The government's new innovation agency has begun culling commercial activity that does not fit its future operations or is judged to be unsustainable.
That has led to the cancellation of a contract by KiwiStar, a highly specialised unit of six scientists and technicians shaping telescope glass and developing spectrographic instruments for use in telescopes, and invitation from Callaghan Innovation's chief executive Mary Quin for expressions of interest in KiwiStar as a business investment.
"Callaghan Innovation seeks to work with high value manufacturing sector Kiwi companies to help accelerate the commercialisation of innovation of businesses in New Zealand," Ms Quin says in a statement. "It is not our mission or intent to own or operate business ourselves."
KiwiStar was to have undertaken a two year sub-contract with the Australian Astronomical Observatory but the commercial risks associated with a contract that combined a fixed timeframe with a fixed fee meant Callaghan was "not comfortable with the level of risk".
"We are in discussions with AAO on how to provide assistance so that they can deliver on the Gemini project without Callaghan Innovation being locked into a two-year contract."
Canning the contract drew criticism from the Association of Scientists and Labour's associate innovation spokeswoman, Megan Woods, who says two deals worth $3 million with the California Institute of Technology (Caltec) and Berkeley University had also been lost.
Mr Quin says the AAO has not at this stage indicated it would be willing to renegotiate the contract with KiwiStar, which was formerly housed in the Industrial Research Ltd government science institution, whose assets have been taken over by Callaghan.
Where IRL had pure research elements, Callaghan will hive those off to universities or other Crown Research Institutes and will seek to quit businesses and joint ventures where it has an equity stake.
Instead, it will focus more tightly on assisting high-value businesses that have near market-ready products and services. It will work more closely with Trade and Enterprise and will no longer be a CRI.
The AAO project was to have designed and manufactured a high-resolution spectrograph for the Gemini Observatory Consortium. KiwiStar will still complete a project for the Indian Institute of Astrophysics, set to finish next July.
The local Labour MP, Trevor Mallard, says passing up an opportunity to work with Caltec was "close to criminal negligence".
However, Ms Quin told BusinessDesk that although the KiwiStar unit had been "thought of as a business, it's more been a project".
"It doesn't have a standalone management team or a well-developed plan for how it would be capitalised or a detailed business case, market analysis – those sorts of things."
It was still possible Callaghan would need the skills available in the KiwiStar team, none of whom have lost their jobs and who are working on the Indian project until next year.
"We will be looking at how KiwiStar's capability can best be realigned in the longer term to meet Callaghan Innovation's mission to accelerate commercialisation of innovation in New Zealand, or transferred to another organisation that will support their activities.
"We look forward to working with organisations interested in helping realise KiwiStar's commercial value."
Those could involve private investors seeking to commercialise its developments.