Examination of Witnesses (Questions 260-279)
DR MARTIN
WYATT, MR
ANDREW EASTWELL
AND MR
BILL HEALY
4 DECEMBER 2007
Q260 Mr Binley: But Britain is a
particularly low level at 0.5%. What you have just told me is
a total cop-out surely?
Dr Wyatt: No, I do not believe
it is.
Q261 Chairman: Mr Binley has obviously
had something for breakfast this morning that has upset him!
Dr Wyatt: I gave you a nice table
on the back of the map of the world.
Q262 Mr Binley: I saw that.
Dr Wyatt: Those percentages are
total R&D expenditure, they are not of the industry, they
are everything, so they are the universities, government, research
associations, agencies and the industry. The second thing to bear
in mind is that what we have not seen and we do not have the data
for, and I do not believe the Government has the data for, is
a breakout of what proportion of that is private sector. My view
is that the private sector contribution across these countries
is probably not hugely different, except in Japan. If you multiply
these figures up by the actual GDP, you get a slightly different
picture. I can very quickly give you that—the UK is £43
million; the US is £215 million; the Netherlands is £28
million; France, which is probably the nearest comparator, is
£206 million; Denmark is £23 million; Japan is £750
million ; and tiny Finland is £58 million, but the majority
of that in each of those cases where it is higher than here is
government expenditure; it is not private sector expenditure,
except in Japan.
Q263 Mr Binley: Thank you, I am grateful
for that. You have talked about variations between countries and
I am happy with that. Can I move on to hidden innovation. Could
you tell us more about so-called hidden innovation and could you
tell me what you are doing to capture it and to build upon it,
to use a pun?
Mr Eastwell: The recent NESTA
report on Hidden Innovation is a very useful reference point,
and I am sure you have access to that. It really put a lie to
the fact that the construction industry is not innovative. It
has been accused of not being innovative largely because its R&D
spend is so low and innovation has traditionally been attached
to R&D spend. What NESTA identified is that there is a great
deal of problem-solving innovation done per project on site. There
are no industry widespread methods of capturing that innovation—and
why would there be—but there are some very, very strong
individual examples of it. I would take industrial clients such
as Tesco's, Land Securities, and BAA has already been mentioned
once today, as being examples of repeat clients who have embedded
in their businesses processes which capture lessons learned. They
also capture how the building operates subsequently so that they
can identify good innovations or not so good innovations and they
will reuse that information with their partners. All of those
use framework partnerships and that information is exchanged very
freely up and down the partnership but not necessarily outside
of it. There is no incentive for them to spread that information
outside their partnership because it is part of their business
process and part of creating value in their business. It is less
obvious in the public sector but there are some sporadic examples
of where it is done. There is another report that I would recommend
to you—Building Schools for the Future—and I will
pass these references on to the Clerk after the meeting so that
you have them, which looked at 12 schools in detail as part of
a post-occupancy evaluation to see whether or not the structures
met the aspirations. I am delighted to say that they are good
places to be at school but very poor energetically, which covers
something that was said earlier on today. The problem with hidden
innovation is that where it is done, it is part of the company's
crown jewels, it is part of their business USP, and they will
retain it within their business.
Q264 Mr Binley: Everything has got
its price. How can we create incentives to spread innovation?
Mr Eastwell: My own view is that
government needs to beef up its own knowledge of its own estate
so they themselves can become this client rich in knowledge of
what it is that they are buying, owning and operating. Being 40%
of the value of the construction industry both in repair and maintenance
and in capital, it is hard to imagine that that rich data source
would not be a very valuable resource for the rest of industry.
Indeed, it used to exist many years ago when there were other
agencies around like the PSA (Property Services Agency) and NHS
Estates and so forth. They were very good at that kind of effort
and that is how you capture hidden innovation.
Q265 Chairman: We have been told
that the Highways Agency is a very good client in the public sector
in the infrastructure area. Is the hidden innovation that is developing
there being captured and shared, do you think?
Mr Healy: Certainly they are getting
better at that. There is an exercise on-going at the moment within
their framework to try and share that information between departments,
but I think that is still early days in moving onto the type of
process that we envisage here, but, yes, it is good start.
Q266 Chairman: Before I bring in
Mr Clapham, we were told on a visit to a London hospital site,
not in formal evidence, by Skanska that they thought one of the
reasons that R&D and R&I were so much lower in the British
building system was the lack of vertical integration and the smaller
sized companies and contractors whereas in Scandinavia they have
large shares in the market and it is actually worth their while
investing to innovate in that market place.
