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Strategic Long-Term Participation by DoD in Its Manufacturing USA Institutes (2019)

Chapter: 3 Alternate PublicPrivate Partnership Options

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Suggested Citation:"3 Alternate PublicPrivate Partnership Options." National Academies of Sciences, Engineering, and Medicine. 2019. Strategic Long-Term Participation by DoD in Its Manufacturing USA Institutes. Washington, DC: The National Academies Press. doi: 10.17226/25417.
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Suggested Citation:"3 Alternate PublicPrivate Partnership Options." National Academies of Sciences, Engineering, and Medicine. 2019. Strategic Long-Term Participation by DoD in Its Manufacturing USA Institutes. Washington, DC: The National Academies Press. doi: 10.17226/25417.
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Page 32
Suggested Citation:"3 Alternate PublicPrivate Partnership Options." National Academies of Sciences, Engineering, and Medicine. 2019. Strategic Long-Term Participation by DoD in Its Manufacturing USA Institutes. Washington, DC: The National Academies Press. doi: 10.17226/25417.
×
Page 33
Suggested Citation:"3 Alternate PublicPrivate Partnership Options." National Academies of Sciences, Engineering, and Medicine. 2019. Strategic Long-Term Participation by DoD in Its Manufacturing USA Institutes. Washington, DC: The National Academies Press. doi: 10.17226/25417.
×
Page 34
Suggested Citation:"3 Alternate PublicPrivate Partnership Options." National Academies of Sciences, Engineering, and Medicine. 2019. Strategic Long-Term Participation by DoD in Its Manufacturing USA Institutes. Washington, DC: The National Academies Press. doi: 10.17226/25417.
×
Page 35

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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 pre-specified intervals (e.g., 5 years) and deciding to renew, re-compete, or terminate based on results. Programs with a fixed term, such as IUCRCs, are planned with an increase in industry funding as federal funding phases out.  The Other Transaction Agreements 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 ManTech Centers.  The cost-shared industry-driven agenda used by the pre-competitive National Shipbuilding Research Program for research projects benefitting the whole shipbuilding sector.  The centralized National Institute of Standards and Technology (NIST) program office and core funding model for the MEP network.  Technology transfer through students in the National Science Foundation (NSF) ERC, IUCRC and ATE programs.  Establishment of 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:  Pre-specified reviews. Similar to the U.S. cases, foreign programs are often reviewed at pre- specified 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 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. 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). PREPUBLICATION COPY – SUBJECT TO FURTHER EDITORIAL CORRECTION 3-1

 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 co-determination. Taiwan’s 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 between 10 to70 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 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, with involvement of multiple stakeholders. PREPUBLICATION COPY – SUBJECT TO FURTHER EDITORIAL CORRECTION 3-2

TABLE 3.1 Alternate U.S. Public–Private Partnership Business Models 3-3 PREPUBLICATION COPY – SUBJECT TO FURTHER EDITORIAL CORRECTION

TABLE 3.2 Governance Structures of Leading Research Organizations Direct Fraunhofer ITRI Ministry of IRAP National Catapult Carnot Supervisory None Economic Research Council Technology National Authority Affairs of Canada Strategy Board Agency for Research Form of Entity Private not- Government- Government Various private Public for-profit owned research program and public research association institute organizations institutions Geographic Widely One main site in Widely Plans for Distributed Footprint distributed Hsinchu, one distributed but distribution across France across beta site in heavily across the UK Germany Tainan concentrated in Quebec and Ontario Prototype Yes Yes No ? Yes Development for Companies Pilot Yes Yes No Yes Yes Lines/Simulation Platforms on Premises Company Yes Yes N/A Yes Yes Personnel Can Work Onsite & Use Laboratory Facilities Spin-offs Yes Yes No Yes Number of 69 1 18* 7 34 Institutes Staff 20,000 5728 4,000 Evolving 19,000 Patents 6,131 17,569 NA NA 880/year Annual “Core” 723 300 90 65 79 Government Funding (Millions of Dollars)** NOTES: *, IRAP integrated into 18 institutes of the National Research Council of Canada; **, Converted to dollars at prevailing rate, December 12, 2012. 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. PREPUBLICATION COPY – SUBJECT TO FURTHER EDITORIAL CORRECTION 3-4

TABLE 3.3 Characteristics of International Public–Private Partnerships Catapult* Attribute MfgUSA Fraunhofer HVM IMEC A*Star ITRI MIC Owner Government Fraunhofer Innovate Nonprofit Government Nonprofit Government agencies Society UK of Singapore of China Type of Nonprofit Nonprofit Nonprofit Nonprofit Autonomous Nonprofit Government governing government organization Country USA Germany UK Belgium Singapore Taiwan China Estimated 2017 $19,417 $3,423 $2,496 $426 $292 $566 $11,795 GDP (US$ billions) Percent GDP 12% 23% 10% 14% 20% 29% 23% from Mfg Number of 14 69 7 9 18 6 8 institutes Year started 2012 1949 2010 1964 1991 1973 2016 Estimated total $330 $2,482 $287 $426 $163 $714 Unavailable budget/year (US$ millions) Index: Investment 1.0 22.3 8.1 50.4 19.8 30.7 Unavailable per Mfg GDP Government 0% 33% 33% 15% 15%-100% 25% Unavailable direct support after 5th year Government Unavailable 33% 33% Unavailable Unavailable 0% Unavailable indirect support (competitive projects) NOTES: *HVM = Catapult is an institutes within the Catapult systems of 11 institutes. ** Partners = Universities and others stakeholders. Index/Mfg GDP is a comparison of the program funding to the Mfg portion of GDP, where the US investment in Mfg USA is 1. Low levels of core funding were found to lead to focus on short-term projects and services. GDP Data source: http://statisticstimes.com/economy/countires-by-projected-gdp.php accessed 11/29/17. Currency conversions dated 12/31/17; for ITRI, 1 NTD = 0.03242 USD. Ref: Hauser Report (The current and Future Role of Technology and Innovation Centers in the UK) 2010. Ref: United Nations National Accounts Main Aggregates Database, value added by economic activities, at current prices— U.S. dollars. IMEC = Inter-University Micro Electronic Center A*Star = Agency for Science, Technology and Research ITRI = Industrial Technological Research Institute, Taiwan MIC = China’s Manufacturing Innovation Centers NOTE: The Fraunhofer funding model is difficult to capture in a simple table. As a 2013 NRC report notes: “A widespread misimpression exists that the Fraunhofer’s primary funding source is the private sector. In fact, one-third 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 one-third is provided through research contracts with the private sector—which are frequently supported by government grants and other financial assistance.” 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, p 232. PREPUBLICATION COPY – SUBJECT TO FURTHER EDITORIAL CORRECTION 3-5

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To effectively mature and transition DoD manufacturing science and technology advances into production, DoD must have access to a robust and responsive U.S. industrial base which is often driven by advanced manufacturing technologies. The Manufacturing USA institutes are considered crucial and game-changing catalysts that are bringing together innovative ecosystems in various technology and market sectors critical to DoD and the nation.

Since 2012, DoD has invested $600 million directly in its Manufacturing USA institutes with the understanding that the initial federal investment included (1) core funding and (2) one-time, start-up funding to establish the institutes within a period of 5 to 7 years. As the institutes now begin to reach year five, DoD is evaluating the effectiveness of the institutes in fulfilling their goals and the best on-going roles for the federal government, including on-going funding options, to ensure optimal benefit to U.S. competitiveness. This report reviews the role of DoD’s investment to date in establishing its eight institutes as public–private partnerships and its engagement with each institute after it has matured beyond the start-up period.

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