Buying With Intent: Public Procurement for Innovation by Provincial and Municipal Governments

Innovation is a major driver of economic progress and a seemingly perpetual struggle for Canada. Supply-side innovation policies like research funding, tax credits and R&D subsidies have not delivered the expected results. Canadian governments should consider increasing their use of demand-side policies such as public procurement to support innovation. Public procurement is the purchase of goods, services and works by government institutions and state-owned enterprises. For government, the focus in public procurement is often on cost minimization and risk avoidance. This approach comes with significant downsides. For example, insistence on low prices can squeeze small and medium-sized enterprises (SMEs) out of the bidding process. SMEs vastly outnumber larger firms in Canada and, given opportunities to innovate, they could provide a significant boost to employment and economic output. Public procurement of innovation could stimulate local demand, further policy goals, turn society’s needs into market demands, help manufacturers achieve critical mass for production and lower production costs and ultimately help innovative firms grow and spread their novel solutions to more users.