Dr Wyatt: I think there is an
element of truth in that and the classic example of that is Japan.
If you take the largest British company, I think it has 3.5% of
the UK market, and that is Balfour Beatty, but it would not register
in the world top 20. If you look at the largest companies they
are mostly Japanese and that is no mistake. They have a very different
structure to us in the sense that these companies are vertically
integrated so they will quarry the materials, they will own the
factories which produce the products, they will construct them
into buildings and they will then operate the buildings. It is
sort of "super PFI". When you get mega businesses which
control their entire supply chain from beginning to end and you
get a culture like you do in Japan where big companies strut their
stuff in terms of R&D expenditure, then you will get major
engagement of private companies in research expenditure.
Chairman: I thought you might have the
answer to that and I am also not surprised that Mr Hoyle has a
supplementary as a result.
Q267 Mr Hoyle: It is interesting
though, is it not, because we have built up companies like that.
If you look in the past at our quarries they were used in the
construction industry. Then they get broken up and what we see
is pension funds come in—Amec has been a good example where
we had the cross-section of the Twin Towers, who was behind it,
Amec, a vintage company, but it has all been sold off. Is that
part of our problem that what we see is pension funds and other
people buying, splitting up and breaking up all the companies?
Is that the reason why we have no construction companies?
Dr Wyatt: I cannot answer that
question because I cannot speak for the pension funds.
Q268 Mr Hoyle: Whoever, people who
want to make a quick buck so they buy a construction company out
and then start selling it off piecemeal.
Dr Wyatt: I think the difference
is fundamentally that our contractors tend to stick to contracting
because they can borrow other people's capital to operate and
they do not have to raise capital of their own. If you look at
the capitalisation of the entire construction industry in this
country as quoted on the Stock Exchange, it is less than Sainsbury's.
They are eminently purchasable and they have a very low capital
value because most of them are basically just super project managers.
They do not have vast quantities of capital or estate or factories
that they own and there are very, very low barriers to entry.
Anybody can set up as a contractor and anybody can become a big
contractor by buying more projects than the next contractor and
so on. One of the characteristics of the UK scene is that there
are rapid changes as to who the big contractors are, the big ones
wax and wane and the situation changes.
Q269 Mr Hoyle: Can I say I do not
quite agree with that because we have seen companies in the construction
industry like John Laing disappear, who were on the stock market
purely as construction companies. The idea was to get out of being
listed as the construction industry and be put into the service
industry to ensure that shares fly through the roof. Hence Amec
went from £2 odd to £10, I think it was. It is the complete
opposite of what you have said.
Dr Wyatt: It is true that a lot
of contractors have tried to have themselves reclassified as service
industries and they have tried to give up doing contracting. They
want to be facilities managers, they want long-term contracts
with government to maintain things. They do not want the danger
and the risk of building individual buildings. That comes back
to this business about risk. Laing's went under fundamentally
because they made a series of technical mistakes which made them
worthless and then a white knight came in and bought the business
because it was worth very little, so a huge business changed hands
for a pound or something very similar.
Q270 Mr Clapham: Given what you have
just said about the industry, and the difficulties that the industry
has, we still need to realise that it is an enormous industry,
employing more than two million people and that in terms of GDP
about 10% of UK GDP comes from construction, so it still is a
very important industry. Given that fact, is it possible to say
how much support research and innovation gets from government?
Could you put a figure on it?
Mr Eastwell: I will try and answer
that. The last authoritative figures were provided at a similar
event to this in the House of Lords showing that in 2001 it was
£18 million; and in 2005 it was £5.5 million. There
is no analysis, as I understand it, for the present time. The
best estimates that I have are that it is between £5 and
£10 million, but it should be understood that that funding
is principally from the Technology Programme that was with DTI
and is now with DIUS and does not really address the gaps that
we are concerned with here. They address the high technology end,
not the processes—stem cell research and things like that.
The construction industry does benefit from that but it is not
the gap that we think is at issue. For co-funding, the sort of
thing that we were talking about earlier, it is hard to identify
any funding at the moment other than a very small amount covering
things like the Knowledge Transfer Network, for which we are extremely
grateful I should say.
Q271 Mr Clapham: Why do you think
that dramatic reduction has come about in the funding?
