As governments worldwide race to find more money to invest in technology and defence in a more divided world, they risk neglecting an essential and often badly used tool: procurement.
Public procurement is the mechanism through which governments acquire much of what they need. The umbrella term includes everything from buying office supplies and military tanks to emerging technologies such as generative artificial intelligence. Its scale is huge: public procurement represents 12% of the annual GDP of developed economies, according to the OECD. That is more than Europe spent on the pandemic response to Covid-19.
Getting it right matters greatly to productivity and efficiency. Yet procurement is rarely seen as a priority. More often it’s treated as a standardised compliance function, rather than a tool for strategic investment. In many cases, it has even become synonym with absurdity. An accumulation of rules so complex that even those administering them cannot interpret them creates the perverse incentive of doing the least risky thing to avoid individual liability. As a result, governments end up buying obsolete technologies that make them vulnerable, because innovation evolves so rapidly, and forces them to buy more. The cycle repeats, budgets balloon, and public capabilities diminish.
Not coincidentally, in her political guidelines for the next European Commission, then-president elect Ursula von der Leyen highlighted that: “A 1% efficiency gain in public procurement could save €20bn a year. And it is one of the main levers available to develop innovative goods and services and create lead markets in clean and strategic technologies.”
But how? At a time of rapid technological change, procurement has also become more complex. The list of technologies that governments deem critical to monitor and manage has broadened; it now ranges from advanced computing, including quantum technologies, to biotechnologies and, of course, AI. What these technologies have in common is that they develop exponentially: one breakthrough can change the field.
Yet public procurement is a brick-and-mortar process, still more suited to bulk-buying precisely describable goods, accounting for them, and moving onto the next purchase. Innovation is different: you do not know today what is going to be possible tomorrow, even when you are the one inventing the tech. As Jennifer Pahlka (founder of Code for America) puts it, while governments work in one-off projects, innovation is made of ever-changing, always-fleeting products.
Those in charge of procuring these technologies are not technologists. Public procurement is professionalised in only 38% of OECD countries, so even if officials had the incentive to experiment, they would not have the expertise. There are a few exceptions, like Darpa. The famed US agency that gave birth to the Internet and GPS – and has recently been copied by both Germany and the UK – recruits leading experts for temporary government assignments with the promise of making a lasting impact. However, these are exceptions.
As technologies develop exponentially and institutional capacity decays linearly, governments risk a widening gap. Addressing it requires more than reforming purchasing processes. It will require, in most cases, building new and different institutions.
"As technologies develop exponentially and institutional capacity decays linearly, governments risk a widening gap. Addressing it will require building new and different institutions"
In a new report, we propose that procurement systems should be like good software: fluid, flexible, and constantly evolving. Realising this transformation requires more than changing rules.
First, public institutions need the right talent in charge of the right job. Too often now, end users are not in charge of procurement processes, which makes purchases sub-optimal and contracts under-utilised. More institutions should replicate Darpa's tour-of-duty approach, where buyers are experts in the domain at hand, and they manage not only the commissioning but the maintenance and operations for the entire lifecycle of the product.
In addition, procurement should be treated as a strategic function and officers be offered clear career plans, rewards and recognition. A study of US federal contracts shows that even a marginal improvement in skills yields significant reductions in costs, times, and complexity of contracting. Procurement officers should be trained into product managers.
Second, procurement should become an analytics job. Currently, one of the consequences of the buy-and-archive style of procurement is that contracts are under-utilised. Hence, the cost-reduction concerns that motivate many purchasing decisions over the best quality offers are not compensated by the return on investment. And even if they were, there is rarely a precise way of measuring it.
To reap the benefits of AI, in terms of efficiency gains, prediction of needs and simplified negotiations, public institutions need to have a federated data environment. Large companies are already reaping these benefits, and there is no reason why the public sector could not do the same.
An integrated, transparent, and accurate data infrastructure would allow public institutions to sit at the negotiation table with greater strength. Today, vendors tend to have more accurate data than buyers about their stock of purchases. Procurement should be a tool to rebalance this information asymmetry. For example, too often, contracts in AI do not give governments powers to investigate algorithms or the data they are trained on. As a result, they risk taking the blame when things go wrong without the means to find out why.
"Too often, contracts in AI do not give governments powers to investigate algorithms or the data they are trained on. As a result, they risk taking the blame when things go wrong without the means to find out why"
Finally, modern procurement needs to be thought of as a portfolio of institutional options, rather than a standardised template.The speed of technological development renders any static template quickly obsolete. Institutions need to be fitted to contexts, to the system and the technology. Buying cloud computing cannot be the same exercise as buying vaccines.
Depending on the purpose of the acquisition and the maturity of the market, public systems will have to manage different functions. Some will orchestrate procurement-as-infrastructure, like in the case of India’s Digital Public Infrastructure. Others will broker cloud services by pooling expertise, as with Dynamic Purchasing Systems. There will be market-shaping accelerators for technologies that are more science than engineering, but hold great potential, and R&D task forces that serve as arbiters of different values in polarity within the system.
Software that upgrades too slowly is outpaced by competitors, vulnerable to threats, and abandoned by users. The same can happen to institutions. If reformers do not recode their procurement systems urgently, their capacity to adopt and diffuse innovation risks falling into irreversible decay.
Sir Geoff Mulgan is a professor at University College London. He is the co-founder of The Institutional Architecture Lab and the author of When Science Meets Power (Polity, 2024).
Leonardo Quattrucci is a senior fellow at the Centre for Future Generations (c.f.g.) and adjunct professor of innovation management and digital transformation at Sciences Po. He previously served as the head of technical programs at Amazon Web Services’ Center for Quantum Networking and a member of the European Political Strategy Center, the European Commission’s advisory service to the president.