Examination of Witnesses (Questions 20-39)
DEPARTMENT OF
TRADE AND
INDUSTRY & SCIENCE
AND TECHNOLOGY
FACILITIES COUNCIL
WEDNESDAY 9 MAY
2007
Q20 Mr Dunne: As far as the operating
costs are concerned?
Professor Sir Keith O'Nions: We
are content that the settlement that we have had from the Treasury,
which is 2.5%, 2.7% real, so 5.4% cash year on year, will provide
enough flexibility to fund the commitments that we have and we
envisage at a level that many of our international competitors
would enthuse over.
Q21 Mr Dunne: If I may turn to the
specifics for a moment of the build costs, a lot of the focus
of this Report has been on delivering on budget and on time. The
projects, by their very nature, are very individual and very specific
and the Chairman touched on one issue highlighted by the NAO in
finding a procurement officer, which was clearly very challenging.
A couple of reports here indicate that the performance against
time and budget has varied, perhaps not surprisingly but quite
significantly. What can you do at the department to try to learn
from the experience of those projects which have completed to
provide some consistency in approach?
Sir Brian Bender: One of the benefits
of setting up this new Research Council would be to bring together
more of the expertise on the larger projects. We will be working
as a Department with that Research Council and with some work
the NAO themselves are doing on a handbook to provide greater
guidance on some of these difficult issues to try to get better
at these things over the future and make sure, for example, that
best practice is spread across the piece, that best practice on
procurement is used each time, and so on.
Professor Sir Keith O'Nions: Formally
we expect Professor Mason's Research Council to take a leadership
role in procurement issues and project management issues, given
the very large number of projects they are responsible for. We
have already established a working group with Research Councils
UK and we are minded to embed within STFC (Public Accounts
Facilities Council) a project management office that will draw
together best practice and actually be accountable for ensuring
that that is captured and spread across the research councils
working with the procurement office that already exists.
Professor Mason: If you look at
the history of the projects that we are currently engaged in,
none of these cost increases has been "uncontrolled".
They have been for specific reasons which are well understood,
where key decisions were made, for example about the scope of
the project and what it should deliver. Diamond is a case in point
and the ISIS Second Target Station are cases in point where we
essentially expanded the capabilities of the machine on the basis
of consultations early in the lifetime of the project. One of
the difficult areas that we need to come to grips with in these
large projects is the fact that costings cost money to produce
reliably and there is inevitably some sort of toing and froing
at the beginning of the project where you are both defining the
cost and the scope at the same time. It is that process that we
need to bring under control, but it is not a trivial thing to
do. We intend to put the best expertise that we have to this and
I am sure we will make a better fist of it in the future.
Q22 Mr Dunne: The NAO, on page 19
table 7, identified some cost overruns being as a result of the
addition of contingency, which suggests that unless contingency
is being used to cover expansion of scope, which I would rather
doubt, not enough proper thought was put into the original budgeting
exercise. Contingency is a problem we have noticed in other departments
through this Committee: it tends to get cut and added in after
the project has started when some people realise they are going
to run out of money.
Sir Brian Bender: I would agree
that it is wrong, for example, for Diamond not to have had a contingency
when it was first set up. That was an error which was then corrected.
If you are saying projects should have a sensible and prudent
amount of contingency in them, then I very much agree with that
and it will be one of the lessons we will make sure is learned.
Professor Mason: That is one of
the skills that we can bring to bear, which is to assess risk
and assign a contingency accordingly to various segments of a
project.
Q23 Mr Dunne: My final question goes
back to operating costs. Page 21 table 8 shows the increases and
paragraph 2.16 refers to five of the six most mature projects
having to revise their approved business case estimates of annual
operating costs. We were told this morning that there seems to
be a much more rigorous review of build cost, capital cost and
a much laxer approach to analysing what the operating costs of
these facilities are going to be. Do you think that is a fair
comment?
Professor Mason: Assessing operating
costs is not something that is straightforward and it is not something
you can really do before you know the scope of the project. The
way it is usually done is by a parametric estimation, in other
words you find a facility that has an analogous function and you
compare it against that facility. With the experience that we
now have with these large facilities, we will be in a much better
position in the future to have more accurate analogues and therefore
to be able to estimate the running costs more precisely at an
earlier stage in the project.
Professor Sir Keith O'Nions: There
is not much wriggle room for us here. We can offer an explanation
of each of these, but one has to say this is an under-performance
that concerns us and there is experience, certainly in Government,
and there are very clear things in the Treasury Green Book that
we really must put into place. In defence, cost-of-ownership calculations
are done with a higher level of sophistication than we have used.
We are determined to adopt best practice, abide by the Green Book
and do exactly the things that Keith is talking about.
Q24 Mr Dunne: If an overrun occurs
in your estimation, does it fall back to your budget or does it
come out of other research councils for which you are not responsible?
Professor Sir Keith O'Nions: The
way we have tended to handle that sort of risk in capital costs
and operating costs is that a certain allocation is made centrally
from the Office of Science Innovation for a three-year period;
there is a capital allocation on the roadmap. We have then, in
effect, transferred any residual risk to the Research Council,
which we believe should engender best practice in putting the
risk for overrun with the research council itself. To first order,
that is the right way to do it.
