Turning City Purchasing Upside Down To Spark Innovation

“City governments need to get out of procuring by specifying the solution they want,” says Citymart co-founder Sascha Haselmayer. “What they should do is specify the problem they want to solve … and then allow the market to inspire them to find the best solutions.” (Citymart/ Gunnar Knechtel Photography)

New ideas are rare in the staid world of government contracting. But in Barcelona, city contracts worth as little as €60,000 have entrepreneurs buzzing — and cities around the world watching to see who wins them.

That’s because the deals up for bid are unlike anything Barcelona, or almost any other city, has done before. Barcelona is searching for business partners to help thwart bicycle thieves, detect potholes and solve several other woes of city life. Along the way, the city is flipping many of the usual rules of public-sector procurement upside down.

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). Responses could involve buying things, but they might also suggest new services, regulatory changes or any other means of accomplishing the goal. 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. Winning bidders also get free space to set up their business.

The engineer of this process is Sascha Haselmayer, co-founder of a consultancy called Citymart that recently sponsored a major convocation on government innovation generation in London. Citymart has run dozens of similar “challenge” programs around the globe, in which cities try to spark entrepreneurial energy around solving city problems. But the Barcelona Open Challenge is the most directly aimed at creating an alternative pathway to normal procurement processes. The awards here are not small cash prizes or a pat on the back, but six actual city contracts.

“City governments need to get out of procuring by specifying the solution they want,” Haselmayer says. “They can’t possibly have enough knowledge to do that well. What they should do is specify the problem they want to solve and show metrics on what success looks like. And then allow the market to inspire them to find the best solutions.”

The model spreads

Barcelona isn’t the only city starting to think this way. There’s a growing sense in both Europe and the United States that hackathons, apps challenges and other recent efforts to spark innovation in cities aren’t enough. If cities truly want to inject their bureaucracies with new ideas for solving problems, they’ll have to re-think the nuts and bolts of how they buy stuff.

This is especially true when it comes to technology and software. At Code for America, an organization with roots in the “civic hacking” movement, city procurement reform has become a major agenda item. “The problem with apps challenges is that something you build in a day may be great,” says Lane Becker, director of products and startups. “But how do you get it embedded in the civic fabric? How do you make it useful to the point where it’s used by people day in and day out so that it changes the way the city itself works?”

Philadelphia is a stand-out city in the search for an answer. Last year, Philadelphia won $1 million through the Bloomberg Philanthropies Mayors Challenge to create a pathway for new players to bid on city work. The result is a new kind of “business accelerator” program called FastFWD.

Philadelphia chose to focus first on public safety. The city’s partners at the Wharton Social Impact Initiative analyzed that market sector for different areas that seemed ripe for innovation, such as prisoner reentry, neighborhood surveillance and substance-abuse treatment. The city then issued an open call to entrepreneurs to come forward with solutions. Some 82 applications came pouring in from all over the world.

Ten applicants were selected to go through a 12-week program aimed at refining those ideas. Story Bellows, who runs FastFWD for Philadelphia, says she was looking not just for the “best” ideas but for a diverse group of entrepreneurs whose varied backgrounds in technology or marketing or finance would complement each other. As the group went through a weekly curriculum run by Philadelphia-based GoodCompany Ventures, they also provided frank feedback on each others’ business models.

“We wanted people who would be coachable,” Bellows says. “They were companies and people within companies who had more than a sketch on a napkin. They’d quit their day jobs and committed to making the company move forward. But they weren’t at a point where they had more than $1 million in revenue and not at a point where they couldn’t pivot or change their idea.”

Each company received a $10,000 stipend for the 12-week program. But the most crucial thing the companies got from the program is access to city officials. This helped the companies tailor their ideas around specific city needs. For example, a company called Jail Education Solutions, which is working on a tablet-based education and skills training system for prisoners, got a crucial meeting with Philadelphia Prisons Commissioner Luis Giorla.

