Public procurement of innovation (or public contracts for innovation) refers to situations where public purchasers seek to acquire the development or application of cutting-edge innovative solutions to meet the medium- to long-term needs of the public sector. It is a tool that aims to provide taxpayers with public services of the highest possible quality and efficiency. In certain cases, it is possible to respond to challenges in the public sector through innovative solutions that are almost or already available on the market in small quantities and do not require further research and development (R&D). It is in these cases that public procurement of innovation can be used Public procurement of innovative solutions (PPI)¹ so that these solutions can be put into practice. In other cases, the challenges facing the public sector require such demanding technological improvements that they are still far from market readiness and require further R&D. In such cases, recourse can be used Pre-commercial procurement (PCP)² to compare the pros and cons of alternative competing approaches and gradually reduce the risks of the most promising innovations through solution design, prototyping, development and initial testing of products. By developing a forward-looking public procurement of innovation strategy that uses PCP and PPI in a complementary manner, the public purchaser can drive innovation on the demand side, thereby enabling the public sector to modernise public services more quickly while creating opportunities for companies in Europe to obtain a first customer reference and achieve international leadership in new markets.

¹ Translation note: In this text we will use the acronym PPI (“Public Procurement of Innovative solutions”), as it is the one used in all international texts.

² Translation note: Likewise, this text will use the acronym PCP (“Pre-Commercial Procurement”), as it is the one used in all international texts

The public procurement of innovation involves 3 phases and several steps per phase:

1. The preparatory phase, which covers the following stages:

• identifying and assessing the needs of the buyer (and end users);
• checking needs against what already exists (prior art analysis & patent search);
• checking needs against what the market can offer (open market consultation);
• formulation of the economic arguments for the buyer to initiate an innovation purchase (how to establish the requirements in terms of functionality/price to be applied to innovative solutions so that the purchasing process leads to a positive result in terms of cost/benefit ratio);
• preparation of the tender documentation (including the establishment of intellectual property rights (IPR), confidentiality and standardization requirements).

2. The competition phase (recruitment), which includes the following stages:

• carrying out the tender procedure (publication of tender documents, submission of tenders, evaluation of tenders, award of contract);
• In the case of an IPP, the conformity test may take place before or during the tendering phase.

Note: The compliance test is purely optional and takes place before the contract is awarded. Since the purpose of this test is to verify that the potential suppliers’ solutions meet the minimum requirements for the tenders to be eligible (e.g. compliance with standardization, certification requirements), it must be carried out before the contract is awarded.

3. The contract execution phase (after the contract has been awarded), which covers the following stages:

• permanent monitoring and evaluation of the final results of the R&D (PCP) or the application of the solution (PPI), payment to the supplier(s);
• In the case of a CFP, this process is repeated for each phase of the CFP, followed by a selection of R&D suppliers who will continue to the next R&D phase.

The limits of what R&D can cover under the CFP are defined by the following legal frameworks:

• o 2014 EU framework for state aid for research, development and innovation;
• the World Trade Organization Agreement on Government Procurement (WTO GPA).

According to the 2014 EU Framework for State Aid for Research, Development and Innovation, in order to exclude any state aid from a CFP procedure the subject matter of the contract must be covered by one or more of the research and development categories defined in the framework and the duration of the contract must be limited. In addition, it may include the development of prototypes or a limited quantity of first products or services in the form of a series of tests, but the purchase of products or services in commercial quantities must not be the subject of the same contract. The categories of R&D defined in the State Aid Framework that can be covered by the CFP are:

• “basic research“, i.e. experimental or theoretical work carried out primarily with the aim of acquiring new knowledge about the underlying foundations of phenomena and observable facts, without any direct commercial application or use in mind;
• the “industrial research”, i.e. planned research or critical investigation aimed at acquiring new knowledge and skills for the development of new products, processes or services or for introducing significant improvements to existing products, processes or services. It includes the creation of complex system components and may involve the construction of prototypes in a laboratory environment or in an environment simulating interfaces with existing systems, as well as pilot lines, if necessary for industrial research and, in particular, for the validation of generic technology;
• the “experimental development”, i.e. the acquisition, combination, configuration and use of relevant existing scientific, technological, commercial and other knowledge and skills with the aim of developing new or improved products, processes or services. This may also include, for example, activities aimed at conceptual definition, planning and documentation of new products, processes or services. Experimental development may include the creation of prototypes, demonstration, pilot projects, testing and validation of new or improved products, processes or services in environments representative of real-life operating conditions, where the main objective is to introduce new technical improvements to products, processes or services that are not substantially fixed. This may include the development of a commercially usable prototype or pilot project, which is necessarily the final commercial product and whose production is too costly to be used solely for demonstration and validation purposes. Experimental development does not include routine or periodic changes made to existing products, production lines, processing methods, services and other ongoing operations, even if such changes are likely to represent improvements.

As explained in the Framework for State Aid to R&D&I, the different categories of R&D can also be considered to correspond to levels of technological readiness 1 (fundamental research), 2-4 (industrial research) and 5-8 (experimental development). As the CFP is motivated by a specific purchasing need (with a concrete use in mind), fundamental research is not its objective. However, it is possible that in order to complete the industrial R&D necessary for the CFP, it is also necessary to deepen some aspects of fundamental research. Thus, the CFP usually covers activities such as the exploration and design of solutions, the creation of prototypes, up to the original development of a limited quantity of first products or services in the form of a series of tests. Pursuant to Article XV(1)(e) of the WTO GPA 1994 and Article XIII(1)(f) of the WTO GPA 1994, these activities are usually carried out in the form of exploration and design of solutions.Under Article XV(1)(e) of the 1994 WTO GPA and Article XIII(1)(f) of the 2014 Revised WTO GPA, which defines original development as the frontier where R&D ends, the original development of a new product or service may include some production or supply in order to incorporate the results of testing under real conditions and to demonstrate that the product or service in question can be produced or supplied in quantity and to acceptable quality standards, but does not include production or supply in quantity with a view to establishing commercial viability or recovering research and development costs.

An unmet need or challenge in a PCP or PPI is a requirement or set of requirements that (…) [buyers] have at present or (preferably) that (…) [they] will have in the future, which current products, services or devices cannot satisfy, or can only do so at excessive cost or with unacceptable risk. An unmet need or challenge often becomes apparent when a buyer has to solve a problem that negatively affects the efficiency of its internal operations or the quality of the public interest service it offers to citizens, or when4 a buyer has to implement political objectives or legislation. [1] Cf. Department for Business Innovation & Skills, “Delivering best value through 10 innovation. Forward Commitment Procurement. Practical Pathways to Buying Innovative Solutions”, November 2011. Available at
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/3
2446/11-1054-forward-commitment-procurement-buying-innovativesolutions.pdf

An open market consultation consists of an open dialogue between the buyer(s) and the market, in which the buyer(s) ask for the market’s opinion in order to identify the market’s ability to meet their needs. All potentially interested economic operators present in the market are invited to participate in the open market consultation (by publishing an open market consultation notice in the European Union’s public procurement database, the European Tender Database). An open market consultation will reveal whether the need is met by a readily available commercial solution or whether R&D (PCP) or near-market innovation (PPI) is required to meet the need. When the solution to meet the need is not readily available, the open market consultation will help the public purchaser choose the right way to procure innovation. If R&D is still needed to meet the need, CFP is the appropriate option (possibly followed by IPP). If there are already suitable innovative solutions close to the market stage that have already passed through the R&D phase and are ready for commercialization by a first customer (or launch customer), PPI is the appropriate option.

The CFP is a public procurement process for Research and Development (R&D) services that involves the sharing of risks and benefits according to market conditions and competitive development in phases, where there is a clear separation between the acquisition of R&D and the deployment of final products in commercial quantities.

