Write the innovation buying strategy

The goal of this section is to help decision-makers understand why the procurement is needed, why the need has arisen, and why an innovation procurement is the best path forward. When buying innovation, the need is generally expressed in terms of a challenge posed by new or evolving business needs, or through an emerging opportunity.

To make the need clear, this section should cover:

• the high-level challenge and the benefits of addressing it
• the justification for using a challenge statement and/or multiple stages rather than traditional procurement, with reference to the Test and Buy Innovation eligibility checklist
• alternative options considered (e.g. in-house resources, collaboration with other agencies).

This section can be completed using information from project briefs or business cases, if they exist, as well as the requirements document. Any of these documents should contain contextual information about the business function and the problem the project aims to solve, as well as the objectives of a market approach.

This section describes the goods or services being procured. For an outcome-focused innovation procurement it should clearly define the problem or challenge, desired outcomes and deliverables at each stage of the procurement (if multi-stage).

The following elements should be included or referenced:

• problem or challenge statement
• desired outcomes (may be at user, customer or organisation level)
• the deliverables expected for each stage of testing (such as Proof of Value, Proof of Concept)
• scope flexibility including future opportunities to expand the application of a solution
• technical and functional constraints.

Information about the challenge, outcomes and technical constraints can be drawn directly from the requirements document either as a summary or in direct reference to that document.

Information about staged deliverables can be drawn from the iteration plan, as a summary or in direct reference to an attached document.

This section covers the market or supplier engagement methods that will be used to uncover information, improve confidence and reduce risk. Each engagement method will usually (but not always) align with a distinct procurement stage.

After choosing whether to plan for scale, a buying team can choose one or more engagement methods to design an innovation buying pathway that meets their innovation and buying objectives. A buying team that has chosen option A (plan for scale) will choose one or more methods as separate procurement stages before a scale implementation stage. Option B (test and learn) will usually involve a single method and will not proceed to implementation at scale.

This section should outline a pathway that includes the stages, key activities or milestones within each, and estimated timelines. The innovation buying strategy template includes an example table with the following columns:

• stage number or name
• stage description
• who is invited to participate
• expected timing of key milestones or activities within stage.

Buying teams can estimate timelines for the procurement activities in each stage based on sample innovation buying pathways, adjusting to reflect their own level of project resourcing, the complexity of approvals required for their project and any other agency variations. To access the library of innovation buying pathways, contact the Innovation Procurement team on innovationProcurement@customerservice.nsw.gov.au

As with any procurement, timelines are best estimates made without knowing how many proposals will need to be evaluated or competing priorities arising. Given the agile and iterative nature of innovation procurement, teams will need to be transparent with stakeholders that timelines are indicative and may change as new information arises and be proactive about communicating changes when they happen.

Pricing is always an estimate in buying strategies and is refined through supplier proposals. For innovation procurement, there is more uncertainty attached to the estimate because the type of end solution is not known. Due to the iterative nature of the procurement process, it is important to highlight that the buying teams' understanding of pricing and payment structures may change as the project evolves and to indicate how this will be managed.

For multi-stage procurements, there may be pricing and budgets attached to each stage. Confidence in the accuracy of pricing estimates will be higher for an initial testing stage and will reduce with subsequent testing stages or full implementation costs. Buying teams should ensure the total funding available for each stage is clear and indicate where further funding requests might be needed based on the findings of testing, such as Proofs of Concept or prototypes.

It is also a good idea to provide justification for estimates based on budget guidance for testing stages and market research.

This section should include:

• stage-based cost estimates
• confidence levels for each estimate
• evidence or justification for each estimate
• details of the available funding and process for further funding requests.

The information in this section should come from the cost insights of market research and from the iteration plan. It may also reference the change management section in the strategy to provide assurance around how cost estimates will be refined and managed at each stage.

This section describes how the buying team will invite suppliers in the market to put forward their innovative solutions. It covers who will be invited, why this cohort has been selected, how suppliers will be communicated with and how the approach complies with policies.

There’s no one-size-fits-all way of approaching the market. The best approach usually depends on the requirements and objectives, value, complexity, and timing of the procurement. It should also take into account the nature of the market itself, such as the level of competition, solution maturity, delivery capability and supplier appetite to participate in opportunities, as described in the Market analysis section below. 