“It’s him and his key staff, including the head of IT, all the most important decision makers when it came to integrating a technology like ours,” says Brian Hill, the company’s co-founder. “They got to give feedback, throw questions our way, allow us to answer them and start feeling comfortable with the technology. And also gave us pointers on things to work on that would help them feel better. That meeting was the most important thing for us.”

The first round of FastFWD wrapped up in May. Seven of the ten companies competed for a share of $100,000 to pilot their refined ideas. Three were chosen and will receive actual city contracts worth $30,000 to $35,000. Hill’s company was one of them.

Another was Textizen, a startup that had begun with a very different kind of mission, aimed at using text messaging to engage citizens around planning issues.

“When I first saw the calls for application, I thought, ‘we don’t work in public safety,’” says Michelle Lee, Textizen’s co-founder and C. E. O. But a friend convinced her that a texting platform could be valuable for case managers working to connect people coming out of prison to job and training opportunities. “We really fleshed it out during the accelerator,” Lee says. “We broke the idea down and put it back together.”

Astounding global interest

A key part of the programs in Philadelphia, Barcelona and a similar “entrepreneur-in-residence” program in San Francisco is to grow the global pool of companies interested in doing business with local governments. Procurement is an insider’s game. There’s so much red tape to cut through — and local connections needed — that most small companies and startups figure it’s not worth their time.

Barcelona went out of its way to appeal to startups and individual entrepreneurs who aren’t typically connected with procurement. To start, Citymart identified and reached out to some 1,200 organizations around the world that might have ideas about how to solve Barcelona’s six problems. The city also used advertising and social media promotion to convey the idea that the Open Challenge truly is open to anybody.

That’s Brian Hill’s impression of how things shook out in Philadelphia, as well. Jail Education Solutions is based in Chicago and had no prior Philadelphia connections. That didn’t cost any points, which is pretty unusual.

“Think about RFPs and who gets them — it’s the local guys, because they know the right people, and that’s just how it works,” Hill says. “There’s all these checks and balances in place that in theory are supposed to give everyone equal standing. But in reality there are significant barriers to entry that knock out the little guys and startups and innovators. And instead the contracts go to the people with the longest-standing reputation.”

Looking ahead

Philadelphia is now moving on to its second $100,000 round of FastFWD — applications for ideas promoting “community stability” are due July 25. Barcelona will announce finalists in each of its six challenges at the end of July and decide who will get contracts in September or October. A total of €1 million is on the table there.

A big question going forward is whether these experiments will ever add up to a wholesale change in how cities do business. Or will they simply remain as hopeful but small trials on the periphery of an enormous volume of city spending?

Hill says he doesn’t expect major shifts in the underlying landscape. “You’re not going to use this model to procure your major internet service contract,” he says. “Large companies are the ones best suited to do that. Where you want to use this lever is when you have stagnant industries and you say, how can we do things differently in this space? That’s where you don’t want the old guard to think of new things. They’re in the worst position to do that. That’s where you want new, young, clever ideas.”

Code for America’s Lane Becker is more hopeful. He thinks experiments like those in Barcelona and Philadelphia are exactly how more fundamental changes can take root. “I come from a startup environment, where the whole approach to change is small and iterative steps that build on top of each other, not coming in from the top and doing something hierarchical,” Becker says. “One of the core things we believe here is that’s how you effect change inside government, so when you see small teams working on this, I don’t see that as a negative. I see it as a positive. It gives them room to experiment.”

Bellows says in order for the new procurement model to be successful, it will have to move out from the mayor’s office, where she works, and be more widely supported across all the departments and sections of government. “We’re starting the conversations around where does it make sense for an initiative like this to live on beyond the Bloomberg grant and beyond this administration,” Bellows says. “Keeping it in the mayor’s office does not make sense for long term sustainability.”

Bellows says the idea that has the greatest potential to fundamentally impact operations is the same concept that Barcelona is pushing: To make government less proscriptive about what it buys and more open to the ideas nobody knew were out there. “If we think about procurement as less about buying solutions and more about solving problems, I think we can open ourselves up to a whole variety of innovations,” Bellows says. “And we have no idea what those might be.”