Q25 Mr Dunne: That is on the capital
cost but what about the operating cost?
Sir Brian Bender: And on operating
cost.
Professor Sir Keith O'Nions: And
on operating cost.
Q26 Mr Touhig: The Comptroller and
Auditor General's Report expresses concern that the economic benefits
of research facilities do not get the same level of consideration
as the scientific benefits. Would you accept that?
Sir Brian Bender: Yes, I accept
there is more for us to do on that.
Q27 Mr Touhig: Why is that so?
Sir Brian Bender: The answer is
not terribly satisfactory but it is that the primary purpose of
these projects is for science and the analysis of what economic
benefit flows from that science is less mature. We have actually
just put out some economic analysis work for tender to give us
a better model of looking at some of the whole-life benefits that
flow from some of these projects. It is a less mature area to
work out what the benefit of R&D spend is generally and in
particular what the spin-off benefit of these is. We are working
on it and we have not done enough of it yet.
Q28 Mr Touhig: Do you think it is
right to emphasise the scientific benefits and look at those first
before any economic benefits?
Sir Brian Bender: The purpose
of building a project like the Diamond facility that the Chairman
and Mr Dunne saw this morning and these other ones is science.
The overall cost-benefit analysis of proceeding needs to take
account of the economic benefit as well as the scientific benefit,
but if it were only economic benefit and there were no real science
benefit, then my own view is that we should not be proceeding;
it would actually come back probably to one of the Chairman's
earlier questions about why the taxpayer should be paying if there
is an economic benefit, whereas if it is to help the scientific
infrastructure of the country that the private sector will not
pay for, then there is every reason why the taxpayer should pay
for that.
Q29 Mr Touhig: Looking at paragraphs
1.14 and 1.17 on pages 13 to 14, it says that the analysis of
potential economic impact is less detailed. Why should that be?
Sir Brian Bender: The answer to
that is what I have tried to describe already, that we have not
done enough sophisticated work on some of the spill-over benefits.
Professor Sir Keith O'Nions: What
we know quite a lot about is the social rate of return from overall
spending of government R&D. There has been a lot of economics
work on that. We have been doing considerable work over the last
few years in the DTI with our own economists on the economic impact
of the overall science budget, the £3.4 billion we spend
in science and we are making good headway on that vis-a"-vis
other nations that are trying to do it. What we have not done
is the specific and that is to try to look at the economic impact
of the investment in these large facilities independent of other
parts of the spend. We entirely can see that it is time to do
that and we have just put out to tender for an attempt to get
an analysis and some econometrics of that particular thing, so
it is appropriate to do it. Without question we have concentrated
in the past on the high quality of the science, knowing something
about the social rate of return of R&D investment overall.
Q30 Mr Touhig: But that is not sufficient.
You have to do better than that.
Professor Sir Keith O'Nions: We
accept that.
Sir Brian Bender: We have to do
better. I would say in slight mitigation of us, no-one in the
world does this very well. We are seen to be pioneers in this
area but we have to do better, as you are saying.
Professor Mason: Just to illustrate
the complexity of the problem, in very general terms you can separate
the economic benefit of a facility like this into at least three
components: there is the economic benefit of the research done
on the machine; there is the economic benefit of hosting it into
the local economy; and probably the largest impact is the impact
of the trained manpower that is produced by that facility and
the pool of knowledge. Tracking those latter impacts in particular
is actually a very complex thing to do which we are trying to
get a handle on but it is a difficult process.
Q31 Mr Touhig: The Chairman pointed
out paragraph 1.17 and I will read it again: "Neither the
large facilities road map as a whole, nor the prioritisation of
projects within it, is the subject of direct consultation of bodies
representing industrial interest in government science policy".
The right hand is not talking to the left.
Professor Mason: That is certainly
a true statement and there are reasons for it, primary amongst
them is the lead time on these facilities. Diamond, for example,
was built rather quickly in four years but many of these take
much longer to build and then to operate. So the lead time between
actually doing the research and actually getting the industrial
benefit is too long for industrial companies to take an interest
at that level. Now that we have the facilities up and running
we have, for example in Diamond, a thing called DISCo which is
an advisory body which is specifically composed of industrialists
who go out and look at the capabilities and how it might map into
today's industrial needs. We are doing that on a timescale that
industry actually need but they are not interested in engaging
in 10 to 20 year timeframes as to what they might need in the
future.
Sir Brian Bender: I also would
not want to leave the impression that there have not been very
good industrial uses of this sort of machine in the past. The
predecessor of Diamond, the synchrotron at Daresbury, led to some
very good work by the pharmaceutical and drug industry which they
paid for to help protect their patents or develop new drugs or
whatever. We are not dealing with an untilled field here; it is
a question of how we can maximise it.
Q32 Mr Touhig: That is the thrust
of what I am trying to get at. The assessment of scientific benefits
used by research councils focuses on the likely scientific benefit.
Is that too narrow? You really do have to expand it somewhat.
