House of Lords - The Effectiveness of EU Research and Innovation Proposals

The Effectiveness of EU Research and Innovation Proposals - European Union Committee Contents

CHAPTER 5: Private Sector Participation

80. The private sector plays a vital role in creating economic growth through R&I. The European Commission described businesses as "the engine of innovation".[127] The private sector is therefore one of the most important stakeholders in the EU's proposals and strategies for R&I in Europe.

81. Since the creation of the first Framework Programme for Research and Development in 1984 the Commission has repeatedly moved to stimulate R&I in the private sector. It has set up various mechanisms, such as the industry-led European Technology Platforms, which provide formal and informal frameworks for stakeholders to shape and define EU research priorities. The Commission highlighted the success of initiatives such as this, and argued that "the EU has been successful in engaging the private sector in research and innovation projects. Private sector participation in the EU Framework Programme for Research and Technological Development (FP) has steadily increased in recent years".[128]

82. Figures 3 and 4 below demonstrate the degree of private sector participation in the last two framework programmes.

FIGURE 3

Private Sector Participation in FP6

Source: FP6 participation data (E-CORDIA 2009)

FIGURE 4

Private Sector Participation in FP7

Source: FP7 participation data (E-CORDIA March 2013)[129]

83. These figures show that, throughout FP6 and FP7, the overall participation of higher education institutions across Member States has remained at a high and increasing level. This trend is accentuated in the UK, where higher education institutions had a 61 per cent share of participation in FP7. The overall figures for private commercial organisations are considerably lower, standing at 19 per cent in FP6 and 29 per cent for FP7. UK business participation in FP7 is 5 per cent lower than business participation across the EU.[130] Although the Commission is right to observe an increase in the overall number of business participants, there is still a noticeable lack of business participation, given its importance in stimulating growth and to complement the innovation carried out by the education sector. The decline in private sector participation over consecutive FPs was acknowledged by a number of witnesses, from large corporations such as Microsoft, through to SMEs and the UK Government.[131]

84. Boosting private sector participation in EU funded R&I projects is vital if the funding is to succeed in its aim of stimulating economic growth. While we welcome the efforts made by the Commission to engage the private sector, there is still a notable gap between private sector participation and that of higher education institutions.

Bureaucracy and Complexity

85. The problem of bureaucracy as a barrier to private sector participation was echoed throughout the evidence. This perception has already been clearly demonstrated in earlier research, such as the 2010 report undertaken for BIS by Technopolis, a policy advisory firm.[132] A key theme of the responses from FP6 and FP7 participants cited in their report was the excessive bureaucracy of EU R&I projects, requiring a great deal of time and effort to participate. In keeping with this concern, Microsoft commented that, "There is a general perception that access to EU level programmes is both complicated and time consuming. This could be one major reason for the decreasing [private sector] participation in programmes over the last 10-15 years."[133]

86. The Commission has taken note of the concerns about bureaucracy and complexity, and has made clear efforts to cut red tape in R&I programmes in recent years, work which it states will continue to be central to Horizon 2020. One of the key elements of the Commission's simplification agenda has been the Administrative Burden Reduction programme. The Commission reported that the target to reduce the administrative burden stemming from EU legislation by 25 per cent by 2012 has been fully achieved.[134] Similarly, the Commission committed in November 2011 to exempt micro-businesses from new legislation unless their inclusion can be justified, and to seek lighter regimes for SMEs.

87. In spite of efforts on the part of the Commission, it is clear that there is still dissatisfaction with the bureaucratic process. ADS concurred with Microsoft's analysis of the bureaucracy as a barrier to participation, suggesting that it can result in a waste of resources as companies feel the need to engage consultancies to assist with their proposals. They noted that this provides a barrier to SMEs in particular.[135] This point was followed up by other companies such as Rolls Royce, who described EU R&I application processes as "extremely complex",[136] a situation which in their opinion lends itself to participation from larger institutions with the resources to address the complexities, rather than smaller institutions without these capabilities.

88. While there is a strong case that bureaucracy and complexity at EU level pose a barrier to private sector participation, the fact that UK business participation in FP7 is lower than that across Member States as a whole indicates that there is also a scope for action at national level.

