INGENIOUS BRITAIN
Supporting High Tech Companies: Creating the Right Conditions for R&D Investment
B. USING GOVERNMENT PROCUREMENT TO STIMULATE HIGH TECH INNOVATION
The Evidence STRENGTHENING THE TECHNOLOGY STRATEGY BOARD
The Technology Strategy Board (TSB) supports innovation at its applied stage and through its technical development. It achieves this through providing grants for collaborative research and fostering industry/academic partnerships. Their investment is focused where the UK has technological capability, a large market opportunity exists and other measures (e.g. R&D tax credit) are insufficient to get the project off the ground. As a relatively new body, the TSB is doing valuable work and must be given time to fully develop its role. They should consider providing funding for placements and internships for undergraduates, postgraduates and post-docs into industry. In addition proof of concept funding should be pooled and awarded through the TSB. Funds should be drawn from the RDAs innovation budgets, and combined with the money already made available through the TSB – this would simplify access to the funds and provide significant support to firms in the initial stages of development of their technology.
Government procurement contracts can provide companies, particularly start-ups, with a powerful incentive to develop new technologies. In the USA, the government was responsible for aiding the development of the internet through the procurement functions delivered by DARPA. The current government is relatively poor at accessing the market for high-tech products, compared to countries with thriving high tech sectors like the United States or Finland (Figure 9). While large contractors can deliver a wider range of services and quicker response times, it is important to recognise that using a number of smaller companies could also deliver a range of benefits. Doing so could reduce risk, improve service and lead to more innovative and technologically advanced outcomes. With little reputation to trade on, small firms are often more responsive and more innovative. Procuring with several small companies also encourages competition between them, which can lead to quicker delivery and improved solutions. Frequently using several small companies to spread risk can also be more cost effective than placing one large contract with a large company. This is certainly the experience at Dyson. This runs counter to the tendency for procurement staff to rely on ‘safer’ large firms, but the evidence is positive. Despite the benefits of dealing with smaller companies, the UK government’s track record of doing this is poor, and the schemes available to help SMEs compare unfavourably with those in America.82 In the UK, only 16% 83 of the total value of central government contracts in 2005/6 was won by SMEs (firms with 249 or fewer employees), compared to 22% in 2004/05. This amounted to half of all contracts. SMEs gain a larger percentage of procurement from local government and in the same period gained 60% of the total value of these contracts. In the USA, the Small Business Innovation Research (SBIR) programme awards contracts for the development of technologies that federal agencies believe they will require. It provides 100% of the funding required, plus a profit for the company. This is underpinned by legislation requiring 2.5% of all federal government agencies’ external R&D budgets be distributed through this programme. Combined with other programmes, the SBIR delivers $1.5 billion in R&D contracts to small businesses.
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Kristian Uppenberg, R&D in Europe: Expenditure across Sectors, Regions and Firm Sizes (2009) HM Treasury, Accelerating the SME Economic Engine: Through Transparent, Simple and Strategic Procurement (2008)
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