Each agency may have its own requirements for documenting the market approach, so buying teams should always consult their procurement teams.

Information to complete this section will come from the innovation buying pathway which would have been refined to reflect insights from market research and the iteration plan.

This section of a buying strategy introduces the concept of procurement stages and iterations between them as a way of managing risk when there is uncertainty about the end solution. It explains what changes are likely and how they will be managed. It does not appear in standard procurement strategy templates, which focus on known solutions.

This section gives approvers confidence that testing stages will systematically uncover new information and use it to drive decisions that produce project outcomes and minimise risk. Approvers will also need comfort that changes arising from these decisions will be managed responsibly and transparently.

It should include:

• the aspects of the buying strategy that could change through iteration
• how each change will be managed (through approvals, consultation, information)
• how communications and governance will be handled.

This information should come directly from the iteration plan.

This section should describe the current state of the market as it relates to the buying objectives. It lays out the insights from the market research step and the level of confidence in the evidence base for those insights. It is important to highlight the limits of market research, particularly in emerging markets, and outline how early assumptions might change at each stage of the procurement.

Supplier proposals, interactions and deliverables at each stage of testing can reveal new insights, challenge initial assumptions, and uncover previously unknown opportunities. By keeping the procurement strategy open to these changes and managing them carefully, buying teams can explore a broader range of solutions without prematurely narrowing down options or excluding technologies that could add unexpected value.

Market analysis may include insights into any of the following:

• products and services that could solve the problem
• technology trends across domains and categories
• maturity of potential solutions with respect to use cases
• position of a technology solution on the hype cycle
• business and commercial models, with upfront and ongoing costs and benefits
• level of competition vs niche or unique solutions/capabilities
• functional capability and usability
• technology extensibility and interoperability
• supplier capability and capacity to deliver a solution
• ease of implementation
• training or change management needs
• support and service levels
• ability of supplier to meet mandatory NSW Government requirements
• understanding of what opportunities are likely to motivate suppliers
• supplier financial position, commercial viability and other risk considerations.

This section should outline the criteria that will be used to evaluate proposals at a high level. Weightings, scoring methods and alignment with tender questions are addressed in the Define evaluation criteria step and generally not included in the buying strategy. However these evaluation techniques can influence the choice of high-level criteria, so they are worth considering at this documentation stage. Teams may also consider whether they will rely on rankings or want to apply thresholds for some criteria.

For multi-stage procurement, this section should outline how criteria will apply at each stage. Each stage along a buying pathway has a unique testing or engagement outcome, and evaluation against each stage outcome may require either different criteria or different levels of detail. Read more about evaluation criteria.

Buying teams should use this section to communicate that evaluation criteria may evolve as new information becomes available and as the buying team narrows down solutions. This section should also describe how changes will be managed with reference to the change management section.

The need for change can be minimised by following the Test and Buy Innovation (TBI) evaluation criteria guidance for outcome-based evaluation criteria. These help ensure solutions are assessed against the desired outcomes regardless of the stage of procurement. They provide flexibility by referencing requirements, which can evolve from one stage to the next, rather than having the requirements embedded into the criteria themselves.

This section should also distinguish between mandatory requirements (which must be met to qualify) and non-mandatory criteria (scored). It is good practice to justify any mandatory criteria and consider what might happen if they can't be met by any market participants. For example, if a mandatory requirement can't be met by any of the suppliers whose solutions look promising, would the buying team be willing to abandon the project altogether?

Key elements to include are:

• mandatory requirements, which are assessed as compliant/non-compliant and must be met for a proposal to progress
• non-mandatory criteria, which are scored and may cover pricing, functionality, and supplier capability
• an explanation of how criteria are expected to evolve across stages and how any changes will be managed.

This section identifies the stakeholders who may need to contribute to a buying project or who the project may impact. This section is not a substitute for genuine engagement with stakeholders. Before submitting a buying strategy for approval, all listed stakeholders should understand the project objectives and their role in the project. If impacted by the project, they should have had an opportunity to shape relevant aspects and should feel comfortable endorsing the project if asked.

Involving the right stakeholders as core team members or subject-matter experts at the right time saves time and improves outcomes. Test and Buy Innovation (TBI) guidance can help identify the right stakeholders and the ways they might contribute to an innovation buying project as well as how to get everyone working well together through mobilisation.