89. The Government have sought to make business participation in EU R&I programmes more straightforward by establishing a network of National Contact Points.[137] National Contact Points provide support to potential applicants, and are funded through the Technology Strategy Board. While, in principle, this help at national level is to be applauded, the review of such mechanisms undertaken by the Government in 2012 revealed some problems. The Minister noted that National Contact Points were felt to be "under resourced and fragmented and there were criticisms of the national website".[138]

90. These deficiencies were pinpointed by the Institute of Physics in their written evidence, which attributed problems with the National Contact Points to mismatches between the focus of European programmes and the science and innovation priorities of national governments. They called for greater strategic cooperation between national and European SME programmes, suggesting that the current state of play disadvantages companies who may be eligible for European funding, but lack the appropriate domestic support.[139] A similar recommendation to integrate national and European SME programmes was made by John Hill of Growth Accelerator.[140]

91. The Minister advised the Committee that BIS are currently working on a new strategy to improve resources for the National Contact Points and make them more accessible to businesses.[141] While this is to be welcomed, it would seem that the Government should also look at the improved linking of National Contact Points with R&I programmes at EU level.

92. We welcome the efforts made by the UK Government at a national level through reform of the National Contact Points. We urge the Government to build on their work in this area, to ensure that the National Contact Points are focused on the priorities at EU level. This would improve support to UK companies in accessing EU R&I funding more effectively.

93. Getting involved in these projects necessitates time and resources, which may act as a deterrent to new players, who are not familiar with the workings of the system and the advisory networks. Indeed, RAND Europe highlighted the deterrent effect of having to become familiar with a unique and somewhat idiosyncratic system. It argued that, in order to succeed, a company had to "learn the system, how to write successful proposals and collaborate successfully".[142] Chemistry Innovation Limited argued that the guidance available to help applicants address the question of what impact they expect projects to achieve is largely contained in documents which are not written in plain language and are therefore difficult to digest.[143]

94. The concerns over bureaucracy and complexity creating barriers to private sector participation are not new. The European Commission has taken note of these concerns, and we support the changes made towards simplification and urge them to make the simplicity of procedures and language a criterion for every new undertaking.

95. In addition to the more general concerns about bureaucracy, witnesses raised the specific issue of the so-called 'time-to-grant' problem in relation to Framework Programmes.[144] Time-to-grant is expressed as the period from the close of the call for proposals, to the date the Commission signs a grant agreement (see Figure 2, in Chapter 1). The Minister noted this as a serious problem, in that the average time-to-grant currently stands at 340 days. The average figure varies across thematic areas, and is as high as 499 days[145] (over 16 months) in the area of security.[146] When compared with the time-to-grant for the US Defense Advanced Research Projects Agency (DARPA), which also funds a range of R&I projects, the length of time-to-grant for EU R&I projects is even more apparent. The average time from proposal receipt to contract award at DARPA is between 150 and 180 days.[147]

96. The Minister accepted that the current length of time-to-grant is too long for many organisations operating in fast moving technology areas. He also implied that it is particularly problematic for SMEs with limited resources; as in the case he described concerning a company which had been advised that it had been awarded an EU R&I grant, and "was so excited by being told that it has got a grant that it recruited extra staff. But the money was so slow to arrive that they had gone bust".[148]

97. For Horizon 2020, Mire Geoghegan-Quinn, the EU Commissioner for Research, Innovation and Science, has committed the Commission to reducing average time-to-grant by 100 days (as a non-binding target). This would result in an average of around 240 days. The Government suggested that this target is achievable, given that the time-to-grant in the current FP7 ICT thematic programme stands at 263, just 23 days more than this. However, the Minister conceded that a reduction of 100 days still seems far too slow. He suggested some means of speeding the process up, such as a simpler funding model with a flat-rate-only approach to certain costs, better IT systems, and assessments undertaken in parallel rather than sequentially.[149]

98. From a company's viewpoint, the time needed to make an application for EU funding is more than the time-to-grant. An applicant would have already devoted time to completing the application, and if successful, would spend additional time negotiating with the Commission on the grant agreement, before signing it. Furthermore, the common problem of late payments, caused by the need to check reports and accounts, extends further the time that companies have to wait before receiving the funds.[150] Indeed, Eurochambres has suggested a substantially bolder course of action, by way of a binding agreement that a decision should be made within 100 days of the submission. They also advocated that there should be several deadlines per year for submitting the application.[151]

99. While it is clear that the reduction of 100 days advocated by the Commission is not enough, Eurochambres' recommendation is perhaps unrealistic. The introduction of multiple deadlines could risk the pursuit of 'scientific excellence' through selection of the best proposals, since it would remove the Commission's ability to evaluate all the proposals collectively. The fact that the evaluation phase is only 150 days out of the 340 suggests that there is potential for cuts to the additional negotiating periods. This could be done through the methods the Government suggest.

