3

Alternate Public–Private Partnership Options

The committee reviewed materials presented at the workshop highlighting the features of business models used by other U.S. public–private partnerships and by similar international programs. Of particular interest for consideration in the future of the Department of Defense (DoD) institutes were features in the U.S. models (Table 3.1), including the following:

• The practice of reviewing programs at prespecified intervals (e.g., 5 years) and deciding to renew, re-compete, or terminate based on results. Programs with a fixed term, such as Industry–University Cooperative Research Centers (IUCRCs), are planned with an increase in industry funding as federal funding phases out.
• The Other Transaction Authorities used by DoD research and development (R&D) consortia, enabling fast development and a fast transition from prototype to production.
• The facilitated connections to targeted acquisition programs provided by the Navy Manufacturing Technology (ManTech) Centers.
• The cost-shared industry-driven agenda used by the precompetitive National Shipbuilding Research Program for research projects benefiting the whole shipbuilding sector.
• The centralized National Institute of Standards and Technology (NIST) program office and core funding model for the Manufacturing Extension Partnership network.

• Technology transfer through students in the National Science Foundation (NSF) Engineering Research Center, IUCRC, and Advanced Technological Education programs.
• Establishment of University Affiliated Research Centers (UARCs) in areas of DoD technical need and ability for UARCs to work as trusted agents across the full spectrum of technology readiness levels (TRLs) and manufacturing readiness levels (MRLs).

The workshop discussion of foreign models, and the content of Table 3.2, focused on high-level issues of global industrial policy that have been addressed in prior reports of the National Academies of Sciences, Engineering, and Medicine.^1,2 Of particular interest in the foreign models (Table 3.2 and Table 3.3) were the following:

• Prespecified reviews. Similar to the U.S. cases, foreign programs are often reviewed at prespecified intervals (e.g., 5 years); the governing bodies decide to renew, re-compete, merge, or terminate based on the results of these reviews.³
• Size. Foreign programs tend to be much larger as a share of the nation’s manufacturing gross domestic product (GDP) and often in absolute terms. The programs profiled in Table 3.3 are 8 to 50 times larger as a share of manufacturing GDP than the Manufacturing USA institutes.

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¹ National Academies of Sciences, Engineering, and Medicine, 2018, Globalization of Defense Materials and Manufacturing: Proceedings of a Workshop, The National Academies Press, Washington, DC, https://doi.org/10.17226/25101.

² National Research Council, 1990, The Internationalization of U.S. Manufacturing: Causes and Consequences, The National Academies Press, Washington, DC, https://doi.org/10.17226/1573.

³ For example, “[t]here was a major review of all the Catapults in 2016/17. Different Catapults had different outcomes as you would expect but High Value Manufacturing comprising the seven Centres came through with flying colours and was awarded guaranteed core funding for 5 years on a rising real terms trajectory. I completed my 6 years on the Supervisory Board last summer but I can probably find more detailed figures if you need them” (e-mail from Mike Gregory to Susan Helper and William Bonvillian, January 31, 2019).

TABLE 3.1 Alternate U.S. Public–Private Partnership Business Models

NOTE: ATE, Advanced Technological Education; CA, cooperative agreement; DoD, Department of Defense; ERC, Engineering Research Center; IDIQ, indefinite delivery/indefinite quantity; IP, intellectual property; ISO, International Organization for Standardization; IUCRC, IndustryUniversity Cooperative Research Center; ManTech, manufacturing technology; MEP, Manufacturing Extension Partnership; MRL, manufacturing readiness level; NA, not applicable; NIST, National Institute of Standards and Technology; NSF, National Science Foundation; ONR, Office of Naval Research; OSD, Office of the Secretary of Defense; OTA, Other Transaction Authority; R&D, research and development; TIA, technology investment agreement; TRL, technology readiness level; UARC, University Affiliated Research Center.

