;

'NESTA MakingInnovationFlourish

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ResPublica Policy Limited15 NewlandLincolnLincolnshireLN11XG

8 April 2011

BY EMAIL (phillip.blond@respublica.org.ukl AND BY FIRST CLASS POST

Dear Sirs,

Contract for the Provision of Research Services dated 7 September 2009(the "Agreement")

We write further to ResPublica Policy Limited's recent submission to NESTA of fourreports pursuant to the Agreement, namely, Connected Capitalism: Lessons fromLombardy; Health by Association: the use of social networks and social capital to tackleobesity; A New Competition Policy for the UK; and Civic Limits: How much more involvedcan people get?

As you are aware, under the terms of the Agreement, you were required to deliver toNESTA six research reports at regular intervals on 15 September 2009, 15 November2009, 15 January 2010, 15 March 2010, 15 June 2010 and 15 August 2010 respectively,for publication by NESTA, as well as to help organise public events to promote them. It isour view that you have materially and/or persistently breached the terms of theAgreement and/or are in repudiatory breach of the Agreement as set out below.

Background

In accordance with the terms of the Agreement, NESTA paid Res Publica £42,857 onsignature of the Agreement. You submitted the first report in September 2009 andreceived the associated milestone payment of £42,857 from NESTA. However, you thenfailed to deliver any of the five remaining reports and associated events by therespective milestone dates set out in the Agreement. The second report, due on 15November 2009, was finally submitted 12 months late in November 2010.

Despite and without prejudice to these persistent and material breaches of contract,NESTA paid the associated third milestone payment of £42,857 and agreed verbally(Stian Westlake/Phillip Blond) in December 2010 to set a final deadline of 31 March 2011for submission of the remaining four reports. This verbal agreement was confirmed in anumber of subsequent emails and phone calls between us.

Drafts of the remaining four reports were indeed submitted to us by the deadline of 31stMarch 2011. However, despite the extremely generous extensions of time given byNESTA to enable you to complete the reports; none of the reports are of a sufficientquality to be published by NESTAor satisfactory in terms of content or thoroughness. Adetailed assessment of the four reports is attached as a Schedule this letter. As you willsee, we recognise that there are some positive elements in the reports, but each of themhas significant weaknesses which mean that they are not suitable for publication, fit forour purposes or satisfactory to us as required by the Agreement. You are therefore in

Ndtional Endowfltent fOf Science Tethi1Q!ogy ~mdUl{\ i<) t .....U-h1irrndll S!r John (.hl~11nlrn

N EST'A Maki'ngInno~ationFlourish

1 Plough PlaceLondonEC4A1DE

T +44 (0)20 7438 2500F +44 (0)207438 2501www.nesta.orq.uk

breach of your obligations under the Agreement as set out in more detail below and nofurther payment is due from NESTAunder the Agreement. Given the long extensions oftime which we have already allowed you to complete the reports, it is not possible toallow any further extension for you to revise or improve the reports.

In relation to the Obesity report, we understand that the delivery of a satisfactory reportwas hindered by the long-term sick leave of the lead researcher. This was not drawn toour attention until it was mentioned in passing in a conversation in the week of thedeadline for final submission of reports.

Termination of the Agreement

Given your failure to comply with your obliqatlons under the Agreement as set outabove, this letter is notice of termination of the Agreement with immediate effect formaterial and/or persistent breach pursuant to clause 8.2 of the Agreement, and/or forrepudiatory breach, in both cases as set out below:

• In particular, you are in material and/or repudiatory breach of the Agreementbecause the reports submitted by you are not fit for purpose as they are not fit forpublication, have not been completed with reasonable care and skill, and have notbeen completed in accordance with the key conditions of the Agreement in that youhave failed to:

1. conduct the research according to the highest professional standards expected ofa competent supplier of the same services (clause 3.1.4);

2. use the resources granted for the research in an effective and efficient mannerwith regards to the stated objectives of the research project (clause 3.1.5(a));

3. update NESTA on a regular basis,· being honest about difficulties including thelong-term illness of one of your researchers (clause 3.1.5(d));

4. ensure that the researchers appointed to work on the project are suitablyqualified and able to dedicate sufficient time and attention to allow the ResearchProject to progress in line with the timescales set out in Schedule 1 (3.1.5(i»;and

5. ensure that the interim and final reports are of a high quality in accordance withthe quality control guidelines detailed in Schedule 2 of the Agreement (3.1.5(1)).

• In the alternative, you are in persistent and/or repudiatory breach of the Agreementby failing repeatedly:

1. to meet the dates for delivery set out in the milestones;

2. to produce work which is fit for purpose, complete the work with reasonable careand skill and in accordance with the terms of the Agreement as set out above.

On the basis that we consider the Agreement to be ,terminated as of the date of thisletter, we confirm that we will not be making any further payments to you under theAgreement.