100. The current length of the time-to-grant is of great concern, given the fast paced and dynamic nature of the R&I sector. We commend the European Commission's undertaking to reduce this by 100 days, but this is not enough. We urge the Commission to carry out further work in this area, through simplifying the negotiation stage, the funding instruments and improving IT systems.

101. We consider that late payments to successful applicants exacerbate the problem of time-to grant and must not be tolerated.

SME participation

102. SMEs, totalling 20.7 million businesses in the EU, amount to more than 98 per cent of Europe's businesses. More than one fifth of these firms operate in sectors such as high-tech manufacturing, and knowledge intensive services such as pharmaceuticals, electronics, and scientific R&I.[152] As well as being crucial to economic growth because of their sheer number, they are also crucial to wider prosperity through job creation. This is highlighted in the report by NESTA, The vital 6 per cent: How high growth innovative businesses generate prosperity and jobs, which used the UK as a case study (where SMEs represent 99.9 per cent of businesses), and noted that six per cent of high-growth, innovative SMEs generated 50 per cent of the new jobs created by existing businesses between 2002 and 2008.[153] From an EU wide perspective, SMEs accounted for 67 per cent of total employment in 2012.[154]

103. It is therefore crucial for the Commission to break down the barriers to SME participation in the area of R&I to enable growth. The Commission acknowledged the importance of SMEs and has set up specific schemes to encourage greater SME participation. It cited the European Institute of Innovation and Technology (EIT), as having been particularly successful in this respect.[155] The workings of the EIT are outlined in Box 2.

BOX 2

The European Institute of Innovation and Technology (EIT)

The EIT was established in 2008 as a body of the European Union, to "increase European sustainable growth and competitiveness by reinforcing the innovating capacity of the EU".
Its main activities are implemented through a distributed network of Knowledge and Innovation Communities (KICs).
The EIT has been given an important role in Horizon 2020, with the objectives of addressing societal challenges and assisting the EU to gain leadership in enabling and industrial technologies.
The three current KICs are:

(i) KIC Inno-Energy: sustainable energy;

(ii) EIT ICT labs: future information and communication society; and

(iii) Climate-KIC: climate change mitigation and adaptation.

Each KIC is run in a similar way to a conventional business, headed by a CEO and an Executive Board, operating with a business plan containing key performance indicators.
25 per cent of the funding is from the EIT, while the remaining 75 per cent is raised from private sources.
The KICs create seven year partnerships made up of higher education institutions, research organisations, business entities and sometimes local authorities.

Source: Catalysing Innovation in the Knowledge Triangle: Practices from the EIT Knowledge and Innovation
Communities[156]

104. A 2011 independent review of the KICs indicated that they have been successful overall, especially in the context of supporting the creation of start-ups, spin-offs and SMEs.[157]

105. Despite the success of projects like the KICs in engaging SMEs, many of the witnesses pointed to the need for a more 'bottom-up' approach, allowing flexibility in relation to the topic to be considered. They suggested that this would enable SMEs and other small-scale stakeholders to innovate creatively.[158] Writing as members of a current FP7 health consortium on back pain, Dr Urban et al raised the point that, "the only way to submit a proposal is in answer to a very prescriptive call". They noted that broader calls for proposals would be more beneficial.[159] Both Chemistry Innovation Limited and Growth Accelerator suggested that an approach allowing greater flexibility over the topic to be addressed would be most valuable.[160]

106. John Hill said that increasing SME involvement in EU funded research and innovation programmes would also help to address the issue of "technology push and … market pull". This refers to the need for EU R&I projects to respond to the needs of the market (technology pull) as well as pushing technology onto the market (technology push).[161] Commission projects such as the EIT, and the themes within Horizon 2020, focus on societal concerns such as environmental sustainability and climate change which may fail to address key market gaps and therefore overlook opportunities for growth. Microsoft suggested that a 'bottom-up' approach where SMEs and individual researchers are supported in identifying market gaps in any area, and addressing them in any form, may serve to foster growth more effectively and ensure that "game changing"[162] technological advances occur within and not outside Europe.[163]

107. John Hill seemed hopeful that the new 'Dedicated SME instrument' would serve to provide an effective mechanism for a bottom-up approach.[164] Only SMEs will be allowed to apply for funding under the instrument and SME-specific support will be provided. The instrument will be aligned with the different Horizon 2020 pillars and will support SMEs involved in all types of innovation. Through this instrument, the Commission purports to take a "bottom-up approach within a given societal challenge or enabling industrial technology so as to leave sufficient room for all kinds of promising ideas."[165]

108. Eurochambres, UEAPME, TAFTIE, EVCA, EARTO[166], and Eban[167] were concerned that the 'Dedicated SME Instrument' would not work unless it was detached from the overarching societal themes set out for Horizon 2020. They expressed these concerns in a letter to the Commission in March 2013 which drew attention to the problems SMEs had in engaging with the thematic areas of the current FP7.[168]

109. We are concerned that the pre-defined topics in many of the EU funding programmes for R&I will deter the involvement of high-growth SMEs. We recommend that the European Commission should consult with representatives from SMEs in the development of calls for proposals under the 'Dedicated SME Instrument'.

