Dynamic Capabilities in City Governments: Why Contractors Should Pay Attention

The UCL Institute for Innovation and Public Purpose’s October 2025 report, Dynamic Capabilities in City Governments: the methods, data, and findings behind the development of the Public Sector Capabilities Index—by Rainer Kattel, Mariana Mazzucato, Ruth Puttick, Bec Chau, Anna Goulden, Kwame Baafi, Dan Hill, Gabriella Gomez-Mont, Manuel Maldonado Acosta, Mia Tarp, Nai Lee Kalema, and Fernando Fernandez-Monge—argues that what differentiates resilient, opportunity-seizing cities is not a single reform or tool but a portfolio of “dynamic capabilities.” These comprise strategic awareness, adjusting priorities, building coalitions, learning and experimentation, and reconfiguring delivery, which together enable cities to detect change, test responses, mobilize partners, and redirect resources at speed. The report distills two years of global engagement with officials in 45 cities and proposes the world’s first Public Sector Capabilities Index to assess these abilities systematically.

Methodologically, the project goes beyond national indicators, using structured, one-hour interviews with senior city staff, documentary verification, and a bespoke LLM-assisted codebook to score each capability on a five-point scale and compare peer clusters. Early findings are sobering: many municipalities show relatively mature “strategic awareness,” yet struggle to proactively adjust priorities, institutionalize learning beyond pilots, and reconfigure delivery teams and processes. City profiles—from Seattle’s community liaison model and cross-department innovation team to Cape Town’s foresight directorate and crisis committees—demonstrate that the most advanced cities pair quantitative analytics with lived-experience inputs, and embed cross-cutting units that can both sense and act.

For government contractors, this agenda is not academic; it is a roadmap for alignment and value creation. First, pre-award strategy can be sharpened by mapping proposed solutions to the five capabilities. Proposals that explicitly strengthen a client’s “dynamic capability” footprint—e.g., building data pipelines and feedback loops (strategic awareness), designing adaptive governance and discretionary micro-funding mechanisms (adjusting priorities), architecting multi-party delivery compacts (building coalitions), structuring rapid pilots with clear “learning loops” (learning and experimentation), and standing up cross-functional delivery units or managed services (reconfiguring delivery)—will resonate with evaluators seeking durable institutional capacity, not just outputs.

Second, the Index, once scaled, will surface where capability gaps are binding constraints. Contractors can use this intelligence to sequence offers: capacity-building modules and change-management services up front; technology or operations outsourcing only when the client can absorb it. In practical terms, that means proposing phased statements of work that begin with discovery sprints, participatory design, and regulatory sandboxing, before transitioning to scaled implementation tied to measurable capability maturation.

Third, coalition-building is moving from “soft” stakeholder work to a core delivery competency. The report highlights cities that convene universities, utilities, state agencies, and communities to co-produce services and redesign processes. Contractors that can legitimately orchestrate these networks—by establishing MOUs, shared data platforms, and joint governance—will be better placed to deliver on mission-oriented outcomes (climate, equity, digital inclusion) that no single vendor or agency can achieve.

Fourth, the emphasis on learning and experimentation has procurement implications. Cities are looking for vendors who de-risk innovation: small, time-boxed pilots with rigorous evaluation; modular architectures that allow substitution without lock-in; “exit to internalization” plans so the city can sustain gains post-contract. Pricing models that reserve budget for iteration and scale-up, coupled with transparent metrics, will align with the report’s call to institutionalize feedback beyond one-off trials.

Finally, “reconfiguring delivery” ties directly to workforce and operating model transitions. Bids that include talent pathways (e.g., training city staff in design, data, and product management), competency frameworks, and pragmatic org-design support will speak to the realities of municipal capacity. Here, contractors can offer hybrid teams, embedded coaches, and playbooks that make new practices stick across political cycles.

In sum, the report reframes “what cities buy”: not merely services and systems, but the capabilities to sense, decide, collaborate, learn, and reorganize. Contractors who internalize this frame—designing solutions that measurably upgrade those capabilities—will be more competitive, deliver more durable impact, and build trust with clients navigating polycrises and fiscal constraint.

Disclaimer: This summary is for informational purposes only and does not constitute legal, procurement, or professional advice. While care was taken to accurately reflect the cited report, readers should consult the original publication and applicable regulations before making decisions.