4 Government as a lead customer |
138. Until now we have been looking at money
the Government spends as a patron of research spending. However,
that is very small compared
to the amounts that the Government spends every year in purchasing
goods and services from businesses. The Royal Society of Chemistry
stated that "In 2010-2011
the UK's public sector spent approximately £236 billion on
goods and services, which is significantly higher than the annual
investment in all aspects of research and innovation of £11
This chapter looks at the role of Government as a customer of
innovative companies and in the direct development of such companies.
Procurement is important. The small companies we spoke to told
us that customers were more important than grants.
139. Matthew Bullock, previously head of technology
at Barclays and recent holder of the Chair of the Centre for Business
Research and the UK Innovation Research Centre, told us about
the need for the Government to leverage its spending:
My experience is getting people to the base where
they have got a business, got the experience and know their markets,
which is very important.
In this country's approach, as Government, you are the biggest
customer in Government; you have the most technical demands; you
have an enormous range of things that you would like to see developed.
We absolutely do not use it as an engine of growth; it
is absolutely absurd.
140. Sir Peter Williams, Treasurer of the Royal
Society and Chair of the National Physical Laboratory, stressed
the advantages of Government procurement:
There is no doubt whatsoever that schemes like Merlin
have been well intended to push capital down to businesses. If
intelligent procurement and Government contracts pushed real orders
resulting in real revenues and real cash flows into emerging businesses,
that is the one thing that would persuade investors to buy their
shares and back those companies. So procurement has a double whammy:
it helps the company directly, and it conditions the market perception
of this whole sector.
This was further developed by Dr Tim Bradshaw of
If you look at it from the pull
sidethe Government procurement sideyes, absolutely,
that is what can really make a difference. Despite what I have
just said about grants, aid and things, most companies would bite
your arm off for a contract rather than
a grant. The more the Government can do to encourage innovation
through their procurement lines the better, be it through SBRI
or maybe making sure that all the public procurement space is
also looking at innovation so that we transform it. We look at
things like outcome-based procurement and whole-life value; we
encourage those involved in procurement to look for innovative
new ideas that might save them money long term, rather than short-term
141. Fergus Harradence, Deputy Director, Innovation
Policy, Department for Business, Innovation and Skills outlined
the major challenges to a better system of procurement:
The first is to simplify and streamline the procurement
process and free up more time within procurement functions to
enable them to go out and engage with the marketplace and businesses
in a strategic way, combined with better signalling of Government
demand in particular areas. The work that has been done on future
capability needs in areas like tunnelling would be an example
of that. We published quite a lot of information earlier this
year about future Government needs.
Secondly, there is a big challenge in upgrading the
skills and knowledge of people in the procurement profession.
The difficulty in doing that is that procurement is not in most
public sector organisations a centralised function; [...] The
culture, structures and the way procurement is managed in the
UK are fundamentally different, and that makes it hard for us
to procure in the same strategic way that you see the US doing.
I would not say that these problems are insuperable; they could
all be tackled over time, but, being realistic about it, it will
be a process of long-term improvement and cultural change.
Training disparate groups of staff to achieve a common
understanding is not a new concern, especially not in the arena
of innovation and commercialisation of research. Praxis originated
in 2002 from a government-backed collaboration between Cambridge
and the MIT to address the shortage of skilled knowledge and technology
transfer personnel. Praxis merged with Unico (the representative
body of professionals that worked to commercialise UK university
and public sector research)
in October 2009 to form PraxisUnico "an
educational not-for-profit organisation set up to support innovation
and commercialisation of public sector and charity research for
social and economic impact".
142. PraxisUnico provides training
programmes and networking events to improve technology transfer
skills across the whole of the university sector. It is a good
example of a government sponsored programme that delivered necessary
skills across a disparate sector. We recommend that the Government
should consider it as a model for the delivery of a coherent set
of skills across the whole of Government procurement.
143. Sir David Cooksey, Chair of the Francis
Crick Institute, pointed to a fundamental problem for SMEs seeking
to gain Government contracts:
The situation on procurement is that, if you look
at the requirements Government place on their Departments for
making procurement, the qualifications required in terms of the
financial size and stability of the companies are such that they
positively exclude the sort of companies we are talking about
from supplying Government, and that is completely wrong. What
we should be looking at is Government being prepared to pay for
the prototypes from these companies to get them off the ground
and make them work.
