Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 200-219)


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

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 10 May 2006