Dr Wyatt: I do not think there
has been a major policy change. I think it was broadly a mistaken
circumstance. Immediately after the 2004 Election responsibility
for the industry was transferred from the DETR to the then DTI
and with it that funding. The DTI had been going through a period
of criticism and change and had decided that it was not going
to support any sectorally based research funding mechanisms, so
this money and this industry was transferred into the DTI just
as they were coming to that decision and thus it was wholly unwelcome
that we were discussing and saying this needed to continue, so
basically the money, to quote the Minister at the time, was "snaffled"
into the central coffers of the DTI and probably reappeared in
the Technology Programme. That still remains the case today that
DTI policy is not to have sector-specific programmes at all. Having
talked to senior civil servants and others, the difficulty is
that even though they may intellectually accept that the mistake
has been made and it has been dropped down the cracks, they believe
that to essentially do anything within BERR to support the construction
industry specifically would re-open the discussions with aerospace
and everybody else about whether they should have specialist support.
It has been put to me that it is very much more difficult to put
this back together than to let it fall apart because it would
require two ministers who were interested, two senior civil servants
who wanted to do it, and somebody who was willing to put their
hand into their ministry's pocket to fund it, and that is almost
impossible. It is very difficult and it will need a very powerful
interest from somewhere to boot-strap that process again, even
though it is accepted intellectually that we lost something we
should not have done.
Q272 Mr Clapham: Given what you have
just said, is the building of the Olympics stadium likely to have
the impact that it may well bring a focus from government with
regards to innovation? Do you think that could be the driver?
Dr Wyatt: I think government has
a lot of short-term interests and even in terms of the construction
industry 2012 is relatively short term. It is undoubtedly true
that a lot of good work is being done by the Olympic Delivery
Authority in terms of sustainability and other matters. The problem
is that most departments now seem to have become used to picking
up the phone and calling us up and us saying, "We do not
know because you ceased funding us five years ago," and then
increasingly using focus groups and steering groups and heaven
knows what else—people who will give an opinion which is
no real substitute for empirical evidence, if you like, and so
there is a culture of dealing with all of these issues as if they
can be solved in five minutes by a quick question rather than
needing proper research over a period of time to come up with
a proper answer.
Mr Healy: I think the overriding
focus of the Olympics is one of delivery on time, from all of
the discussions that I have had, rather than one of innovation
or even necessarily the best way of doing things. I have to say
the driver is on-time delivery. There is the issue of ownership
as well now and because the interest in construction is spread
amongst so many government departments there is no clear home
for a focus in how to address this issue. It is now spread broadly
across. I think most people are aware that there is an issue on-going
but there is not the wherewithal to respond to that issue in any
meaningful and co-ordinated way.
Mr Eastwell: We have been accused
of being a very fractured industry and indeed it is true. We are
dealing with a very fractured sponsorship/intellectual input from
government and that is also true.
Chairman: We will return to that issue
later.
Q273 Mr Clapham: All three of you
have contact with BERR and the civil servants in BERR. Have you
been able to get the message over to them that the UK is one of
the few advanced countries that does not have a dedicated research
and innovation programme for building?
Mr Healy: I think again BERR would
recognise that and they are very sympathetic to the position.
Again, as the major funding has now moved across to DIUS and the
Technology Strategy Board for R&D as opposed to applied research,
which is the area that we are particularly focused on, they no
longer have the wherewithal to address that. Their funding certainly
in their construction sector unit has been cut dramatically, nearly
all of their staffing. There is no clear home for construction
there although I know that the "Minister for Construction"
is represented through that Department. As I say, the big spends,
particularly where we are looking to government as a client, are
in new schools, prisons, infrastructure, investments, which are
spread around many different departments. Again, I think people
are aware of what is actually happening but no-one is in the right
position with the right centre of gravity to say, "We can
address this issue."
Mr Clapham: Given that, what do you consider
ought to be one of the main messages that comes from the Committee's
report on construction?
Q274 Chairman: I think that is called
leading the witness but I am very happy for the witness to be
led.
Mr Healy: It is putting that focus
back in now and there is a number of elements in how this could
be achieved. I do think construction has now been spread across
so many people's remits that there is no-one who can address these
issues of really seriously moving the industry forward. The Government
is ideally placed to do it. As referred to earlier, it has 40%
of the construction spend of £120 billion, which I think
it is currently running at, which the government is client for.
That is a very powerful position to be in and they really need
to have the wherewithal to behave as an intelligent client as
best they can and be a leader in that which I believe they can
achieve if we get the right focal point. That needs to exist somewhere
within the government mechanism. We have views as to where potentially
it might be best placed. It has been tried amongst a number of
departments. The problem is that now it has evaporated to a large
extent.