The separation between CFP and the deployment of final products in commercial quantities refers to the complementarity between CFP, which is focused on the R&D phase before commercialization (the purchase of R&D services), and IPP, which is not focused on R&D but on the commercialization/diffusion of solutions (the purchase of innovative products that are ready to be marketed).

It is an R&D phase within a CFP process. As a general rule, a PCP project comprises 3 phases. Phase 1 comprises the study of solutions, phase 2 comprises the creation of prototypes, and phase 3 comprises the original development of a limited quantity of first products or services in the form of a series of tests.

Phased competitive development refers to the competitive approach that buyers use in the CFP to purchase R&D from several competing R&D suppliers at the same time in order to compare and identify the most economically advantageous solutions on the market to meet the CFP challenge. R&D is also divided into phases (the conception of solutions, the creation of prototypes, original development and the validation/testing of the first products). The number of competing R&D suppliers is reduced after each phase of the CFP process following the interim evaluations. The phased approach reduces the investment risk for the public purchaser, facilitates the participation of smaller innovative companies (SMEs) and rewards the most competitive solutions. There is also evidence that phased competitive development that is clearly separated from subsequent deployment contracts generates significant quality improvements and reduces first-product costs for buyers by an average of 20%.

The separation of CFP from the deployment of end products in commercial quantities refers to the complementarity between CFP, which is focused on the R&D phase before commercialization, and IPP, which is not focused on R&D but on the commercialization/diffusion of solutions.

Sharing risks and benefits according to market conditions refers to the approach used within a CFP 13 process in which buyers share with suppliers, at market price, the benefits and risks related to intellectual property rights (IPR) arising from R&D. For more information, see answers to questions Q11, Q12 and Q13.

The CFP falls outside the scope of the European directives on public procurement, since in the CFP the buyer does not reserve all the benefits of R&D for itself, but leaves the intellectual property rights (IPR) arising from the results they produce to the R&D providers. The CFP is therefore exempt from the EU directives on public procurement on the basis of Article 16(f) of Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (Public Sector Directive), Article 24(e) of Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (Public Sector Directive) and Article 24(e) of Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (Public Sector Directive).Article 24(e) of Directive 2004/17/EC coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (Utilities Directive) and the EU legislation that replaced these directives, namely Article 14 of Directive 2014/24/EU.Article 14 of Directive 2014/24/EU on public procurement and repealing Directive 2004/18/EC, and, respectively, Article 32 of Directive 2014/25/EU on public contracts awarded by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC, as well as Article 13(f) and (j) of Directive 2004/18/EC.Article 13(f) and (j) of Directive 2009/81/EC (Defense/Security Directive) establishes that the directive applies only to public contracts for the acquisition of research and development services that meet the following conditions:

• the results are intended exclusively for the contracting authority/entity for its use in the conduct of its own affairs, and
• the provision of services is fully remunerated by the said contracting authority/entity.

The main parties to the WTO Government Procurement Agreement (WTO GPA), including the EC, have excluded R&D services from the scope of the GPA (Article IV). Therefore, the CFP is exempt from the GPA as long as it is limited to original development (cf. questions on what is covered by R&D) within the meaning of Article XV(1)(e) of the 1994 WTO GPA and Article XIII(1)(f) of the 2014 Revised WTO GPA. However, it is necessary that the acquisition of these exempt R&D services be made in accordance with:

• the fundamental principles of the Treaty on the Functioning of the European Union (TFEU) and the principles deriving therefrom[1];
• the Agreement on the European Economic Area (EEA) and the Stabilization and Association Agreements with third countries[2] of the European Neighbourhood Policy. For CFP projects funded by the Horizon 2020 program, it is also necessary to ensure compliance with the association agreements concluded under that program;
• EU competition rules, including in particular the conditions to ensure that the CFP does not involve state aid as defined in Article 33 of the rules on state aid for research, development and innovation;
• the provisions of Article XV(1)(e) of the 1994 WTO GPA and Article XIII(1)(f) of the 2014 Revised WTO GPA with regard to subsequent supply contracts after the conclusion of the pre-commercial procurement (PCP).

