Business Case – Establishment of a New Sustainable Aquaculture Innovation Function (SAIC)

4. The Commercial Case

This commercial case focuses on the subsequent arrangements between SG and the SAIC, who will administer and oversee the onward allocation of funding. For more details on the arrangements and mechanisms required to facilitate the enabling payment from CES to SG please refer to the CES commercial case.

4.1 Scope and services

The Scottish Government will commission the new SAIC, as an independent entity in order to realise a range of SG’s policy goals and to:

• protect and develop the economic value to Scotland of aquaculture
• reduce the environmental footprint and build the climate resilience of aquaculture
• fund and support commercially relevant, collaborative research that aims to deliver solutions to key aquaculture sector challenges
• safeguard jobs and revenue through projects that result in spin-out businesses, new markets, and increased production efficiency, Crown Estate Scotland and SAIC.

Connecting businesses and academics, the entity will fund and support commercially relevant, collaborative research that aims to deliver solutions to key sector challenges. The entity will safeguard jobs and revenue through projects that result in spin-out businesses, new markets, and increased productivity.

The entity will share the knowledge gained from these projects right across the sector and provide an independent voice, offering science-based insight and knowledge exchange.

Priority for funding of projects is expected to be found in:

• Improving production output and efficiency – particularly through reducing mortalities and other production losses.
• Reducing adverse environmental impacts.
• Mitigating the impacts of climate change and supporting the sector to operate successfully in changing natural environment.
• Supporting the adoption of key emerging technologies including closed and semi-closed containment systems and offshore production.

4.2 Risk allocation

• Strategic Policy risk – Owner: Scottish Government – Government retains responsibility for sector outcomes and priorities
• Delivery risk – Owner: SAIC – SAIC is accountable for performance and outputs for their projects
• Financial risk – Owner: SAIC – Progress against KPIs will be evaluated annually to grant the funding

4.3 Charging mechanisms

Operated on a not-for-profit basis, the company will receive £1.4m funding from SG to support core operating costs and to act as seed funding for project delivery. The company will lever public funding against private sector financing and other funding streams (Scottish, UK or European) to deliver a portfolio of projects.

• Payments are conditional on achievement against KPIs
• SAIC will flag risks as soon as risks are identified.

With the goal being to maximise funding available for the bid fund where there is flexibility, it is anticipated that the funding will be split between operational costs and project funding with any underspend in operations being added to the project funding (actual budget indicates Yr1 operational costs of around £645k). Overhead costs of £645k may initially appear high in the context of only £754k project funding, but a strong team will be essential to deliver the full range of project making and communication activity, as well as enable the leverage external funding as expected. If the new company is as successful as SAIC has been historically, then £700k operational funding could actually deliver in excess of £3.5m project value per annum.

It is assumed that over time the breadth of innovation support may grow as the company develops a wider programme, reacting flexibly to resource opportunities and evolving policy and operational needs.

4.4 Contractual arrangements

The relationship will be governed through a formal grant agreement made between the new company and Scottish Government. This grant agreement will set out the performance and reporting expectations associated with the funding.

4.5 Personnel

In order to avoid a hiatus in delivery and retain the expertise of the SAIC team it is intended that existing SAIC staff members will be recruited by the new entity. Exact details will need to be negotiated by the Company’s Directors and staff members. A full budget and staffing model (7 posts) has been developed reflecting current operations and ambitions.

The staffing model and budget have been developed on the assumption that, given the small scale of the new company, it will be most cost effective to contract to specialist third party providers for support in certain areas e.g. IT, Health & Safety, HR advice, accountancy and audit.

4.6 Implementation

• Government facilitates the establishment of new SAIC as a legal entity
• Grant agreements signed
• First funding grant is released against agreed KPIs
• Quarterly performance and financial reporting begin.

4.7 Accountancy

An annual fixed sum payment of £1.4m will be made by CES to SG for the period of 5 years. The payment will not be liable for VAT and no inflation will be applied over the term of the arrangement.

The new company will receive an annual grant from SG subject to a formal grant agreement. SAIC will use standard reporting standards for an entity of its size and this is expected to be FRS 102 Section 1A (Small Entities).