CoMotion LA 2022: Reframing, Modernizing & Bringing Procurement Processes Into the 21st Century

Michael Hurwtiz: We have all had moments where we've been banging our heads on the table about the frustration of how do you, either as a small company or a creative company working with an institution or as an institution, be creative [within the procurement process].

I'm going to start.

Rikesh and I used to work together [at Transport for London]. There was an amazing technology that I'd come across about parking. I don't know if people know much about London, but there are 34 highway authorities in London because there’s the City of London, Transport for London, and 32 London boroughs. I loved the idea and I told the (proposing team) to go to Paris because it was just never going to work because (Transport London) governance was broken. Similarly, when I was in a startup (log ago), I remember deciding not to do something in London because the regulatory burden was too high.

That's my personal “bit of therapy” that we're going to share doday.

This is a safe space. Stacey, do you want to go next?

Stacey Matlen: First, just real quick background. I’m Stacey Matlen. I have a background in public health, startup, and public sector, and I currently run a public private partnership with the MTA, which is one of America's largest transit agencies. We help test new technologies and solve pressing challenges.

The way I got into this role was because, prior to this, I was working in the public sector, where I was working to understand how new transportation technologies can help residents get to jobs, health care, and education. We did a lot of great work; interviewed over 200 residents about where they lived and co-created a solution that we thought would be great. We then went to test that solution and found that it took us two years to procure a solution to test in a pilot. Then, of course, COVID-19 came down and disrupted those plans. The solution that was designed with airport employees and employers suddenly didn't have a place in the world.

I was really frustrated with this lack of tools to respond to resident needs. It wasn't just where I was working. Governments all around the world have a challenge with this. I was looking for this more third-party nonprofit process that can help really test new technologies before you go out for a lengthy procurement and came across the Transit Tech Lab.

That's the program I help run now in New York, which works with all the New York City transit agencies to help identify new technologies that they can test in an iterative way at low risk.

Rikesh Shah: There have been lots of failures and lots of learnings for all of us. There are two things that stand out.

            The first one is, we were running an innovation challenge about five years back. We kept the competition open for 28 days. From a procurement point of view, the days that you keep the competition open is really important. If we would have kept it open for 30 days, we could have actually scaled the procurement, We did it for 28 days, the reason being our sponsor was really interested in the PR and wanted to launch a press release. As a result, it was really annoying that we couldn't scale that project.

The second one is that we're an incredibly engineering-centric organization. That means that some of our engineers, who are incredibly talented, want to be inventors. What happens then is that they're looking for problems based on the invention that they've created. Then, they work with the market and the market will come back to me and say we're anti-innovative. Another learning for me is how do we better coordinate and work with our engineers to define the problems and then, hopefully, help them scale and be those entrepreneurs.

Michael Hurwtiz: The latter point is worth emphasizing -  that you mustn't have tech in search of a problem. You've got to work out what your problem is and find the tech to solve it.

Another thing we've spoken about in the past is tech is theater; innovation is theater. Politicians love the ribbon cutting, but the most important things are solutions.

Stacey: Tell us about your experience in New York. People here want to have a practical set of suggestions about how we can change this.

Stacey Matlen: Sure. The Transit Tech Lab has a four-step model that starts with a question. We work with all the regional transit agencies in New York. We ask both executives and also staff level and try to talk to as many people as possible throughout the organization to understand what are their top challenges that they face on a day-to-day basis? Also, how do they think new technology can solve them?

We focus on people's problems on a daily basis. From that, we can identify one or two top challenges that across the region everyone is struggling with. Then, we go out to market and request innovations from all around the world to be applied and to demonstrate how they can solve New York's challenges.

The second stage is having that public application. The third stage is agencies selecting companies to move forward in a small test. They need a quick proof of concept to understand if the technology works in the context of their system. Then, the final and fourth stage is a really deep test, we call it a year-long pilot, where the agency can understand if this technology works. Is it providing true value? Is it scalable? To date, we've run 8 challenges. We've had over 600 applications, 36 short proof of concepts, 23 pilots, and 6 procurements.

An example of a company that went successfully through the program is a company called Pretect, which provides predictive bus maintenance solutions. They applied to the first bus challenge asking how can technology speed up buses through Manhattan. The solution that MTA folks thought would move forward was cameras or identifying cars that were in bus-only lanes to improve bus speeds.

They were surprised to find that a predictive bus maintenance system could actually improve bus reliability and improved bus speeds because the solution provides an understanding of no don't put that bus out there 48 hours before the check engine light turns on. It not only improves bus reliability, but also reduces labor time and costs. Now, they have scaled with a commercial procurement with MTA to over 1500 buses.