While the principles of the TFEU as well as the above-mentioned principles of the EEA/Stabilization and Association Agreements remain applicable, the public purchaser must allow all interested candidates from all EU Member States, the EEA and the partner countries in the context of the European Neighbourhood Policy the possibility to compete on an equal footing in the CFP procedures, based on transparent and fair rules. According to Article XV(1)(e) and Article XIII(1)(f) of the 2014 Revised WTO GPA, the use of restricted competition in the CFP is not allowed to avoid competition to the greatest extent possible or to discriminate against suppliers from other WTO parties or to protect domestic suppliers in subsequent contracts for supply purposes. Thus, with regard to bidders from other countries that are signatories to the WTO, the public purchaser has two options:

• If it does not allow candidates from these countries to submit tenders under the PCP, the public purchaser may not restrict the tender to the purchase of prototypes or the first products/services developed during the implementation of the PCP from the PCP contractors.
• If it allows candidates from these countries to submit tenders under the PCP, the public purchaser can limit the procurement of prototypes or the first products/services developed during the PCP to PCP contractors. Note that in this case it is still possible to use a place of performance requirement which obliges suppliers to perform a relevant part of the R&D services for the PCP in the territory defined by the EU, EEA and partner countries in the context of the European Neighborhood Policy. It should be noted that in CFP projects funded under Horizon 2020, the scope of the local performance condition is even broader and also includes all countries associated with Horizon 2020 that do not belong to the EEA and are not covered by the European Neighborhood Policy. Under the EEA and Stabilization and Association Agreements, it is not permitted to restrict the place of performance clause
  so that R&D can only be carried out in EU Member States. Under the EU Treaty principles of EU competition rules, it is also not permitted to restrict the place of performance clause so that R&D can only be carried out in a particular EU Member State, region or city.

The Communication on the CFP [4] and the Working Document [5] on staff allocated to the CFP define an approach to implementing the CFP that fully complies with the applicable legal framework at European and global level.

What needs to be complied with in particular includes: the fundamental principles of the TFEU on the free movement of goods and workers, the freedom to provide services, the freedom of establishment and the free movement of capital, as well as the principles deriving from them, such as the principles of non-discrimination, transparency and equal treatment.

The list of countries with which the EU has signed association agreements on public procurement in the context of the European Neighborhood Policy is available at: http://ec.europa.eu/growth/single-market/publicprocurement/international/european-neighborhood-policy/index_en.htm

The list of countries associated with Horizon 2020 is available at: http://ec.europa.eu/research/participants/data/ref/h2020/grants_manual/hi/3cpart/h2020-hi-list-ac_en.pdf. [4] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, ‘Pre-commercial Procurement: Driving innovation to ensure sustainable high quality public services in Europe’, COM(2007) 799 final, 14.12.2007.

[5] Commission Staff Working Document, SEC (2007) 1668, Example of a possible approach for the procurement of R&D services by applying risk and benefit sharing according to market conditions, i.e. pre-commercial procurement, 14.12.2007.

It is recommended that any type of legal entity that is interested and qualified to commercialise R&D results be allowed to apply for the PCP, either individually or in consortium with other entities, including SMEs (also start-ups), universities [1], associations and foundations. To apply, the applicant [2] must demonstrate a clear path to market. Since the testing in situ Phase 3 of the PCP is an activity that normally consumes most of the PCP budget. It is recommended that applicants be asked to carry out most of the R&D and operational activities covered by the contract within the European Economic Area or in a country that has concluded a stabilisation and association agreement under the European Neighbourhood Policy. In the case of PCP projects funded by Horizon 2020, this extends to all countries associated with Horizon 2020.

[1] Universities, on their own initiative, should also be able to apply as long as they are capable of commercializing IPR.

