Examination of Witnesses (Questions 200-219)
SIR JOHN
CHISHOLM
28 FEBRUARY 2006
Q200 Mr Havard: What you seem to be saying
to me is that within the Defence Industrial Strategy there is
going to be another strategy looking at research and technology.
That work seems to be not very far forward yet. Do you see that
then driving your number or are you going to go in with this bid
of increasing by 25% as part of your strategy negotiations for
research and technology? It seems to me scientists always argue
that the research is better depending on how much money they get.
I am not sure that is always true. I understand there is a need
for research and technology to be properly funded. Which way round
is that going to work? Is it the case that you will go in with
a handful of cards saying we want an increase of 25% when the
reality of the situation is that what should really happen is
that that research and technology sub-strategy within the Defence
Industrial Strategy should drive the real decision about what
is required? Is that the desire that you think is coming from
the Ministry?
Sir John Chisholm: I would certainly
accept that the level of research expenditure should be driven
by the strategy. So the work that you referred to, which is referred
to in the DIS, on the analysis of a research and technology sub-sector,
the output of that, I would argue, would appropriately be an increase
in research expenditure.
Q201 Mr Hancock: I would be interested
if you could explain to the Committee what you think your company's
role is in the future bearing in mind what you have said and the
past history of the organisation and where it is today.
Sir John Chisholm: The core business
of QinetiQ remains the business of technology and innovation in
the UK and in the area of defence and security. So we have three
main businesses: one is defence and security technology for the
UK; secondly, the commercialisation of those technologies into
adjacent commercial markets, principally in the UK, and, thirdly,
the development of our business in the US based upon those same
technologies.
Q202 Mr Hancock: Do you not think you
have some responsibility now to invest in the research and development
and then sell what you have discovered to the MoD? Smart procurement
really demands that the MoD does not pay as much on research and
development. Surely it demands that organisations like you have
to take the risk on the research and development in the hope that
you can then sell a much better product to the Armed Forces for
the use of the personnel involved.
Sir John Chisholm: Research the
world over has the characteristic that that which is near to market
can be invested in by companies and that is the sensible decision
for companies to make. Far from market research, it is much more
difficult to see who will get the particular benefit of that research
and therefore throughout the world, far from market research as
funded by governments, because it is only governments who can
take the rational view that benefit will accrue somewhere—
Q203 Mr Hancock: But this policy states
they are going to be less inclined to do that. That is why it
is not specific about the values put against it. That is why there
is no increase, is it not? This philosophy says the risks should
be carried more by organisations like yours in the future who
say come to us and we will buy if it is good enough and you can
convince us.
Sir John Chisholm: Companies do
invest and indeed we invest when we can see a return in the kind
of timescale that our own investors are interested in. Where you
cannot see a near-term return then that is not a wise investment
for a company to make, though it is an entirely wise investment
for a country because the country will see the return from that
in due course.
Q204 Mr Hancock: One of the arguments
for your organisation ending up where it is today, when we had
these debates in this Committee some years ago, was that you saw
the reality that there would be less and less investment in research
coming from government and your organisation, in order to stay
as a leader in the field, would have to be able to go out and
explore the commercial world more effectively than you had been
able to do in the past. You still now want to appear to be saying
we will not do too much unless the government is going to front
load it. I cannot see how you can have it both ways. You argued
the case very effectively for your own organisation at that time
that you needed this freedom to go off and do other things. It
obviously annoys your colleagues sitting behind because they are
pulling faces at what I am saying to you.
Sir John Chisholm: I think the
figures I gave you do answer that point. What I said a while ago
was that research funding has declined by 50%. I did not go on
to argue that it should be restored by 50% because I said there
had been improvements made. One of the improvements made is the
freedoms you gave to what were the government labs to go out and
modernise themselves and conduct other business. Part of the consequence
of that is that we can do more for less than we used to. So there
is an absolute gain that the nation has got through the strategy
it has adopted.
Q205 Mr Hancock: What do you see as the
different roles between an organisation like yours in the future
in research and development and what the government would be funding
in research specifically targeted towards defence?
Sir John Chisholm: We are a contractor
to the government.
Q206 Mr Hancock: What else do you see
your company doing in the future which is going to mean your ability
to continue to be at the forefront of defence research still being
available if you are not going to get the same level of funding
from government?
Sir John Chisholm: The point I
was making is that we are more efficient than we were before.
One of the reasons why we can do more for less for the government
is that we are engaged in winning business for our labs not only
from the UK Government but also particularly from the United States
Government and also from winning business in the commercial sector
for that same technology. The funding mix for our laboratories
is now more broadly based than it was before and that is a net
gain to the UK defence vote because it is getting the benefit
of the other funding coming in from other directions and the stimulation
of the research work within the labs from that other funding.
Q207 Mr Hancock: How much is your organisation
currently spending in funding research and development in small-
and medium-size enterprises which are in this field? What proportion
of your expenditure on research yourselves are you spending in
the outside world?
Sir John Chisholm: I do not have
the immediate figure at the top of my head. We spend a considerable
amount of the monies that we get from our customers into our supply
chain in order to help us do our work. Typically we will farm
out a considerable amount of the work that we get into SMEs and
into universities in order to capture the best product that is
coming from that and in order to assemble that back to what is
in the best interests of our customers.