• Complementary institutions. Foreign programs often benefit from complementary institutions. Germany has a particularly well-developed set of such institutions, including a “dual system” of education that combines theoretical instruction with practical work experience, patient capital, and codetermination. Taiwan’s Industrial Technology Research Institute (ITRI) has developed a powerful ecosystem that integrates university researchers, the ITRI labs, and product development for large and small companies supported further by the facilities of the Hisinchu Science Park. The very close geographical proximity, the well-developed facilities, and the sustained collaborative relationships have helped Taiwan develop deep supply chains, notably in industries such as semiconductors.

• Core funding. Foreign programs receive significant central and state-level government funding that is not tied to individual projects. This core funding is used for activities such as maintaining up-to-date equipment and facilities; building and participating in networks that include universities, companies, trade associations, etc.; strengthening regional innovation clusters; providing assistance to small companies; and developing training programs. The foreign applied research organizations in Table 3.3 received from 10 to 70 percent of their funding in the form of government funds not tied to the performance of research contracts. Most programs also rely on funding from industrial partners (companies and governments) for projects. The core funding helps create the capability to be responsive to both government and industry needs as expressed in these individual projects.
• Staff and equipment. Many programs maintain extensive staff and a physical presence (see Table 3.2).
• Stakeholders. Many programs involve a variety of stakeholders in governance, including companies, universities, labor organizations, and other governments. For the European countries, the military plays a much smaller role in the national budget and in the manufacturing base and thus plays a smaller role in the institutes. The civilian-military interplay for the Chinese Manufacturing Innovation Centers is much more complicated and includes R&D for defense, but the funding levels are not available to the public.
• Long-term commitment. While individual institutes are periodically reviewed and subject to closure, most countries’ overall programs are seen as an essential part of national competitiveness strategy. For example, the first Fraunhofer institutes were opened in the 1950s and are now reaping the benefit of its first-generation students being national academic and industry leaders who know how to engage with and utilize the Fraunhofer Society for maximum national benefit.
• Coordination across institutes. Most countries have some provision to coordinate the work of the various institutes. China has formal hierarchical plans, such as “Made in China 2025.” The UK and Germany have more give- and-take among the multiple stakeholders involved.

TABLE 3.2 Governance Structures of Leading Research Organizations

^a IRAP integrated into 18 institutes of the National Research Council of Canada.

^b Converted to dollars at prevailing rate, December 12, 2012.

NOTE: IRAP, Industrial Research Assistance Program; ITRI, Industrial Technology Research Institute.

SOURCE: National Research Council, 2013, 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program, The National Academies Press, Washington, DC, https://doi.org/10.17226/18448.

TABLE 3.3 Characteristics of International Public–Private Partnerships

^a The Fraunhofer funding model is difficult to capture in a simple table. As a 2013 report notes: “A widespread misimpression exists that the Fraunhofer’s primary funding source is the private sector. In fact, onethird of Fraunhofer’s funding consists of ‘core’ money provided by the German federal and state governments, roughly another third comes from research contracts with government entities, and onethird is provided through research contracts with the private sector—which are frequently supported by government grants and other financial assistance” (National Research Council, 2013, 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program, The National Academies Press, Washington, DC, p 232).

^b High Value Manufacturing (HVM) Catapult is an institute within the Catapult system of 11 institutes.

NOTE: A*Star, Agency for Science, Technology and Research; GDP, gross domestic product; IMEC, InterUniversity Micro Electronic Center; ITRI, Industrial Technological Research Institute, Taiwan; MIC, China’s Manufacturing Innovation Centers.

• Index/Manufacturing GDP is a comparison of the program funding to the manufacturing portion of GDP, where the U.S. investment in Manufacturing USA is 1.
• Low levels of core funding were found to lead to focus on shortterm projects and services.
• Currency conversions dated December 31, 2017; for ITRI, 1 NTD = 0.03242 USD.

SOURCE: Data from Hauser Report (The Current and Future Role of Technology and Innovation Centers in the UK, 2010), and United Nations National Accounts Main Aggregates Database, value added by economic activities, at current prices—U.S. dollars. GDP data source is Statistics Times, “List of Countries by Projected GDP,” http://statisticstimes.com/economy/countiresbyprojectedgdp.php, accessed November 29, 2017.