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The regained interest in the EU for public procurement as a means to stimulate innovation has prompted a debate regarding to what extent the laws regulating public procurement, in particular the EC Procurement Directives, hinder innovation. The rationale for committing to such a debate is presumably the assumption that problems currently slowing down the adoption of public procurement of innovation practices are exclusively of legal nature. This paper challenges this view and argues instead that many of the problems stem from other institutional levels than formal law. In particular this is true in public-procurement projects involving multi-organisational collaboration. The paper discusses a case in which an English local council, in collaboration with a number of other organisations, tried to procure a wood-chip-fuelled power plant intended to deliver sustainable energy to a renewed part of the town centre. The procurers made the decision, however, to terminate the project without rewarding the contract because of reasons that had very little to do with the EC Directives. It may even be argued that if the problems encountered are exclusively dealt with as legal problems, important aspects of the puzzle are missing. Based on the case findings this paper proposes that organisation-oriented institutional analysis may be particularly important for understanding how institutional factors may affect the success or failure of multi-organisational collaborations in public procurement of innovation.