Michael Hurwitz: That's really cool. I think the key thing was that you (NY MTA) knew what you wanted to achieve in terms of the reliability of the service. However that happens is less important, as long as you've got the clarity.

I wanted to probe on that because what got that procurement done? Did you have a pot of money ready to spend? Thinking about people in the audience who may be sitting in that situation, what actually allowed  that technology to move from concept into service?

Stacey Matlen: It successfully demonstrated that it reduced staff time and saved the agency money. Also, it was a priority of executive leadership to say it improves their operations. Because that technology provided real value, there wasn't any need for extra room in the budget. There was just a recognition by management that they needed to make that happen, and they did.

Michael Hurwitz: Rikesh, give us an example from London to inspire us.

Rikesh Shah: Building on Stacey’s point, there is a piece on reframing the debate on innovation because ultimately, we want to do things better, cheaper, and quicker. Sometimes as an organization, we become very solution-centric. Either we try and build things ourselves, or we go to the market and we have them prescribe exactly what we want.

One example is open data. We've released all of our data to the market. We started this in 2014. You can imagine, as an organization, just how much of a challenge we had. The press team was worried about people stitching our data together, which led to negative stories. The commercial team was saying we had given all this value away, with no payback to TfL, etc.

We released the data, and we spend about £1 million a year on releasing the data. The payback is £130 million per annum. By releasing that data, we're seeing some fantastic innovators.

One innovator is made up of two people. It's one business development person and this tech guy. They've got 25 percent of the bus market share in London. They're competing with Apple Maps, Google Maps, Citymapper, and many others. The point there is, if you play the right ingredients, the innovators will create fantastic products. Then, ultimately, customers can engage on our product, ie the bus, through their channel of choice.

The second one is FreightLab. What FreightLab did is we used our convening power. It was about reducing the adverse impact of freight in London. We convened some of the major carriers, so our postal service, DPD, UPS, and a few others. We also convened some innovators. We also provided land to do the testing.

In the past, the story is that the regulator or the transit agency and the freight industry go into the defensive mode, which is changing regulation. What we said here is let's innovate together. What we ended up doing was we had six very different products that came through. We tested them in London and provided some seed funding. Then, we always have to think about ready-to-market reaching scale. The reach of scale, in this case, is we will change the standards for freight operators in London if this product is successful. We always start with how you scale it and then work back and then go forward.

Michael Hurwitz: Rikesh, regarding London, there's one other matter I'm going raise because there's alternatives to changing the law … to change the procurement system? My experience was, if you get the right lawyer and you get the right person from procurement, the challenge is not how you change the law; it's how you take the existing law and push it as far as possible.

For example, there's a big contract in London which maintains signage, CCTV etc. It's a £400 million contract of £40 million pounds a year over 10 years. It is written with proven, tried, and tested technology in mind. It takes about two years to procure. That means, from day one, the technology is a minimum of four years old. By the time you get halfway through the 10 year contract, it can be obsolete.

The key thing that is done now is that you write, within the contracts, innovation schedules. If the supplier can bring technologies through the life of that contract that makes the same outcome better or cheaper, then you are allowed to negotiate about how you share that benefit. Do you take the IP to market together? Do you do revenue share together?

The key thing was that it was within the law and existing programs. It's within the existing procurement structures, but you grant an incentive and a mechanism to bring new things in the life of the contract. It was a handful of paragraphs, but it's probably far more powerful than doing the demonstration in some instances.

As are time is about to expire, I do want to give it some time for Q&A, so I'm going to move on.   This afternoon’s panel was about cities and investors and about startups. I think we've spoken a bit so far about what cities could do. Handing over to you again, Rikesh, what would you advise investors? If you if you have an investor looking at somebody trying to do something in a city, what would you ask them? What would you tell them?

Rikesh Shah: Firstly, really understand the context of the city. Sometimes we get investors just throwing money at it. Then, they have a conversation with us afterwards and say, “I wish I would have spoken to you a year ago”. It comes back to what is the problem that you're trying to solve for the city, not just in the short term, but also in the medium and long term? Then, think about the products that you're investing in. Is there a payback for you? I think that's point one.

The second point is, and we've touched on this today, how will their product you’re invested in make money? What's the route to scale? What are the procurement avenues? The procurement avenue doesn't always have to be the city doing the procurement. It could be, as Michael’s described there, a tier one partner that you have that wants to innovate. Suddenly, your route to market could be through a tier one supplier.

Be creative. Have those conversations early. As a result, you're more likely to get paid back on your return, rather than just investing and hoping that the city buys it.

