Typically when cities buy goods or services, they spell out in strict detail exactly what it is they want to buy. But that level of specificity stifles innovation, because it restrains the inventiveness of companies who might bid on the work. It also limits the pool of bidders to established companies familiar with the sort of solution the tender asks for. Barcelona’s less proscriptive approach turns the old system on its head. Rather than laying out exactly what it wants to buy (say, bike lockers), Barcelona is laying out six problems it wants to fix (such as reducing bike theft). How Barcelona and Philadelphia Are Turning Procurement Upside Down, citylab, 18 July
Anyone familiar with Social Policy Bonds will see the similarity: specify outcomes, rather than the supposed means of achieving them:
Responses could involve buying things, but they might also suggest new services, regulatory changes or any other means of accomplishing the goal.Excellent - as far as it goes. This procurement system will stimulate diverse, innovative solutions. The difference, and it's a big one, between this mechanism and Social Policy Bonds, lies in how these various possible solutions are decided upon and rewarded.
It appears that after gathering together various diverse possible approaches, a selection is made, presumably of those approaches deemed (I'm not clear by whom) to be the most promising. And the reward?
Anyone around the world with a creative idea, including startup companies or even individuals, has a shot at a contract and all the market legitimacy that comes with that.It's an improvement over the current system, but in comparison with Social Policy Bonds, I think it has weaknesses:
- The selection of the most promising approaches might be open to favouritism, image, or corruption - in short, qualities that have little to do with efficiency. More seriously, it's a one-off selection, made under circumstances that will be very likely to change so as to make the selection sub-optimal.
- Once the selected approaches are made and implemented, there seems to be no further discipline: the team working on the selected approaches has little incentive to be or remain efficient. They've won the contract; there's every incentive to sit back and relax.
Things would be different under a Social Policy Bond regime, whereby bondholders, that is those who are charged with implementing solutions, can continue to reap the rewards of doing so only if, in the eyes of motivated competitors, they are the most cost-effective provider of solutions. There is a continuous incentive on bondholders to be efficient. If they are seen to be inefficient, their bonds will be worth more to operators who think they can be more efficient, who will then buy them.
Also, under a bond regime, taxpayers (or whoever else backs the bonds) lose nothing if the specified goal isn't achieved. And if the goal is achieved, rewards will tend to be distributed to bondholders according to the contribution they make to achieving it, and their efficiency in doing so. All this makes a Social Policy Bond regime more versatile than this new procurement initiative, and one more capable of achieving larger, more remote goals, for which a single, unvarying, combination of operators is unlikely to remain at all times the team best placed to achieve society's goals efficiently.