Small Business Research Initiative
144. SBRI is the Government's
key policy to support the establishment of innovative companies
and provide a gateway for small technology firms
to gain government contracts procuring goods and services. The
Government told us that it understood the principle of procurement
as a tool to drive innovation:
Innovation procurement initiatives reduce risk, guarantee
sales, encourage market entry, provide early testing ground and
manufacturing experience, create demand and make latent demand
manifest, and diffuse technology.
145. Dr David Connell recommended a huge increase
in SBRI funding:
i. Increasing the UK SBRI programme in steps
from around £20m
per annum currently to £250m per annum. [...]
ii. Adding an equivalent
sized budget for larger scale demonstration projects (above the
£1m SBIR Phase 2 ceiling)
iii. Establishing a similar programme to encourage
more private sector organisations to act as lead customers for
new technologies developed by SMEs. [...]After
piloting this programme, the aim should be to increase funding
projects to £100m a year.
146. We welcome the Government's
ambition to grow SBRI:
Since 2009, when we relaunched
the programme, we have been able to build it to a level of about
£20 million a year of expenditure, [...]
In an ideal world, I would like to see it more than double, and
we should be aiming to grow this to a level of about £50
million a year, which I think
is feasible and achievable in a relatively short space of time.
147. However, improving the funding of SBRI will
only be fully exploited if that investment is not followed up
by intelligent government procurement providing commercial opportunities
for the companies involved. Mr Harradence, BIS, stated:
We have been doing some work on better supply chain
management and how Government can engage more effectively to support
the development of new products and services over the longer term
through our Forward Commitment Procurement programme. We have
used that to procure zero-waste mattresses for the Prison Service,
which are more environmentally friendly and cost less, and to
develop a new type of ward environment, this time for the National
Health Service. We have got to the point where it has been demonstrated.
It is in the Building Research Establishment in Watford.
148. While we were pleased to hear of successes,
Iain Gray, CEO of the TSB highlighted how companies that the TSB
has nurtured through to commercialisation often fail to achieve
sales to the Government. For example,
Eykona won an SBRI contract.
It has taken it to the next stage. The managing director of Eykona
would say, "We would not exist as a company were it not for
SBRI", but he has now
reached the critical point John describes, which is: how does
he move that on now into a procurement-type contract in the NHS?
Ironically, the market he is now chasing to procure the technology
that has been developed under an SBRI contract is overseas. He
is chasing overseas contracts because, when it comes to the critical
point of the next stage in the procurement contract, there is
a risk-averse approach in the UK.
We have got great science and technology; we have
got the SBRI in place, which is helping small businesses get their
technology to the point where they can take it to market; and
we need that pull at the next stage to act from a procurement
point of view to move the technology into the NHS.
149. Midven, a for-profit venture capital manager,
thought that the SBRI was still managed like a government grant
scheme which might be one reason it did not function as a intended
as "a route to early,
sustainable sales for SMEs".
The Academy of Medical Sciences argued that the
scheme needed to be properly embedded itself across all government
the larger spending departments such as the Ministry of Defence".
The University of Birmingham pointed out that in the USA government
departments were required to spend a defined percentage of their
budget supporting small businesses.
In contrast, the Science Policy Research Unit unconvinced of the
evidence in support of the SBRI scheme, highlighting the lack
of clarity on the costs of the scheme
and Engineering the Future suggested that time should be taken
to properly evaluate it.
150. We were concerned that
the SBRI scheme fails to assist companies to gain Government commercial
contracts. We recommend that the Government ensure that its procurement
officers, and those of other public sector agencies, are properly
trained to take into consideration the wider public benefits of
procuring services from small technology companies that have been
developed through the SBRI.
National Health Service
151. We were interested to discover what advantage
the existence of National Health
Service would deliver in enabling innovation in health technologies.
Andy Richards gave us an investor's perspective:
This is not just a statement about drug discovery;
it is a much broader comment. [...] Customer traction is one of
the most attractive things
for any investor. There has been a situation where any business
plan, business model or business idea that comes up that says,
"By the way, the first thing we are going to do is sell into
the NHS," just makes it uninvestable, because the NHS does
not take up, let alone new
drugs, new technologies, new software systems, new anything. It
is notoriously hard to sell anything new into the NHS. That is
partly a cultural thing. Partly, there are some elements within
the NHS that, for one reason or another, have
a "they shall not pass" mentality. It does make it incredibly
hard to innovate in the medical fieldmedtech, health care,
ITin an environment where your local market, who are the
easiest people you have to reach to talk to as customers, are
hard to access.