NallUJMl Endo':\'l!lCnl!m Stieflt~ T~t.lUlOlogy "Ul!1Ih~ An,Olairflioll1 Sir John {llIshoh'l

-NESTA MakingInnovationFlourish

1 Plough PlaceLondonEC4A lDE

Yours faithfully,

Stian WestlakeExecutive DirectorFor and on behalf of NESTA

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(t'1iJtlm<Jn' f\ir John (hl\t;{)lril

T +44 (0)2074382500F +44 (0)20 7438 2501www.nesta.org.uk

NESTA MakingInnovationFlourish

1 Plough PlaceLondonEC4A lDE

T +44 (0)20 7438 2500F +44 (0)20 7438 2SOlwww.nestl.org.uk

ScheduleComments on Quality of Reports Submitted

1. Connected Capitalism: Lesson from Lombardy

This is a report on an extremely interesting subject, and contains several tantalisinggems of information. However, it is poorly structured and presented and is in someplaces very unclear. Since it was submitted on the day of the expiry of the contract andcontains no account of sources or bibliography, we have not been able to determinewhether it reflects the extensive literature on the innovation system of "Thlrd Italy".

Presentation: This report contains a large number of typos and would not in its currentstate be suitable for publication.

Structure: The Executive Summary is ineffective: it does not describe the NorthernItalian industrial system, but rather leads with recommendations that appearunsupported. Readers wanting a snap-shot of the case study at the heart of the reportwill not find it in the executive summary.

Incomplete analysis: the core of the report - the analysis of Lombardy's distinctiveindustrial system - is interesting but appears to be incomplete and would benefit fromfurther refinement. For example, the operations of the very interesting Lombard bankingsystem are described, but not analysed (what is the causative link to the distinctivecharacteristics of wider system?). Similar, the box section on innovation and intellectualproperty is cursory and poorly referenced.

Questionable recommendations: The report's recommendations do not appear to bewell grounded in the analysis presented in the report. For example, the recommendationof a national cooperation' policy rests on the assumption that cooperation in the pursuitof innovation is significantly hindered by fears of collusion rather than on any of thespecific insights from Lombardy. No evidence is presented to support the assumption(which at least in the context of the technology sector seems counterintuitive), makingthe recommendation seem disjointed and out of place. Similarly, the recommendationfor tax breaks to "tncentlvlse the clustering of enterprises" does not seem to be based onany specific Italian policies, and disregards the extensive literature on what policies areand are not effective in encouraging clustering.

2. Health by Association: the use of social networks and social capital to tackleobesity

We have provided feedback on this report before, but I believe it is still not ready topublish. The main body of the report contains a wide range of interesting analysis.However, the report suffers from a lack of originality and some proposals that appear to.be poorly thought through.

Lack of originality: The social element of obesity has been widely observed, not leastin a range of research projects funded by the Medical Research Council; it has played animportant role in informing government policy and public service practice for some time(reflected for example by the links between the previous Government's 2008 Obesitystrategy and its Play strategy). This puts a significant burden on anyone researching thesubject to make new and insightful recommendations, and to demonstrate that they aredifferent from what mainstream views; we would consider this an important part of a

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-NESTA MakingInnovationFlourish

1 Plough PlaceLondonEC4A lDE

T +44 (0)20 7438 2500F +44 (0)20 7438 2501www.nesta.org.uk

high-quality report. Unfortunately, the report does not make clear how its approachrepresents a new departure from current NHSor local authority practice

Poorly thought-through recommendations: several of the recommendations appearto be either too vague to be useful (or sufficiently vague that's it's unclear how theydiffer from existing practice) or questionable. For example, it is unclear howrecommendation 1 would be implemented and therefore why it is novel; it is not clearhow recommendations 6 is new (social marketing techniques are already widely used bythe NHS); and it is not clear how recommendations 7, 9-11 or 12 are supported by theevidence in the report (the problems they relate to are explained, but it is not madeclear why the proposed solutions would or even might work).

3. A New Competition Policy for the UK

This appears to be a well written report on competition law (as far as we can tell, basedon a few days' review and little opportunity to speak to external experts). However, it isvery weak on the effects of innovation on competition, which given NESTA's innovationremit is the most important part of the report.

Specifically, pp40-41 includes a very cursory discussion of innovation and competitionpolicy ending in an unsubstantiated proposal to abolish patents within the UK. It is notclear why this is recommended, or what consideration has been given to the pros andcons of what is a very contentious. and well researched issue. NESTAwould find it verydifficult to publish this kind of treatment of the subject.

Had we had more time, I would have liked the researchers to have provided more detailon the relationships between oligopoly in key UK industries (fascinatingly described insection 1.7) and innovation - it is not clear that the oligopolistic industries identified areun-innovative, or even that oligopoly reduces innovation. NESTAreferred ResPublica toeconomic research such as that by Philippe Aghion into the relationship betweencompetition and innovation that does not appear to have informed the work (and isabsent from the bibliography.

4. Civic Limits: How much more involved can people get?

Our main concern with this report is the apparent disjunction between the main body ofthe report and the recommendations. The main body of the report contains interesting,practical and potnted observations and recommendations on civic participation (e.g., p39- "Rubbish Meetings"). However, the executive summary does not seem to carry thisenergy and insight through, seemingly because of lack of specificity. Some of therecommendations seem either vague or difficult to act on (e.g., "1. Government needs tomake a coherent statement defining its ambitions for civic, involvement" - it is not madeclear how this differs the speeches and documents the gqvernment has already issued),while others seem to pull punches (e.g., "3. Publicparticipation in service delivery mustbe open to public challenge" - my understanding based on oral communications withResPublica is that this recommendation is that central government should be able tooverrule local government to ensure money is spent on civic participation). More specificexamples of what should be done would have made this much clearer.

National En<..'k:w.;m~~ni_forS<:teftC'"€ T€(bn()l09Ydnct the A~I.:'Chairman Sir John ChisholJ'n