R&D tax incentives for engineering and construction

Engineers and contractors solve difficult problems every week, and almost all of it is good engineering rather than R&D. The schemes draw the line in the same place as in every sector: was there a scientific or technological uncertainty that a competent professional could not resolve from available knowledge, and was systematic work done to resolve it? In engineering and construction a second question follows, because the work is done under contract: who decided to take on the uncertainty, who paid for the attempts that failed, and who owns the method at the end? Several schemes decide who may claim on those facts, and in some arrangements nobody can.

This guide follows the shape of the manufacturers guide, adds the contract question, and ends with each country's rule on risk and ownership.

What this guide covers

• Where technological uncertainty tends to sit in design and construction work.
• The work to exclude: standard design, compliance and project management.
• The contract question: who bears the risk and owns the results.
• Evidence that design offices and sites already produce, and the costs that are missed.
• Each country's rule on who may claim for contracted work.

Where to look

Structural and geotechnical solutions

A span, load case, material or ground condition for which no published design data or established method existed, so that design values had to be derived by testing or behaviour established by instrumented trials. Applying a code to a conventional structure, however large, is not a candidate.

Materials and components

A concrete mix, composite, connector or coating that had to meet a strength, durability or fire performance target that known products did not, developed through specimens tested to failure.

Construction methods and temporary works

A sequence, lifting method, formwork system or ground treatment whose behaviour could not be predicted and had to be established by trial sections or monitored full scale work.

Building services and performance

Integration of heating, ventilation, control and envelope systems in a combination whose performance could not be predicted and had to be measured to meet a target. Specifying proven systems to a manufacturer's data is not.

Digital engineering

Simulation, analysis and automation tools where a technical question in computation had to be resolved; a parametric model built with known methods is not R&D, whatever it saves in design time. Offsite and modular manufacture follows the manufacturers guide.

What to exclude

• Design to codes and standards using established methods.
• Work to comply with statutory requirements, standards, planning conditions or certification.
• Project management, cost planning, procurement and tendering.
• Value engineering by substituting known products or details.
• Resolving site problems with known remedies.
• Aesthetic and architectural design, unless it directly contributes to resolving a technical uncertainty.
• Building the first of a kind for a client beyond the point at which the uncertainty was resolved.

The test is the manufacturers' test on site: could a competent engineer have known how to do it without trials? If yes, it is good engineering, not R&D.

Who can claim: the contract question

In most sectors the company that does the work claims. In engineering and construction the work is usually done for someone else, and the schemes ask who bore the risk. The facts to establish from the contract are the same everywhere, even though each country weighs them differently.

Read the contract before the claim is prepared. Where the client paid for the development, specified it and owns it, the client may be the claimant, and the contractor's technical work becomes the client's evidence. Where the contractor took a performance brief and solved it at its own risk, the claim is usually the contractor's. Where a public body paid for the research and owns the result, often nobody claims. The finance module on contractors covers the rules.

Evidence on site and in the design office

• A dated design note at the start of each technical unknown: what the brief required, why published data and standard methods did not answer it, and who judged that.
• Superseded calculations and drawings kept, not overwritten, so the iterations are visible.
• Test specimen schedules and laboratory reports, including failures.
• Trial section records, instrumentation data and monitoring reports with dates.
• Technical queries and requests for information that show the problem was open.
• The contract, variations and correspondence that show who took the risk and who owns the result.
• Time by engineer by project, with the uncertainty named, captured monthly at the latest.

Costs often missed

Design office time is usually captured; the rest often is not. Materials consumed in specimens, mock-ups and trial sections are eligible costs in most schemes, but materials that end up in the works handed over to the client are commonly excluded or clawed back: the United Kingdom excludes the cost of consumable items incorporated into products that are sold or transferred, New Zealand allows materials that become part of products sold or used only to the extent the cost exceeds the amount derived, Australia applies a feedstock adjustment where R&D activities produce marketable products, and Canada applies recapture rules where materials transformed in the work are incorporated into property that is later sold. Testing laboratories and specialist subcontractors enter at each scheme's percentage or cap for contracted work. Monitoring equipment follows each scheme's rules on capital items, which range from a deduction for the decline in value to full exclusion.

Getting started

Run a project identification workshop with the technical directors, working from the projects where something went wrong or had never been done, not from the fee list. For each candidate, ask the uncertainty question first and the contract question second, and drop any project that fails either. Then pull the contract, the design notes and the test reports for what remains. The evidence is usually already in the project file; the task is to find it and name the uncertainty it shows.

Illustrative example

Illustrative example. Ashdown Civil Ltd, a hypothetical design and build contractor, took a fixed price contract for a 20,000,000 structure on ground where the standard improvement methods were predicted to settle beyond the client's performance limit. The client specified the settlement limit and nothing about the method. Ashdown's engineers did not know whether a modified column arrangement could hold settlement within the limit in that soil, and the published data did not answer it. They built two instrumented trial sections, abandoned one when it exceeded the limit and derived design parameters from the other. The development cost 300,000: 180,000 of engineering time tagged to the question, 60,000 of materials and instrumentation consumed in the trial sections, and 60,000 paid to a testing laboratory. Ashdown bore the cost of the failed section under the fixed price and kept the right to use the method on later projects. The candidate base is 300,000, subject to each scheme's rules on contracted testing and on materials that became part of the works; the 19,700,000 of construction, the standard design and the compliance checks are outside. Had the client paid for the trials on a cost reimbursable basis, specified the method and taken the results, the claim would have sat with the client or with nobody. The benefit at that country's rate applies to the 300,000 in the first case.

Country differences

One rule per country, in the scheme's own wording, on who bears the risk and owns the results. The country pages hold the detail.

Related pages

• Guide: R&D tax incentives for manufacturers
• Technical Teams Program, Module 5: Industry examples
• Guide: qualifying versus non-qualifying activities
• In-House Finance Team Program, Module 4: Contractors and overseas costs
• Guide: how to run a project identification workshop
• Resource hub: eligibility

Educational material, not advice. Eligibility and who may claim depend on the scheme, the contract and the facts.