Subject-matter experts may need to join a core buying team to contribute to collective decision-making and attend regular meetings. Or the process may only need subject-matter experts for a specific step. This section should make the level of commitment clear.

As the understanding of solutions and suppliers improves through each stage, the type of expertise or oversight needed might change. For example, proposals could include unforeseen integration points, security risks or other technical complexities that would justify a new or increased commitment from technical experts.

This section identifies the form of contract that will be used to enter into an agreement with a supplier for the provision of goods and services. Since the end solution is unknown for innovation buying projects, and the associated risks somewhat uncertain, it is not recommended to commit to a specific form of contract in a buying strategy. Nonetheless, contracting should be actively considered and planned for to maximise leverage, and approvers will want to see evidence of this.

This section should:

• identify the most likely form of contract for each procurement stage
• explain any uncertainty associated with the form of contract and how changes will be managed (with reference to the change management section)
• explain how suppliers will be informed about key contract terms to maximise leverage
• identify the future contract manager and project delivery team.

Buying teams can refer to guidance on categories and contracting for innovation procurement to understand how to approach this flexibly and iteratively.

Buying strategies document both the tactics that will yield the best innovation outcomes and compliance with mandatory policies. This section is designed to provide assurance that the procurement strategy has addressed NSW Government policies.

Test and Buy Innovation guidance is focused on the supports buyers and procurement teams need to navigate and leverage existing policies to cut through complexity and improve procurement outcomes. It does not introduce new policies or change the policies that need to be complied with. Buying teams should continue to refer to the NSW Procurement Policy Framework to ensure they have identified all of the policies that apply to their buying project.

One innovation-specific consideration that can shape compliance is the selection of a buying category. As with contracting, innovation projects should avoid committing to a single buying category when the end solution is unknown. Locking in a buying category could limit the solutions proposed and restrict the segments of the market notified about an opportunity. Instead, buying teams should indicate in this section:

• the most likely buying category
• how they will ensure compliance with any policies associated with that category
• how they will manage potential changes to the buying category and any compliance implications, with reference to the change management section.

Consultation with legal teams and agency-specific policy expertise may be required to complete this section.

This section identifies the high level qualitative and quantitative benefits of solving a problem. It should outline the strategic business and delivery benefits anticipated from the procurement and implementation of the solution (with a focus on benefits of the problem being solved, as opposed to any specific solution).

Quantitative benefits may be financial and non-financial benefits, and may include:

• cost savings: ‘hard dollar’ savings that have a definitive bottom line impact to the agency
• reduction in volume
• savings from substitution
• cost avoidance, intangible savings e.g. process or administrative efficiencies
• improved quality, delivery, service, or innovation
• improved contract management or demand management.

Qualitative and secondary benefits may include:

• social procurement (e.g. of environmentally sustainable, gender-equitable, Aboriginal or disability employment organisations)
• economic benefits (e.g. of small businesses or local suppliers)
• public interest
• customer satisfaction
• employee engagement
• environmental outcomes
• health & wellbeing.

This information can be taken from the business case (or equivalent document such as project brief or project mandate).

This section should capture high procurement risks, as well as other key risks that might be anticipated as a result of new information, but not yet able to be assessed with confidence. Some agencies require a full risk assessment to be attached, which can be referenced in this section.

When dealing with more mature markets that might have solved similar problems before, buying teams can form a view of the technical risks that might apply and build controls into the market approach and evaluation process from the outset. For less mature markets or where the end solution is unknown, as is the case for innovation procurement, buying teams should expect to identify new risks at each stage, e.g. as proposals are received and more technical detail is available about potential solutions.

This section should identify the points at which emerging risks can be assessed throughout a multi-stage procurement, and how controls will be introduced. This section can refer to the change management section if necessary.

All NSW Government agencies are responsible for developing risk management frameworks, and they do so under the guidance of the Risk Management Toolkit managed by the NSW Treasury. Buying teams should always refer to their agency's risk management procedures in the first instance. This guidance does not override any agency-based guidance or anything in the NSW Treasury Risk Management Toolkit.

The point at which risk profile changes need to be escalated will vary between agencies and projects. Buying projects should define these escalation points up front.

This section is used to capture signatures from the procurement and financial delegates, and any other approvers, to approve the procurement strategy. Some agencies capture approvals on a covering briefing note instead, in which case this section would not be used.