152. Novartis stated:
The key point here is that pharmaceutical R&D
investment in the UK is, to some extent, dependent on the willingness
of the NHS to support and adopt the innovations that are developed
as a result of R&D activity. Without adequate uptake, medicines
commercialisation will decline.
153. The Association for Medical Charities was
concerned that the NHS did not provide any market certainty for
To attract investment into commercialisation of research
there needs to be an end market. Our members have expressed frustration
with the products of their research both failing to receive NICE
approval or receiving NICE approval and subsequently not being
adopted throughout the NHS. Strict commissioning guidelines are
needed to ensure approved innovations are rapidly taken up across
154. ISIS Innovation, the technology transfer
office for the University of Oxford, confirmed this view:
In Healthcare there is an urgent need for the NHS
to present itself as a willing customer of innovative products
from UK technology companies. The NHS needs to become a first
port of call. At present UK healthcare technology companies actively
avoid engaging with the NHS because it is such a poor customer
(slow decision making, late adoption), turning instead to overseas
155. Dr Bianco, Director of Technology Transfer
at the Wellcome Trust, explained that a fundamental problem in
driving innovation in the NHS would appear to be that people that
took risks in innovating rarely experienced any financial benefit.
One of the disincentives, which is a real problem,
is that if you produce, for example, an invention that reduces
bed stay because the surgical procedure is less invasive, it is
the cost centre for the beds that gets the advantage and the risk
is taken by surgery. [...] Adoption has become a problem because
the reward system is not necessarily linked.
156. Research hospitals should be the innovation
pioneers within the NHS, a source of data and expertise but Dr
Goodier of the Shelford Group indicated that they were poor partners
for the biopharma industry and technology:
We are very concerned at the Shelford Group because
so many of the prices set for treating patients are set on averages.
If you suffer from asthma, you can have three nebulisers and go
home, or you can have a week in intensive care and two weeks on
a ward. The price is set at an average, and that suits more the
smaller district general hospitals, whereas the academic hospitals
tend to get the more complex patients and, therefore, are chronically
157. Despite these difficulties, witnesses believed
that the NHS represented considerable potential as an encourager
for future innovation, especially in the area of stratified (or
personalised) medicine. Dr Tapolczay, Chief Executive of Medical
Research Council Technology, stated:
 While I agree with everything that has been said,
I also see it as an opportunity. If the problem is there but it
could be fixed, we are still the only country in the world with
an NHS. If we can find a way to allow engagement between the biomedical
community in the private sector and the NHS more effectively,
then it has to be a very positive step forward for both the NHS
and the biomedical companies in the UK.
Dr Richards, entrepreneur and business angel investor,
 It is deeply frustrating
that we are the best situated country to do personalised medicine
because of the NHS. If we can gather the information from well
collated records and use thatwe have everything in placeand
if we could do it, it would be the big
158. We recently inquired into the UKCMRI, later
renamed the Francis Crick Institute.
This facility has the potential to be the flagship of innovation
in the UK healthcare system and to doctors trained in deploying
innovation and new technology throughout the NHS.
159. We recommend the Government
examine the critical role of research hospitals in addressing
the most challenging of conditions and explore ways of ensuring
that funding encourages the development of innovative solutions.
160. We consider it critical
for the future of the bioscience sector in the UK that the Government
ensures that a significant proportion of the NHS procurement budget
is accessible by small innovative companies. The Government should
incentivise NHS Trusts to engage with SME companies for innovative
technology solutions. A similar approach should also be adopted
across other agencies including local government, police etc.
Support for sectors of industry
161. The UK has traditionally had a strong presence
in the life sciences, confirmed by the attention the Government
pays to this sector. The Strategy for UK Life Sciences announced
it would provide £180 million targeted at the 'valley of
death' to 'de-risk' investment in life science innovation, half
of which will be funnelled through the TSB to support SMEs.
162. There are a number of policy instruments
focussed on the life sciences sector:
Strategy for UK Life Sciences
contained recommendations to improve the uptake on innovations
within the NHS, Innovation, Health and Wealth: Accelerating
adoption and diffusion in the NHS
and outlined further steps to support the commercialisation of
health research in the UK.
Biomedical catalyst scheme
to support the development of promising early-stage drugs into
new treatments by universities and small or medium enterprises
Early Access Scheme consultation
to identify where new treatments could potentially be given conditional
authorisation, have their assessment accelerated or be licensed
early to speed commercialisation.
