I attended the Canadian Construction Association’s 101st annual conference entitled Navigating Construction in Bermuda recently.
The conference was preceded with committee meetings at the Fairmont Hotel .
During the meetings, the Innovation Committee heard a remarkable talk given by Tim Fitch, a director of British business consultancy Invennt.
The title of Fitch’s talk, Making Innovation Pay, explained how innovation is more commonly associated with additional cost and risk, but can also involve savings to a construction company’s bottom line.
Fitch is a civil engineer by education and training and spent 30 years in contracting in the U.K. and around the world.
For the last eight years, he has run a thriving business consultancy based in London and now here in Canada. A few years ago, he came across the U.K. Research and Development (R&D) Tax credit program and has had substantial success in helping British business claim back significant sums from the U.K. government. Last year this amounted to over $18 million.
While on a holiday in Vancouver with his family last year a casual conversation with an old acquaintance resulted in him investigating whether what he had learned about R&D Tax Credits in the U.K. could be translated into our own Scientific Research and Experimental Development (SR&ED) program. It turns out that it could because the British borrowed our tax code (which was set up in 1984) when they reformed their tax code in 1999.
What Fitch discovered was an untapped opportunity for construction. Our SR&ED program is more generous than the British system but less than one per cent of the total pie is claimed by construction businesses.
Fitch gave a number of examples of successful claims from the U.K. What stood out was that the vast majority of the claim was made up not with what most of us consider research and development (think of laboratories, people in white coats and microscopes) but rather solving the unique problems that are encountered in delivering complex projects.
The tax code definition of SR&ED includes:
-Extending the overall knowledge or capability
-Using science or technology to duplicate the effect of an existing process, material, device or product in a new or improved way
-Creating a process or service that extends knowledge or capability
-Making an appreciable improvement to an existing process, material or service.
When you read these definitions, you can see that during the delivery of projects one or more of these conditions is met.
Now Fitch’s firm looks at a construction business with a top-down approach. They have developed their processes so that their consultants do all the heavy lifting and in particular all of the creative writing and quantification. Importantly, they also handle the relationship with the Canada Revenue Agency (CRA) and so minimize the aggravation of making a claim from their client’s perspective.
Recent examples from their Canadian clients include the development of new off-site manufactured products for the car parking industry.
In this case, innovations lead to greener and safer products. They also investigated a series of manufacturing failures and were able to claim back much of the costs of improving the manufacturing process.
In another example, a general contractor was able to claim part of the cost of designing and building water treatment plants in adverse and challenging conditions.
Fitch is confident the process can be extended to clients in many types of construction business including general building and civil engineering contractors, architects and engineering consultancies of all types. He hopes that can be a catalyst for construction to claim its just entitlements from the CRA.
Stephen Bauld is a government procurement expert and can be reached at email@example.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.