Q208 Mr Hancock: Do you see that in the
future as being an increasing trend? On Robert Key's earlier point,
would it be a policy that you would adopt that maybe in the future
you do not want to employ all these people and it would be far
better for you simply to be the prime server and you will subcontract
the research and development elsewhere?
Sir John Chisholm: We certainly
see ourselves as forming an important link in the chain between
our customers, who want a complete service, who want a complete
programme of research or development completed, and a supply base
which includes SMEs and universities, all of whom have got a particular
niche to offer. So we see ourselves as playing a very important
role in that gap between niche suppliers, the universities and
SMEs, and our customers who want a complete research solution
or technology solution provided to themselves. That is why we
are developing university partnerships and SME partnerships which
will enable the efficient capturing of those niche capabilities.
Q209 John Smith: In your memorandum[2]
you identify a specific failure in the DIS and that is that there
is no sustainable policy for developing Centres of Excellence
for military related research. Could you expand on that a bit,
and could you suggest how you would see these Centres of Excellence
developing?
Sir John Chisholm: Let me pick
you up on the word failure for the moment.
Q210 John Smith: Your word!
Sir John Chisholm: I think the
DIS says that it is not designed as a completely finished document,
there are ongoing pieces of work and it says that one of the ongoing
pieces of work is in the science and technology field and therefore
I would have expected what we are now going to talk about to be
covered as part of that ongoing piece of work. What we pointed
to is that in covering that ongoing piece of work we would expect
the logic which has applied in other areas of the DIS to be equally
valid, that within the United Kingdom we need to be thoughtful
about the Centres of Excellence that we want to have for the nation.
Mr Key mentioned previously the civil research programme run by
the Office of Science and Technology where the policy is very
much to focus on Centres of Excellence in the UK. I would have
expected the same logic to apply in relation to defence science
and technology, ie that you would want to encourage the Centres
of Excellence and maintain those Centres of Excellence rather
than undermining them by spreading the available resources too
thinly.
Q211 John Smith: Do you think there is
an inherent problem with trying to get government to invest in
pure research within commercial organisations as opposed to public
bodies, for example our universities? Are you saying you want
to see Centres of Excellence develop in existing public research
bodies, higher education or whatever, or are you saying that government
should be investing more in pure research or blue skies research
within commercial organisations like yourselves?
Sir John Chisholm: Yes. I do not
think there is any inherent excellence which exists in public
bodies or private bodies. Excellence depends upon people and people
are where they are. They can be just as easily employed in the
private sector as they can be employed in the public sector. I
am certainly not saying, as you imply, that Centres of Excellence
only exist in the public sector.
Q212 John Smith: Do you not think there
is bound to be reluctance on the part of government to invest
in such open-ended research with commercial bodies? You said earlier
that not only is less being invested and it is not covered adequately
in the document but that it is smaller scale and more detailed
programmes that are actually being undertaken and some of the
bigger work is going to be ignored. I just wondered whether there
is not an inherent reluctance on the part of governments to undertake
such research with commercial organisations. Is there a case for
creating a defence evaluation agency to undertake such work?
Sir John Chisholm: There is a
government agency called the Defence Science and Technology Laboratory.
If you look at other nations, for instance the United States,
it has no difficulty at all applying government contracts to really
excellent organisations in the private sector and the United States
does quite well from that.
Q213 Chairman: Could I put to you a concern
that I felt about the flotation relating to the United States,
which was that the United States would feel reluctant to share,
with what it might regard as a commercial company in the United
Kingdom, secrets that would otherwise have been quite happily
shared with an arm of government. What would your response be
to that?
Sir John Chisholm: Whether that
is true or not, that was dealt with when QinetiQ was formed out
of the Defence Evaluation Research Agency (DERA) and at that stage
the specific government-to-government research collaboration activity
was placed in DSTL. Since then there has been a very good symmetry
between the US and the UK in that on both sides of that research
collaboration there are government officials, DSTL on the UK side,
the US to government labs on the US side, and the actual research
work on both sides has been predominantly done in industry. That
is true on the US side and it is now true also on the UK side.
Q214 Chairman: How much work is done
with the United States by QinetiQ at the moment?
Sir John Chisholm: In total it
accounts on an ongoing basis for about a third of our business.
Q215 Chairman: How does that contrast
with the work that was done before the flotation?
Sir John Chisholm: Nothing happened
at the flotation. Before the vesting of QinetiQ and before the
introduction of private capital the amount of work done in the
United States by QinetiQ was very small.
Q216 Chairman: Have my fears about the
cut off of American work been realised?
Sir John Chisholm: We do far more
work, for instance, with the American agency, DARPA, now than
we did when we were DERA.
Q217 Chairman: That is what I was trying
to get at.
Sir John Chisholm: In terms of
what QinetiQ does for the United States, it is far more now than
it was when we were DERA.
Q218 Chairman: So the direct answer to
my question about whether my fears have been realised is no, is
it not?
Sir John Chisholm: Correct.
Q219 Mr Hancock: Is that work that you
are doing for the American market done in the United States or
in the UK?
Sir John Chisholm: We do it both
in the UK and in the US.
2 Note: See Ev 77 Back
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