110. Flexibility in terms of funding was also a key theme throughout the evidence. Using the life sciences sector as a case study, the Association of the British Pharmaceutical Industry (ABPI) argued that this flexibility should extend to a variation in terms of partnership structures and funding, to reflect the different business models and innovation cycles of stakeholders. Witnesses cited the Clean Sky initiative as an example of this flexibility in funding. The Clean Sky initiative is one of five Joint Technology initiatives which are long term public-private partnerships.[169] Rolls Royce heralded the initiative as a way of breaking down barriers to SME participation through allowing flexibility in terms of contracting rules.[170] ADS agreed with this, arguing that one of the reasons for the strong SME engagement with the programme has been the 'mono-beneficiary'[171] funding option, which allows the programme to award calls for funding to a single company. They argued that this removes from SMEs the onerous task of forming a multinational consortium before bidding for a proposal under the programme. ADS were concerned that the European Parliament's Industry, Research and Energy (ITRE) Committee is looking at removing this flexible funding option.[172]

111. There are arguments against this flexibility. RCUK highlighted that problems can arise from the different funding rates and rules for participation in these schemes, which can create extra burdens of administrative complexity, and have a counter-effect of dissuading SMEs from participation.[173]Nonetheless, the figures indicate that some flexibility is positive. Given that SME participation in the Clean Sky programme is as high as 42 per cent of participants,[174] it would seem sensible for the European Parliament Committee to consider seriously retaining the option.

112. Allowing greater flexibility over the rules of participation for different proposals carries a risk of greater complexity for stakeholders, against which it is important to guard. However such flexibility is necessary in order to take into account the varying needs of the wide spectrum of R&I stakeholders in Europe (see Chapter 3). Therefore, we urge the European Commission to maintain and develop flexible funding options, such as that offered by the different contracting rules under the Clean Sky initiative.

Public procurement

113. A number of witnesses spoke about the potential for using public procurement to stimulate R&I in the EU. The EU on its own does not carry out large-scale public procurement, it is Member States that do so. However, AIRTO suggested that where the Commission does procure goods and services it can play a role as an "anchor tenant"[175] in the same way the US Government does, even if on a much smaller scale. That is to say, the Commission can procure in a way that encourages innovation and new business models.[176] Malcolm Harbour MEP said the recommendations of the House of Lords Science and Technology Committee report Public procurement as a tool to stimulate innovation[177] have been helpful in bringing the idea of public procurement forward in the context of innovation.[178] The House of Commons Science and Technology report Bridging the valley of death: improving the commercialisation of research also called for public procurement to be used to nurture technological innovation in the UK, particularly amongst SMEs.[179]

114. We endorse the recommendations of the Science and Technology Committees in both Houses of Parliament, on using public procurement as a means of nurturing innovation in the UK and supporting SMEs. We encourage the European Commission to consider the application of the Committees' recommendations to Europe. In the light of the length of time it can take to bring innovative 'blue sky' products to the market, the Committee considers that there is room for expanding the role of public procurement in this area.

Follow-on Funding

115. Various witnesses raised a concern about the lack of flexibility in funding arrangements at the end of a project.[180] Design Wales observed that, although there is a requirement in most R&I programmes to demonstrate how a project might be sustainable after the programme period, it is difficult to do so when the objective of receiving the fund in the first place is to find a way to solve a problem which may not be straightforward to solve.[181]

116. Chemistry Innovation Limited raised concerns about the barriers to commercialisation of research due to projects with further commercial potential being deemed completed. They pointed out that there is currently little consideration by the Commission of the 'follow-on funding' needs of completed projects and how commercial impact can be maximised through this, a view which was also held by other witnesses.[182] Professor Ritter stated that the first 18 months of the seven year KIC project were spent building the community and getting to know each other, after which the project really began to take off.[183] Since some EU R&I projects only last for a period of three years, there is a risk that projects disband when at their most productive, as acknowledged by Dr Urban et al.[184]

117. RAND Europe stated that it did not believe that there was a lack of a mechanism for follow-on funding. Rather, it argued that the lack of 'follow-on' contracts pointed to a deeper problem, related to the overall lack of empowerment of decision-makers within the Commission, to take the decision to continue to work with successful groups which are meeting the objectives of a proposal.[185]

118. The lack of transfer from research to commercialisation is a key problem with European R&I programmes, which makes the lack of 'follow-on funding' particularly serious.[186] The idea of a 'valley of death' between technological research and commercialisation has often been expressed.[187] 'Follow-on funding' could serve as a means of dealing with this problem through furthering the impact of a successful project that reaches 'completion'.