[2] It should be noted that in the case of tenders submitted by a consortium, it is the consortium as a whole that has to prove its capabilities, not each individual entity that makes it up.

IPR represents the package of property rights over intangible knowledge products, such as copyright for documents and software, patents for technical inventions, and trademarks for brand images. They refer to patents, inventions (whether or not patentable or registrable), trademarks, service marks, copyrights, topography rights, design rights, and database rights (whether or not registered or registrable, and including applications for registration, renewal, and extension for any of them), trade secrets and confidentiality rights, trade names or designations and domain names, and all rights or forms of protection of a similar nature with equivalent effects for any that may exist now or in the future anywhere in the world. The term results is not limited to IPR. It also includes any tangible or intangible ‘product’, namely data, knowledge or information, generated within the scope of the PCP (i.e. in the activities described in the contract), whatever its form or nature, whether or not it can be protected, as well as any rights associated with it, including IPR produced during the execution of the contract (‘foreground IPR’ or new IPR). It should be noted that the results are the products generated at this stage and therefore do not include pre-existing products (‘background’ products generated before the CFP) or co-existing products (‘sideground’ products generated during the term of the CFP but not in the activities covered by it). In a PCP, the purchaser does not reserve the results of R&D for its exclusive use. Each R&D supplier that generates results under a PCP retains ownership of the IPR associated with its own results (along with the responsibility and costs of protecting that IPR). The public purchaser acquires royalty-free rights to use the R&D results and the right to require participating R&D suppliers to grant non-exclusive licences to third parties to exploit the results on fair and reasonable market terms without any right to sublicense. A “call-back” clause ensures that an R&D supplier that does not commercially exploit the results within a period of time after the completion of the PCP as defined in the relevant specifications (minimum period of four years for projects funded by Horizon 2020) or that uses them to the detriment of the public interest (including security interests) will have to transfer ownership of those results to the purchaser at the latter’s request. Given that the award of a PCP does not entail the purchase of pre-existing (background) or co-existing (sideground) products, the purchaser obtains access to these products from R&D suppliers on fair and reasonable market terms, except for pre-existing products that it needs to perform its own tasks during the term of the PCP (without the need for a licence). The purchaser also retains the right to publish information – after consultation with each participating R&D supplier – public summaries of the results of the FPPC, including information on the main R&D results achieved and the lessons learned by the purchaser during the execution of the FPPC (e.g. on the feasibility of the solutions explored to meet the purchaser’s requirements and the lessons learned for a potential application of the solutions in the future). Details should not be disclosed that could impede law enforcement, be contrary to the public interest, compromise the legitimate commercial interests of R&D suppliers involved in the PCP (e.g. regarding specific aspects of their individual solution approaches protected by IPR) or distort fair competition between participating or market-present R&D suppliers. For the public purchaser, this approach safeguards a competitive supply chain and cheaper prices in the future for R&D and the resulting products, as participating R&D suppliers can market the results of the PCP – including the resale of the solutions developed – in wider markets.