Michael Hurwitz: Stacey, another angle. We’ve heard what we should say to investors. What would you say to a startup?

Stacey Matlen: As a former entrepreneur, when I was working in the public sector previously, what I would advise startups don't work with the government. I would tweak that advice. I would say to not have government be your first customer. Demonstrate your product market with another industry and demonstrate you have technology that works. Then, you can scale to government and grow.

I would say there's three things to look out for if you're a smaller startup and you're looking to branch into government.

One would be you could try to work with big consulting firms like the AECOM’s of the world, who know how to win government procurements. They have people on staff who are experts and have spent a lot of time winning procurements, and they have master service agreements. You could be a subcontractor under there. That could be a way to get your foot in the door with government.

There are also programs like the Transit Tech Lab all around the country. There's Urban Movement Labs or LACI in LA. There are other programs that other cities have that have really helped provide access to decisionmakers at transit agencies and also provide a process to testing technologies. Those are great organizations to test your technology and not spend five years in a sales cycle when you have limited resources as a startup.

Then, the third way is there are new programs that agencies have. For example, LA Metro has a special procurement for small businesses, looking out for those specially-tailored programs that are good for you. Those are things I would look out for in cities who are open to more smaller companies, because oftentimes, what I have found is procurements can be set up for larger organizations and you really have to have the expertise and years of dedicated sales relationships to win.

Those are just three techniques to think about, if you're a startup, of how to get your foot in the door with government.

Michael Hurwitz: One thing that I used to say is that in London, or any other big city like London, the investor wants that city’s brand. The tech startup wants to say, if I can do it here, that's going to look great on my pitch deck.

There's another way of doing it, actually. There's a whole load of other cities at a smaller scale where the risk tolerance is going to be that much higher. It's never going to be like VC, but you do get a different level of risk tolerance. In London, we have the Evening Standard, which is like the local newspaper. We live in fear of something getting into the Evening Standard about failure.

Smaller cities have, I think, a bit more discretion to try stuff. You might want the brand, but if you have a proof of concept shown in one use case and then you get into a smaller city, then that means the biggest cities will hand you cash.

Rikesh Shah: Just one or two other things to add. I think the first one is you've got to be patient if you want to work with cities. We just work at different paces even though we're doing our best to speed things up.

The second one is sometimes we get some fantastic innovators who have fantastic products, but it doesn't answer the question. Then, they get frustrated and they feel like they're getting bounced around. You've got to answer the brief no matter how fantastic your product is. It's got to solve the problem.

Audience Question: I work with the city of San Jose, the 10th largest city in the nation, but on the regular, we have tech hucksters and charlatans coming to us trying to sell us solutions that are not solving our problems. I'm curious, from the city side, what do you look for in a good private partner where you can understand that you have aligned values to a certain degree and you're working for common good?

Rikesh Shah: I think about transport for London's context. We put out about 75 problem statements per year. Some are really big. They could be about the future of buses. Some are very specific.

What we look for in a partner is, firstly, we've tried to streamline the procurement process, particularly for startups. You can’t have the same process that you're having for £20 million contracts as smaller ones.

What we ask for is we put out a two or three-page document. Within that, we ask for the basic things like, will you be around in six months time? How do you approach safety? Then specifically, we ask most of the evaluation standards. Tell us about your product? Tell us how it solves this particular problem that we have? How will you scale if you are successful?

If they answer those questions really well, then they'll go into the test stage. That's when that test plays. You set some very clear KPIs that say what are the success criteria for this to work and scale within London. If they pass that test, we then think about scaling further. That's the stage where we iterate. If we learn and if it doesn't work, we close it really quickly.

Michael Hurwitz: I think one of the key things, I would say, is if a startup falls into the “couldn't you just make everything different, then it's going to work?” category, then it’s gone. The promoter falls into the shark-infested pond.

What public agency needs to know is “do they get it”? Do they understand what they're getting themselves in for? If it's got that “all you need to do is change the taxation policy, and then this is going to be great,” then it’s a no. They have to demonstrate that they understand the problem and the context it’s coming in.

I agree with Rikesh. Being called the innovation team is a nightmare. Reframing it as cheaper, better, quicker, efficiency is what innovation is really about. If you don't get it, just forget it.

Stacey Matlen: I think that's great of having some clear criteria that you use to evaluate. Similarly, we have a standard framework that we publicly share in advance of you have to demonstrate how your product is a fit, the value, and team. Those are the key criteria that we use across all applications. You really do have to demonstrate how you're meeting the overarching question that we're asking, which is how are you reducing carbon emissions or whatever the challenge question is that we pose. You need to demonstrate that and if you can't, then that's enough.