119. While acknowledging this problem, the Minister observed the limitations of 'follow-on funding', raising the perception by some stakeholders that funding goes repeatedly to the same bidders, "and that … [EU research funding] has become a closed shop rather than being open for the new bidder".[188] Research by the Commission's Joint Research Centre, the Commission's in-house science service, confirms that in FP6 49.4 per cent of organisations had previously taken part in at least one other framework programme, a figure which has steadily risen since FP2.[189]

120. If R&I is to drive future economic growth within Europe it is particularly important to ensure R&I efforts are commercialised. While unnecessary repeat funding for its own sake should be avoided, decision makers should be empowered to make use of follow-on funding mechanisms to enable commercialisation of R&I. Enabling 'repeat players' to expand and commercialise research which is at the point of commercial success would be a better investment than funding the same stakeholders for a different project.

Open Access to Innovation versus Intellectual Property

121. It has been argued within and outside this inquiry that there are clear benefits to open access to innovation, given that it provides a framework for the sharing of innovative ideas across and outside of Europe, speeding up the process of innovation.[190] The EU has responded to this, adopting the Open Access initiative as an EU policy, and in 2008, implementing an Open Access Pilot, as part of FP7.

122. While it is not within the remit of this report to comment fully on the interaction between intellectual property and open access, it is an issue which potentially affects the participation of the private sector in EU R&I programmes, which we wish to acknowledge.

123. Despite accepting the benefits of open access, many of the witnesses from the private sector (particularly representatives from large companies) highlighted a tension between the benefits provided by open access to results, and the threat to private companies concerned about losing intellectual property rights (IPR) through participation in EU R&I programmes.[191]

124. Evidence from ABPI and Pfizer suggested that the Innovative Medicines initiative model of handling IPR has been particularly successful in striking a balance between the protection of IPR and open access. The structure of the programme enables for-profit companies looking to generate commercial sales by the development of medicines to participate in EU R&I. This is done through enabling companies to maintain IPR in the main, while allowing open access to pre-competitive research undertaken in the programme.[192] While Pfizer argued that its experience with these types of partnership has been positive, it conceded that negotiating with academic centres on how to apportion IPR can sometimes introduce complexity. It highlighted that the tension lies in the pressure on universities to generate revenues from their "prior art"[193] through attaining IPR royalties, while companies like Pfizer consider their work at this stage to be pre-competitive, and are therefore content to allow free access to it.[194]

125. Pfizer also noted the global nature of the pharmaceutical industry, and the need for a globally consistent IP regime.[195] The House of Lords Science and Technology Committee published its report The implementation of open access, on 22 February 2013.[196] The report focuses on open access in relation to academic publication, rather than a wider open access to research findings. It recommends that the UK Government should be careful in embracing an open access policy, suggesting that the effects on stakeholders of such a broad open access policy should be monitored, and the Government should take into consideration whether the UK, in stating a preference for a broader open access policy, is moving in the same direction as other countries.

126. We suggest that the Commission, the Council and the European Parliament note the recommendations in the recent House of Lords Science and Technology Committee report and take a cautious approach to open access, so as not to disadvantage EU R&I participants. We recommend that in considering this issue, the Commission consults with stakeholders, particularly those in the private sector who have expressed concern about protecting their IPR, in order to find workable solutions for balancing the benefits of open access to innovation.

127 European Commission Back

128 ibid. Back

129 Note that the classification of organisation type in the FP7 data differs to that in the FP6 data. Back

130 A breakdown of UK participation in different economic sectors and in different framework programmes is available on the CORDIS website: http://cordis.europa.eu/united_kingdom/home_en.html Back

131 Microsoft; Growth Accelerator; BIS Back

132 Technopolis Group (2012), Getting the Balance Right: Basic Research, Missions and Governance for Horizon 2020 Back

133 Microsoft Back

134 European Commission website:
http://ec.europa.eu/dgs/secretariat_general/admin_burden/index_en.htm Back

135 ADS Back

136 Q 42 (Rolls Royce) Back

137 BIS Back

138 Q 78 Back