurement practice thus requires that procuring entities orient their interactions around explicit learning objectives and select market engagement formats that are congruent with these aims.