The strategy announced the establishment of a new
Life Sciences Advisory Board comprising of representatives
from industry, academia, government departments and agencies and
the appointment of an MP to advise David Willetts on life sciences.
Steps have been announced to develop a safe and
secure system which opens up patient data for research
and ensures patients are offered opportunities to be involved
in research relevant to them are valuable.
Plan for Growth,
though not life science focussed, heralded work to streamline
the regulation of health research and establish a Health Research
163. The Association for Medical Charities, like
other organisations related to the life sciences,
welcomed government initiatives in the life sciences but considered
that some additional detail was still needed.
The framework of policies provide a big picture within which the
life sciences industry can see where they might fit in the future
and inform their investment.
The Government has developed policies to enable the sector to
carry out its activities and, in partnership with charity and
industry, has invested in infrastructure in the Francis Crick
Stevenage Open Innovation campus.
164. However, Professors Anthony G M Barrett
and R Charles Coombes of Imperial College, London, outlined concerns
about a challenge in the bio-pharmaceutical sector where the big
companies were leaving the field of drug discovery and universities
were not able to fill the resulting research gap:
Globally drug discovery is rapidly changing. The
big pharma companies such as Pfizer, GlaxoSmithKline, AstraZeneca
and others are leaving drug discovery rapidly and their exit will
be complete in the next 5 to 10 years, perhaps sooner. The recent
closure of Pfizer Sandwich and downsizing of AstraZeneca are not
unusual events but are part of the inevitable global process.
The trillion-dollar question is whatever next and where will the
medicines of the future come from? Will pharmaceutical innovation
be totally lost to the UK and the UK pharmaceutical industry,
worth many billions to the UK economy, become another smokestack
165. Dr Ian Tomlinson further explained that
early drug discovery was not an area in which large biotechnology
firms were able to effectively operate:
Big pharma needs to take some responsibility. The
costs are going up and the regulatory hurdles are going up, but
we did have a culture of trying to industrialise drug discovery
and developmentand it did not work. [...]
Innovation comes from one person having an idea, or a small group
having an idea, and prosecuting that idea to some kind of milestone.
That is why we have changed dramatically over the last five years.
We used to have thousands of people working in R & D. We would
throw a load of people at the problem and we would hope to solve
it in that way. Now, we have 50-people groups, with a leader fully
empowered to prosecute a very specific area of science.
166. Both the Crick institute
and the Stevenage Open Innovation campus demonstrate that the
Government is working actively with the industry to ensure that
bioscience retains a strong presence in UK research and development.
Government support for life sciences has been excellent and there
is real innovation taking place in how that sector might be supported.
167. Despite these successes, we heard that there
was some disappointment that the particular requirements of the
agriculture related sectors were not included in the strategy.
The Agricultural Biotechnology Council told us:
Research from the Rothamsted Institute found that
the UK is losing its expertise in applied sciences, with those
employed in applied R&D work increasingly getting older and
fewer in number. There have been three significant closures of
public research institutes associated with agriculture in the
past decade. The closures of Long Ashton Research Station in 2003,
Silsoe Research Institute in 2006 and the Hannah Research Institute
in 2007, have all contributed to a decline in our public agricultural
168. PraxisUnico considered
that the "commitment
shown to the bioscience sector needs to diversified into engineering
and the physical sciences if the UK is to reshape its industrial
169. Another sector of government procurement
that would appear open to active encouragement for innovation
is that of Defence, the UK Innovation Research Centre and the
Centre for Business Research stated that the USA effectively utilises
its military budget to drive innovation.
The Rt hon David Willetts MP told us how the Ministry of Defence
was using procurement to drive innovation. Fergus Harradence of
the Department for Business, Innovation and Skills pointed out
that the Ministry of Defence was a keen contributor to the SBRI
scheme. However the Ministry would appear to be outsourcing its
procurement which may limit its potential to utilise the budget
in this fashion. In a statement in July 2012 the Defence Minister,
Philip Hammond MP, said:
Earlier this year, I therefore asked my officials
to focus their efforts on considering the comparative benefits
which could be derived from changing DE&S into either an executive
non-departmental public body with a strategic partner from the
private sector (ENDPB/SP), or a Government-owned, contractor-operated
(GOCO) entity. The work done to date, suggests that the strategic
case for the GOCO option is stronger than the ENDPB option. Further
value-for-money work is under way to confirm this assessment.