PCP concerns the phase preceding commercial exploitation, namely the acquisition of R&D. PCP is used to drive technological innovation up to the development of a limited batch of first products or services in the form of a series of tests. The subsequent commercialisation of the PCP results generated by R&D suppliers under the PCP is the responsibility of the R&D suppliers themselves (for an unlimited period of time if the conditions of the PCP are met or until the application of the “call-back” clause is requested). We can define the commercial exploitation of the results produced under a PCP by R&D suppliers as the marketing of a commercial application of the results directly by the R&D supplier or by any of its potential subcontractors or licensees. This definition may include the marketing of a commercial application (by direct sale, licensing or transfer of ownership) of all types of results obtained in the
scope of the PCP (including information, data, IPR, products/services/processes resulting from the PCP). The commercialisation of products/services resulting from the PCP covers the production, distribution, marketing, sale and customer support necessary to ensure their commercial success. As a strategy, the commercialisation of products/services requires the development of a marketing plan, determining how the product/service will be delivered to the market, and anticipating and managing obstacles to success. After completion of the PCP, the public purchaser may support the commercialisation process by launching a tender for the award of an IPP for the acquisition of the results of the PCP, in particular for the deployment of the products/services resulting from the PCP. If the PPI only covers the purchase of the limited set of prototypes or first test products/services developed during the term of the PCP, then the PPI may be limited to R&D suppliers participating in the PCP, provided that the tender for the award of that PCP was open not only to candidates from the 28 EU Member States, EEA countries and countries covered by the European Neighbourhood Policy, but also to all candidates from WTO member countries. According to the EU and WTO legal framework, the award of an IPP for end products in commercial quantities cannot be reserved for (one of) the R&D suppliers that participated in the PCP and must, in addition to the 28 EU Member States, EEA countries and countries covered by the European Neighbourhood Policy, also include candidates from all WTO signatory countries for all types of purchases covered by the WTO GPA.

A PCP is a contract for the provision of R&D services in which the public purchaser shares with the R&D supplier the risks and benefits related to IPR. The public purchaser must ensure that PCPs concluded with R&D suppliers include financial compensation in line with market conditions, using the cost of exclusive development for the allocation of IPR to participating R&D suppliers as a benchmark, so that the conclusion of the PCP does not involve any state aid. The financial compensation compared to the cost of exclusive development should reflect the market value of the benefits received and the risks assumed by the participating R&D supplier. The market price of the benefits must reflect the commercialisation opportunities that the IPRs provide to the R&D provider. The associated risks assumed by the R&D provider include, for example, the costs it has to bear to maintain the IPRs and commercialise the products. If the price paid by the public purchaser does not reflect the benefits received and the risks assumed by the participating R&D suppliers, the PCP will normally be regarded as State aid. According to the new EU Framework for State Aid for Research, Development and Innovation (R&D&I) of 2014, a “market price” is presumed to exist whenever the award of the PCP is made in accordance with a set of cumulative conditions. [1] See section 2.3 of the Framework for State aid for research, development and innovation.

The PPI is a public contract in which the public buyer acts as the first customer (or launch customer) – also called the first user or early adopter – of products or services that are about to become or are already available on the market in small quantities but are not yet deployed on a large-scale commercial basis. PPI does not include the purchase of R&D but may include the purchase of a test to verify that existing solutions on the market can meet the deployment requirements, i.e. a conformance test.

In Horizon 2020 MIP projects, innovative solutions are innovative products or services that offer better levels of performance than the best available that suppliers are invited to satisfy through production innovation. This includes solutions that will normally already have been (partly) technically successfully demonstrated on a small scale, and may be almost or already available on the market in small quantities, but which, due to the residual risk of market uncertainty have not yet been produced on a large enough scale to meet the price/quality requirements of the large market and therefore have not yet penetrated widely into the buyer’s market segment. This also includes solutions based on existing technologies intended for new and innovative uses. PPI does not include the acquisition of R&D.

The limits of what R&D can cover under the CFP are defined by the following legal frameworks:

• o 2014 EU framework for state aid for research, development and innovation;
• the World Trade Organization Agreement on Government Procurement (WTO GPA).

According to the 2014 EU Framework for State Aid for Research, Development and Innovation, in order to exclude any state aid from a CFP procedure the subject matter of the contract must be covered by one or more of the research and development categories defined in the framework and the duration of the contract must be limited. In addition, it may include the development of prototypes or a limited quantity of first products or services in the form of a series of tests, but the purchase of products or services in commercial quantities must not be the subject of the same contract. The categories of R&D defined in the State Aid Framework that can be covered by the CFP are:

