Does Market Engagement in Public Procurement Foster Innovation? Results from a Pan-European Survey

The Interchange between Democratic Institutions and the Globalisation of the Economy. Policy Brief No. 24, Year 2025 Does Market Engagement in Public Procurement Foster Innovation? Results from a Pan-European Survey Pelle Berkhout1, Anne Rainville1, Matthijs Janssen1,2, Koen Frenken1 1. Copernicus Institute of Sustainable Development, Utrecht University, The Netherlands 2. Dialogic Innovatie & Interactie, The Netherlands Summary 1. Early market engagement is often believed to enhance innovation in public procurement. 2. However, this study finds that market engagement formats have diverse and sometimes even adverse effects on innovation. This shows that market engagement is not a singular practice with homogeneous effects, and should be approached with care 3. For market engagement to be effective, rather than counterproductive, procurers should select clear learning goals and corresponding market engagement formats. 4. The importance of interactive learning suggests that policymakers should strengthen the capacity of procurers to process insights gained during market engagement activities. 5. Using technical questionnaires can negatively affect innovation because they hinder the inclusion of previously unknown and potentially innovative actors in the procurement process. Meetings and workshops have more positive effects as they foster trust and mutual understanding in innovation procurement trajectories. 1. Introduction Public procurement, meaning the acquisition of goods and services by a government or a public sector organization, can be a powerful tool to stimulate companies to innovate. To foster innovation, the optimal tender process and design depend on the capacities of procurers to organize public procurement processes in ways that incentivize innovation by suppliers. Early market engagement activities are an excellent tool to facilitate interaction and learning in public procurement, and ultimately innovation (e.g., Uyarra et al., 2017). Later stages of the procurement process, i.e., contract award and delivery, are strictly governed by public procurement rules and directives, which severely restrict interactions between the procurer and the market, to ensure transparency (Voda & Jobse, 2016). The idea is that market engagement informs suppliers about upcoming opportunities and allows them to prepare better, thereby directly affecting innovative bids. Procurers will also learn from market engagement activities and adapt the tender and procurement process to 2 make it more innovation-friendly, which might lead indirectly to innovation. However, existing research often overlooks that market engagement is not a singular method. In practice, procurers have various options at hand to substantiate preprocurement market engagement, ranging from online questionnaires with technical questions for suppliers to large meet-thebuyer events or in-depth workshops with groups of suppliers and other stakeholders (IPEC, 2024). These formats can differ considerably in terms of the intensity and scope of the interaction, as well as the types of actors involved. These different formats can, in turn, have different effects on learning by procurers and ultimately on innovation. Therefore, we examine to what extent different pre-procurement market engagement formats influence innovation in public procurement. 2. Data and methods We use statistical methods to analyze a survey of 1613 procurers with projects on the EU’s tender platform Tender Electronic Daily in 2022. We thus assess project-level data from the procurer’s side. 3. Market engagement formats To study the effects of different market engagement formats, we identified various ways in which procurers interact and exchange knowledge with potential suppliers and other stakeholders during market engagement. Α) Interactions during market engagement There are two static ways for procurers to engage with the market to prepare tenders. ‘Static’ here means that there is only a onetime interaction and that, therefore, information and knowledge flow only in one way. First, procurers can statically send out information, for example, through Prior Information Notices (PINs). Such notices inform potential suppliers about upcoming procurement opportunities, but have limited potential for knowledge exchange. Second, procurers can receive information statically, for example, through questionnaires with technical questions. Two market engagement formats allow for more dynamic interactions. First, procurers can have one-on-one meetings with potential suppliers and other experts as part of early market engagement activities. Secondly, group-based workshops, such as workshops or meet-the-buyer events, potentially allow for interactive learning as suppliers and procurers consider each other’s needs and capacities, encouraging suppliers to propose more innovative solutions (Valovirta, 2015). Involving multiple market parties, however, can also lead to a reduced willingness of participants to share sensitive business information, such as innovations, in the presence of their competitors, thereby impeding interactive learning (Holma et al., 2022). 