Q275 Mark Hunter: Can I ask a couple
of questions about current research and innovation performance.
I was very interested to read in the evidence you have put before
us about the drop-off in public sector support for construction.
You say that this is reflected in the number of new publications
of technical guidance and standards produced by the sector and
in fact report that between 2000 and 2005, the number of new titles
averaged 173 per annum whereas in 2006 that figure had fallen
to just 63. Do you think that the decline in these titles can
be directly attributed to the drop-off in public sector co-funding
for construction R&I and even if it is why has it not been
picked up by the private sector?
Mr Healy: I was reminded of this
again last night and I will come back on that. Yes, I think it
certainly can be directly related to the drop-off of public sector
funding. Each of the new publications, of which CIRIA has produced
the larger number over recent years, typically cost something
of the order of £100,000 to produce. They are fairly considered
pieces of work, drawing on the best expertise in the industry
and the experience of what has happened, and in fact many of them
go on to be reference documents that are used by the broader industry
going forward, so they are very valuable. At that kind of cost,
the resale value is not much more than the printing costs of the
book to distribute them, so we do not have the wherewithal to
fund the large number of reports that we would like to produce.
The reason I was reminded of it last night (I do not know if any
of you saw it) is there was a Dispatches programme on Channel
4 called Submerging Britain about the flooding issues that
had gone on in the summer. I was reminded that CIRIA had been
trying to fundraise for a report last year, would you believe,
which was about the flood resilience of infrastructure, which
chimed a lot last night as we were seeing the issue of trying
to protect a sub-station that was coming under threat and in fact
a water treatment plant was submerged and people were left without
water. At the time we were talking with our colleagues in the
infrastructure industry about this there was interest but it was
very hard to get sufficient of them lined up with their cheque
books to actually make this report become a reality. Of course,
post the flooding there is increased interest but I have to say
that as of today I do not have agreed funding in place to actually
move that report forward. With government funding in the past,
the seed corn, the pump-priming—they would not have paid
for the complete report—a 40% or 50% contribution to the
cost to get that report moving would have enabled it to have been
available in time for those events, so that was a very timely
reminder to me of how things have slowed down.
Q276 Mark Hunter: I was going to
ask you for some examples of the way in which the drop-off in
new titles is affecting the sector and you have just given us
one.
Mr Healy: I am sure my colleagues
can help.
Q277 Mark Hunter: Could you offer
us a couple more as to how this has impacted?
Dr Wyatt: Perhaps I can give you
a very topical one and that is around the deployment of small-scale
wind turbines in homes, a very hot topic. Lots of people are saying
you need to use renewable forms of energy and this is one of the
solutions. In fact, you have got things like the Merton rule,
et cetera, encouraging and BERR themselves encouraging the adoption
of these new technologies, but we actually know very little about
these technologies and how effective they are. If we take the
Code for Sustainable Homes as an example, in there there is encouragement
to deploy microwind turbines on your house and you get a higher
sustainability score if you do. However, I was very concerned
and a lot of people are very concerned that these windmills absorb
more carbon in their manufacture and maintenance than they ever
produce—
Q278 Mark Hunter: You had better
tell Dave to take his down!
Dr Wyatt: I am trying to avoid
political comment! Quite of lot of us are concerned that they
emit more CO2 than they save in a lifetime and thus the deployment
of them actually brings global warming forward, it actually accelerates
global warming. We discussed this and this is a classic example
of why it is all going wrong. We raised this with DCLG whilst
we were working on the Code for Sustainable Homes and they put
together a tripartite meeting between Defra, DCLG and the then
DTI to discuss this. The DTI took the view they were the sponsor
of this small industry and that their job was to help manufacturers
in new areas of commerce to get going and be world-class, so it
was not really their job to carry out some research which might
show it does not work. Defra said, "We are in charge of sustainability
but actually it is about buildings so it is DCLG," and DCLG
said, "We have not got any money," so at that point
we all gave up. I managed to scratch together enough money from
the Trust who owns us to do a small piece of work which has demonstrated
that basically in a large number of cases you should not employ
this technology.
Q279 Chairman: Should not?
Dr Wyatt: Should not. What I am
unable to do through my own funding (and why should the manufacturers
do it?) is produce a comprehensive design guide for specifiers
and individuals in order that they can choose intelligently whether
or not and what sort of windmill to use. This is classically the
area where the industry in a broad sense worked with the Government
in a co-operative way to produce that sort of guidance, and that
mechanism no longer exists so I do not know what is going to happen
there.
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