Smart Finance & Procurement Initiatives for Smart Cities

This theme paper considers the key issues for the procurement and financing of innovation solutions.

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Smart Finance & Procurement Initiatives
for Smart Cities

A central question is how to procure and finance innovation driven solutions. Public procurement can be a significant driver of market innovation. As a major consumer, the public sector has considerable potential to act as a demand side driver, encouraging innovation in both products and services.

There is no shortage of budgets and finance streams in cities. The key is how these budgets are aligned to innovation.

An awareness of the potential for technologies to transform city services will help cities to view mainstream budgets as a mechanism to support innovation.

Investing in Smart city solutions has the potential to save costs or even generate revenue for cities. Cities need to engage Smart thinking around the use of existing budgets, new funding opportunities and their wider impact.

Key Issues for
SmartImpact partners

How to engage with the market? Cities need new ways to purchase innovation driven solutions.

How to reduce risk? Funding innovation is slow because an investment opportunity normally needs to be secure and low-risk to attract attention.

How to reduce upfront costs? Smart technology rarely deals with one discrete area. By its connected nature it is more complex and entails investment into several connected products, often needing calibrating for local circumstances.

How to leverage synergies between departments? The lack of cross agency and departmental working is a main barrier to driving effective procurement outcomes.

Lessons learnt from
SmartImpact partners

SmartImpact cities have found ways to drive investment from both public and private money towards innovative and clean technologies, often as pilots.

The focus can often be on ‘proof of concept’ when, in fact, it is ‘proof of value’ that is needed. Cost benefit analysis (CBA) is an important tool in demonstrating proof of value and holistic cost benefit.

Technology, infrastructure and services in cities are subject to procurement processes. Processes are often not suitable for innovative technologies and services because of the constantly evolving market. Innovation procurement methods have the potential to overcome some of these challenges.

Procurement and Finance in Smart Urban Innovation

Pre Commercial Procurement (PCP) helps to develop R&D and innovation-based solutions for current city challenges. In these circumstances the instrument is directed at solutions that are not readily available on the market.

Public Procurement of Innovation (PPI) helps cities to procure innovative solutions that are already available on the market, but maybe not known to the procurer or those that need to be adapted to local circumstances.

The lack of capability in cities to identify innovative solutions, with few dedicated resources, is a deficit that needs to be addressed. Cities need to create better links with innovators to understand the potential for innovative solutions and their finance implications.

The fragmentation of service delivery due to the cross cutting nature of innovation means that the budgeting and procurement of services sits outside normal organisational structures. Cities need to better understand the financial opportunities available to them.

There are many options ranging from traditional lending through to crowdsourcing or citizen investment. These include looking at alternative options such as combining different sources of funding and diversifying risk, while enabling benefit sharing across a number of parties.


Smart Finance & Procurement Initiatives for Smart Cities Case Studies