• “basic research“, i.e. experimental or theoretical work carried out primarily with the aim of acquiring new knowledge about the underlying foundations of phenomena and observable facts, without any direct commercial application or use in mind;
• the “industrial research”, i.e. planned research or critical investigation aimed at acquiring new knowledge and skills for the development of new products, processes or services or for introducing significant improvements to existing products, processes or services. It includes the creation of complex system components and may involve the construction of prototypes in a laboratory environment or in an environment simulating interfaces with existing systems, as well as pilot lines, if necessary for industrial research and, in particular, for the validation of generic technology;
• the “experimental development”, i.e. the acquisition, combination, configuration and use of relevant existing scientific, technological, commercial and other knowledge and skills with the aim of developing new or improved products, processes or services. This may also include, for example, activities aimed at conceptual definition, planning and documentation of new products, processes or services. Experimental development may include the creation of prototypes, demonstration, pilot projects, testing and validation of new or improved products, processes or services in environments representative of real-life operating conditions, where the main objective is to introduce new technical improvements to products, processes or services that are not substantially fixed. This may include the development of a commercially usable prototype or pilot project, which is necessarily the final commercial product and whose production is too costly to be used solely for demonstration and validation purposes. Experimental development does not include routine or periodic changes made to existing products, production lines, processing methods, services and other ongoing operations, even if such changes are likely to represent improvements.

As explained in the Framework for State Aid to R&D&I, the different categories of R&D can also be considered to correspond to levels of technological readiness 1 (fundamental research), 2-4 (industrial research) and 5-8 (experimental development). As the CFP is motivated by a specific purchasing need (with a concrete use in mind), fundamental research is not its objective. However, it is possible that in order to complete the industrial R&D necessary for the CFP, it is also necessary to deepen some aspects of fundamental research. Thus, the CFP usually covers activities such as the exploration and design of solutions, the creation of prototypes, up to the original development of a limited quantity of first products or services in the form of a series of tests. Pursuant to Article XV(1)(e) of the WTO GPA 1994 and Article XIII(1)(f) of the WTO GPA 1994, these activities are usually carried out in the form of exploration and design of solutions.Under Article XV(1)(e) of the 1994 WTO GPA and Article XIII(1)(f) of the 2014 Revised WTO GPA, which defines original development as the frontier where R&D ends, the original development of a new product or service may include some production or supply in order to incorporate the results of testing under real conditions and to demonstrate that the product or service in question can be produced or supplied in quantity and to acceptable quality standards, but does not include production or supply in quantity with a view to establishing commercial viability or recovering research and development costs.

In Horizon 2020 PPI projects, the term first customer or launch customer – also referred to as first user or early adopter – refers to the first 20% or so of customers in the EU domestic market in the buyer’s market segment who are deploying innovative solutions to address the challenge that the PPI award is responding to. PPI will result in the first application/commercialisation of innovative solutions, i.e. the solutions must be new to the buyer’s market segment or to the EU internal market, and relevant to suppliers in other Member States and/or countries associated with Horizon 2020. See Annex E. Specific requirements for innovation procurement (PCP/PPI) supported by Horizon 2020 grants. Available at: http://ec.europa.eu/research/participants/data/ref/h2020/wp/2014_2015/annex
es/h2020-wp1415-annex-e-inproc_en.pdf.

The PPI falls within the scope of the EU public procurement directives and the WTO GPA rules where these are applicable to the buyer and the product/service in question.

Cross-border collaboration means collaboration between two or more buyers from different countries (“group of buyers”), who can co-finance the purchase and/or make the purchase together. Collaboration can take different forms. For example, a joint CFP or IPP will involve the identification of a need shared by all participating contracting authorities, the publication of a joint contract notice, the joint evaluation of tenders, and the award of the contract or all or some of the contracts by a lead buyer in the name and on behalf of the purchasing group.

Cross-border collaboration between contracting authorities has several advantages:

• allows public buyers to share the costs and risks of buying innovation;
• allows public buyers to create the basis for interoperable solutions; and
• creates a critical mass of demand for innovative solutions, which encourages private investment in the development of the innovative solution and generates growth in the defined markets.