Professor Sir Keith O'Nions: For
the world that we are in now, yes it is. We will formalise the
process not only of discussions with business at an early stage
but also, and I will not go over the economic impact analysis
we try to do, you are absolutely right and this in effect maps
off our agreement with the PSA target with the Treasury to get
more emphasis and better understanding of the economic impact
of the science budgets overall. We must be slightly cautious.
There are few facilities here. Building a Halley IV base floating
on ice in Antarctica is unlikely to attract a great deal of business
interest beyond constructing it.
Q33 Mr Touhig: With your wider responsibilities
Sir Brian, do you think that these sorts of decisions should be
left to research councils or does the department get much more
involved?
Sir Brian Bender: The decisions
ultimately are for ministers as I understand it. The research
councils have the prioritisation exercise which is described in
the Report. The Director General oversees that, but any business
case that is then actually approved is approved by a minister;
there is a matter of policy and political judgment. Clearly the
ministers do not second-guess the scientific advice, but they
make a public policy decision on the basis of the business case
and the overall advice put to them.
Q34 Mr Touhig: The Report tells us
that sometimes the analysis supporting the choice of location
has not been timely or independent.
Sir Brian Bender: For some of
these projects there is not much choice of location: clearly Halley
is going to be in Antarctica; the Institute of Animal Health building
will be there. The only ones where there have been real choices
were Diamond and whether that should be in Daresbury or at Harwell,
and the computer project HECToR (High End Computing Terascale
Resource): those decisions are based on an analysis of what the
options are with, again, the science being the predominant consideration.
Q35 Mr Touhig: Can we ask the Comptroller
and Auditor General what is meant in the Report when it says that
this analysis has not been independent?
Mr Gray: In the context of location,
clearly research teams may already be working in a particular
part of the country. What we are suggesting is that people independent
of the project look at the location options that are there. As
the Accounting Officer has explained, in some instances it may
be self-evident that a particular location is the prime one to
choose, but on other occasions there will clearly be options and
we suggest that people independent of the project should analyse
those options.
Sir Brian Bender: We would accept
that.
Q36 Mr Touhig: Could we just step
back a little bit? Is there a conflict between science and the
wealth creators in the way you approach, in the sense that it
seems to me, from what you have said, the whole essence of what
you are doing is science and research based and so on, but there
is an economic impact which would roll from some of the work that
you do? Is there that sort of conflict there between looking at
ways in which we can exploit and create wealth as an economy,
as a country, as a society, as opposed to just pure science and
research?
Sir Brian Bender: I will ask Sir
Keith to supplement what I am about to say if I may, but the purpose
of the Government's very significant investment in science over
a long period, 5.4% growth in real terms under the previous spending
review, is basically quality of life and scientific infrastructure.
What we are coming quite rightly under pressure to look at as
officials is how to maximise the economic spin-off and wealth
creation spin-off from that and also, as part of a separate DTI
programme, the technology programme, how to maximise the technology
and business pull-through from these programmes. There is not
a conflict in all this, but what we do need to get better at—and
we have done quite a lot of work on it so Sir Keith can say a
bit more on that in a moment—is understanding where the
wealth creation does come from and how to maximise it from what
is the right science. The starting point should be the right science
that the nation needs.
Q37 Mr Touhig: I can just perceive
that there is some conflict then. You have your political masters
who are saying you really just need to see how this is going to
benefit our economy and your scientists are saying you need to
do this in terms of research.
Professor Sir Keith O'Nions: The
bottom line is that there is not a significant conflict and actually
it is being handled in a very intelligent way. Let me just put
a gloss on that. Our job, in terms of meeting PSA targets with
the Treasury, is really to deliver three things: one is world-class
science in the UK and I will not go into that but we are second
only to the US and holding our own very, very well; then two other
outputs, one of which is for public good and this will be climate
change, environmental things, healthcare, national security, things
that do not immediately create wealth; and wealth creation. These
are very clearly understood. There is clearly scope there for
producing conflict of investment—why not put all your money
into business?—but that has not arisen. We have quite a
sophisticated way of managing it and it is being managed by ministers
in a very intelligent way and in a way that is something of an
exemplar internationally. I accept that there is always a risk
but it is not one we are dealing with day to day.
Q38 Mr Touhig: When I was a minister
and I was responsible for a research and science facility, we
needed a chief executive and all the advice I had was that I must
appoint a scientist, yet the organisation operated in a commercial
market and I believed it needed a commercial manager and that
is what they got Was I right?
Sir Brian Bender: I do not want
to second guess the precise circumstances. For any of these organisations
you need someone who can manage and someone who is scientifically
literate and the question of which may be more important and which
can be secondary would depend on the case. I certainly would not
dare to say you were wrong on it.
Q39 Mr Touhig: My civil servants
did.
Sir Brian Bender: I would not
want to appoint a chief executive of, was it the Met Office you
were talking about? I would not want to appoint a chief executive
who was a brilliant scientist who had no management competence
at all, because they need to motivate a significant number of
people. Striking a balance would be my answer, without knowing
the details of the specific case.
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