Forward Commitment Procurement (FCP) is a practical supply chain management tool that creates the conditions needed to deliver innovative, cost effective products and services.

Designed primarily for the public sector, the Forward Commitment Procurement approach was developed in partnership with the Office of Government Commerce (OGC) to be fully in line with public procurement regulations.

In brief, FCP involves providing the market information of unmet needs and, critically, the incentive of a Forward Commitment: an agreement to purchase a product or service that currently may not exist, at a specified future date, providing it can be delivered to agreed performance levels and costs.

Although designed to address the particular barriers to market faced by environmental innovations, the approach is also being used to support the procurement of innovative solutions in other markets, such as sustainable development, healthcare and construction.

"The public sector, as both custodian of the common good and a major purchaser of environmental goods and services, is a natural lead market for environmental products and services. FCP provides a practical mechanism to enable public sector organisations to fulfill this role, while at the same time delivering the cost effective solutions they need to pressing problems such as climate change and economic and social sustainability". Gaynor Whyles, Director JERA Consulting.

Background
The FCP model was conceived and developed by the UK Government's Environmental Innovation Advisory Group (EIAG) (jointly managed by the then DTI, now Department of Business, Innovcation and Skills, and the Department for Environment Food and Rural Affairs (DEFRA) 2003-2008) to address a key market failure; the lack of market pull for environmental innovations. In 2005 JERA consulting was asked to join the EIAG secretariat to take FCP forward, taking it from a concept into common practice.

“It is the lack of credible articulated demand that is at the root of the relative failure of innovation in the UK environmental goods and services sector not any lack of research, invention or innovative aspirations. EIAG believes the solution lies in Government taking action to mobilise the supply chain to deliver environmental innovations. And this means moving from a focus on R&D and technology push to a focus on intelligent supply chain management”. From Environmental Innovation: Bridging the gap between environmental necessity and economic opportunity. First report of the Environmental innovations Advisory Group, November 2006.

FCP has been adopted by the UK Government in its Sustainable Procurement Action Plan and was recommended as a market pull mechanism by the Commission on Environmental Markets and Economic Performance (CEMEP). It is also highlighted as a valuable demand side mechanism in the Uk Government's Low Carbon Industrial Strategy.

Forward Commitment Procurement Approach
The Forward Commitment Procurement (FCP) concept is simple and addresses a common “catch 22”:

delivering social objectives (such as sustainability) often requires new solutions that are either not available in the market or are available at excessive cost;

because they aren’t available, customers don’t demand them;

because there is no demand, the solutions do not receive the investment required to enter and be competitive in the market,

and consequently, public sector objectives are compromised by lack of affordable and effective products and services to deliver them.

The FCP approach unlocks this stalemate by making the market aware of genuine needs and requirements that offers to buy solutions that meet these needs once they are available at a price commensurate with their benefits. This ‘credible articulated demand’ provides the necessary market pull to galvanize supply chains and unlock investment to deliver the requirement.

FCP is proving to be a practical and versatile tool and the process has continued to evolve as experience is gained and lessons are learnt from FCP projects across a range of market sectors.

JERA is currently working with the Department for Business, Innovation and Skills to scale up and replicate the FCP approach and with the Office of Government Commerce to develop FCP Guidelines for public procurers.