42% of projects in the survey conducted a market engagement activity, which is relatively high compared to the European Commission, 2024 innovation procurement benchmark study. The majority of respondents interacted with the market through a single interaction type, while on average, they used 1.5 different interaction types. They most often engaged with the market by receiving information through static interaction (49.5%), followed by oneon-one dynamic interactions (40.9%), 3 statically sending out information (30.7%), and lastly dynamic group interactions (27.7%). Β) Actor variety during market engagement Not only how procurers engage, but also with whom they do so, is important. Our survey shows that the respondents who engaged with the market interacted on average with almost two different actor types, mostly SMEs (76.6%) and larger, established companies (53.7%), and rarely with non-supplier stakeholders such as civil society actors (5.4%) and universities (6.9%). On the one hand, cooperation with a diverse set of actors grants access to complementary skills, resources, and knowledge in innovation processes (Faems et al., 2005). We used our survey data on the different actors involved in the market consultations to assess the effect of high versus low actor variety on learning and innovation during procurement processes. C) Learning during market engagement Through the lessons learned during market engagement, procurers can make the tender process and design more innovation-friendly (European Commission, 2010; Uyarra, 2010). Lessons mentioned in the literature can be divided into three categories. (1) Discovering new suppliers and their solutions, which can increase the number of potential solutions and can open up the tender to actors that typically find it hard to participate in tender processes (Pihlajamaa & Valovirta, 2024). (2) Gaining in-depth market information on the technological maturity and the feasibility of a desired solution (e.g., Selviaridis & Spring, 2025). (3) Creating trust and mutual understanding, which is essential in complex procurement trajectories involving innovation. Figure 1 shows that it is quite common for procurers to learn about the feasibility of a desired solution during tender preparations. Encountering previously unknown suppliers and their solutions, however, appears to be more challenging. 4. Results Figure 2 visually shows our main results. Two overarching findings stand out. First, based on our analysis of the survey (see Section 2), we find that market engagement formats have diverse and sometimes even adverse effects on innovation. This demonstrates that market engagement is not a singular practice with homogeneous effects. Engaging with the market and other stakeholders is a delicate endeavor that requires a context-dependent approach. Secondly, we find that interactive learning is essential for market engagement to positively impact innovation. For market engagement to be effective, rather than counterproductive, procurers should select clear learning goals and corresponding market engagement formats. 5. Policy and procurement recommendations Our findings naturally translate into recommendations for both policymakers and procurers. Exposing procurers to suppliers and their innovations does not guarantee that valuable information is taken up within a procurement trajectory. At the policy level, focus should therefore be on organizational learning and the ability of procurers to process learnings (i.e., ‘absorptive capacity’), for example, through the use of intermediaries and training. 4 At the procurement level, first, learning about the feasibility of a desired solution was relatively common in our sample, but not affected by any variables on market engagement interaction or actor types. Therefore, less extensive pre-procurement methods suffice for procurers to learn about feasibility. Second, learning about previously unknown solutions and creating trust and mutual understanding can be achieved by organizing dynamic interactions with suppliers. Third, statically sending out information, e.g., through PINs, helps to encounter new solutions and suppliers. Fourth, statically gathering information from suppliers is not a recommended approach to interaction, as it has both direct and indirect negative effects on innovation. This is potentially due to its limited space for (tacit) knowledge