170. Evidence sent by the UK Innovation Research
Centre and the Centre for Business Research pointed out that other
governments were active supporters of innovation in their own
Many governments outside the UK support technology
through specific R&D programs aimed at pre-commercial support
in technology and market development around a group of applications.
These provide R&D support and subsidies for specific technological
areas; access to specialized equipment; forums for the establishment
of standards; direct financial support for establishing new industries;
public procurement by military and health departments especially
of R&D services; acting as deep-pocketed first customers and
procuring first quantities of technologies.
171. Professor Nick Wright, of the Russell Group
of universities, was particularly scathing about the way various
UK governments had approached the commercialisation of research:
We seem to be the only major economy that thinks
we can make this work on fairy dust and good intentions. [...]
It does not have to be heavily prescribed; it can be an informal
system, but [most large economies have] a national innovation
system of some kind, and we desperately need that in the UK.
172. We have not been persuaded
that the Department for Business, Innovation and Skills has a
strong enough voice across Government policy to effect the necessary
radical change in procurement practices. Procurement by Government
departments needs to focus on issues other than simply cost. We
recommend a Minister in HM Treasury be given responsibility for
the delivery of procurement-driven benefits identified by the
Department for Business, Innovation and Skills.
173. Dr Tim Bradshaw, Confederation of British
Industry, explained the demonstration effect of British companies
gaining Government contracts:
The more the Government can do to encourage innovation
through their procurement lines the better, be it through SBRI
or maybe making sure that all the public procurement space is
also looking at innovation so that we transform it. [...]When
you have some really good things in the public estate, showcase
them. If you have got them in, show them off to the rest of the
world and show what can be done. Make sure you are demonstrating
to overseas buyers that we have done this in the UK
The Minister indicated that the Government was aware
of the need to ensure better information of public spending needs
but was not convinced that more action needed to be taken to ensure
broader benefits to UK industry through public procurement:
We have to be very careful of protectionism.
As I say, that is why our approach has been information
in advance and sharing our future plans. [...] In the long run
British businesses need the competitive challenge of winning in
a competitive environment.
174. We recommend that the
Government, in two years, publish a breakdown of companies successful
in tendering for Government contracts and compare whether greater
openness in procurement has resulted in increased contracts among
small and developing British technology companies.
203 Ev w82, para 24 Back
For example, Q 79 Back
Q 62 [Matthew Bullock] Back
Q 101 [Sir Peter Williams] Back
Q 223 Back
PraxisUnico website, http://www.praxisunico.org.uk/about-us/,
December 2012 Back
Q 101 [Sir David Cooksey] Back
Ev 104, para 79 Back
Ev 119, para 6.1 Back
Q 245 Back
Q 245 Back
Q 249 Back
Valley 46, para 7 Back
Valley 67, para 17 Back
Valley 30, para 5.3 Back
Valley 54, para 27 Back
Valley 79, para 4.2 Back
Q 37 [Dr Richards] Back
Valley 83, para 10 Back
Valley86 , para 21 Back
Valley 28, para 5 Back
Q 38 [Dr Bianco] Back
Q 38 [Dr Goodier] Back
Q 38 [Dr Tapolczay] Back
Q 38 [Dr Tapolczay] Back
Science and Technology Committee, 6th Report - UK Centre for Medical
Research and Innovation (UKCMRI),HC 727, 25 May 2011 Back
Valley 00, para 40 Back
Department for Business, Innovation and Skills, "Strategy
for UK Life Sciences", December 2011
Department for Health, "Innovation Health and Wealth: accelerating
adoption and diffusion in the NHS", December 2011 http://www.dh.gov.uk/health/2011/12/nhs-adopting-innovation/ Back
MHRA, "Proposal to introduce an early access to medicines
scheme in the UK", July 2012
Department of Health, "Information: To Share or not to Share",
Department for Business, Innovation and Skills & HM Treasury,
"The Plan for Growth", March 2011
For example, Ev w63, Ev w68 and Ev 132 Back
Ev w191, paras 30-36 Back
Ev w147, para 2 Back
Ev w194, para 2.1.2 Back
Q 35 [Dr Tomlinson] Back
Ev w66, para 17 Back
Ev w148, para 7.3.5 Back
Ev 147, para 2 Back
Ev w43, para 5.1 Back
HC Deb, 17 July 2012, c124WS Back
Ev w43, para 6.1 Back
Q 145 [Professor Wright] Back
Q 223 [Dr Bradshaw] Back
Q 291 Back
Q 293 Back