exchange, the focus on existing strengths of suppliers, and the bias towards suppliers that are already familiar with procurement processes. Lastly, it is recommended to ensure the inclusion of diverse actor perspectives during market engagement, as this has a direct effect on innovation, potentially by supporting supplier-supplier knowledge exchange. What is DemoTrans? DemoTrans is an impact-driven research project that will provide theoretically and empirically robust recommendations on how to reinvigorate democratic governance by improving the accountability, transparency, effectiveness, and trustworthiness of rule-of-law-based institutions and policies. References European Commission. (2024). Benchmarking of innovation procurement investments and policy frameworks across Europe. https://research-andinnovation.ec.europa.eu/strategy/sup port-policy-making/shaping-euresearch-and-innovation-policy/neweuropean-innovationagenda/innovationprocurement/benchmarkinginnovation-procurementinvestments-and-policy-frameworksacross-europe_en European Commission, D.-G. for R. and I. (2010). Risk management in the procurement of innovation: Concepts and empirical evidence in the European Union : expert group report. Publications Office of the European Union. https://data.europa.eu/doi/10.2777/ 92030 Faems, D., Van Looy, B., & Debackere, K. (2005). Interorganizational Collaboration and Innovation: Toward a Portfolio Approach. Journal of Product Innovation Management, 22(3), 238-250. https://doi.org/10.1111/j.07376782.2005.00120.x Holma, A.-M., Østensen, M. W., Holmen, E., & de Boer, L. (2022). Market dialogue in public procurement: Buyer-supplier interfaces and relational abilities. Industrial Marketing Management, 104, 51-67. https://doi.org/10.1016/j.indmarman .2022.04.004 IPEC. (2024). Unlocking innovation in public procurement: A practical guide to premarket engagement. Innovation 5 Procurement Empowerment Centre. https://www.ipec.org.uk/resource/apractical-guide-to-pre-marketengagement/ Pihlajamaa, M., & Valovirta, V. (2024). The potential of innovation contests in articulating demand for system-level transformation: The case of the Helsinki Energy Challenge. Environmental Innovation and Societal Transitions, 53, 100916. https://doi.org/10.1016/j.eist.2024.10 0916 Selviaridis, K., & Spring, M. (2025). Innovation intermediation in supply networks: Addressing shortfalls in buyer and supplier capabilities for collaborative innovation. Journal of Operations Management, 71(1), 4080. https://doi.org/10.1002/joom.1345 Selviaridis, K., & Uyarra, E. (2025). How intermediaries manage knowledge to support public procurement of innovation: The case of UK defence. Research Policy, 54(10), 105335. https://doi.org/10.1016/j.respol.2025 .105335 Uyarra, E. (2010). Opportunities for innovation through local government procurement: A case study of Greater Manchester (No. PLG/51). Nesta. https://www.nesta.org.uk/report/op portunities-for-innovation/ Uyarra, E., Flanagan, K., Magro, E., & ZabalaIturriagagoitia, J. M. (2017). Anchoring the innovation impacts of public procurement to place: The role of conversations. Environment and Planning C: Politics and Space, 35(5), 828-848. Scopus. https://doi.org/10.1177/23996544176 94620 Valovirta, V. (2015). Building capability for public procurement of innovation. In Public Procurement for Innovation (pp. 65-86). Edward Elgar Publishing. https://www.elgaronline.com/displa y/edcoll/9781783471881/9781783471 881.00009.xml Voda, O. P., & Jobse, C. (2016). Rules and Boundaries Surrounding Market Consultations in Innovation Procurement: Understanding and Addressing the Legal Risks. European Procurement & Public Private Partnership Law Review, 11(3), 179193. https://www.jstor.org/stable/26643 421 Further Information: Berkhout, P., Rainville, A., Janssen, M., & Frenken, K. (2026). Does market engagement in public procurement foster innovation? Results from a Pan-European survey. Policy, 55(1). https://doi.org/10.1016/j.respol.2025.105372 6 Figure 1. Descriptive statistics on types of learning by procurers during tender preparation Figure 2. Results of the structural equation model of market engagement formats, learning, and innovation 58 211 544 200 380 345 1111 703 441 0200 400 600 800 1000 1200 1400 1600 Desired solution’s feasibility Mutual understanding procurer-suppliers Discovering new suppliers/solutions Disagree Neither agree nor disagree Agree 7 DemoTrans is funded by the European Union (Horizon Europe Framework, Grant Number 101059288). Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the granting authority. Neither the European Union nor the granting authority can be held responsible for them. Follow us online www.democracy-transparency.eu Follow us on X @DemoTrans Follow us on LinkedIn www.linkedin.com/company/demotrans-project/