Blog Post

July 14, 2023

How the UK is boosting SME procurement in Defence - and how we can take it further

The Ministry of Defence (MOD) is the single largest customer for UK industry, committed to spending over £190bn over the coming decade. In 2020/21, the MOD spent nearly £20bn with industry, accounting for almost 40% of all UK government procurement spend, and representing the fifth biggest defence budget in the world. Given this scale and the critical need for capabilities, it is vital that MOD procurement is fit-for-purpose and aligned with wider government industrial strategy.

In recent years the MOD has placed increasing importance on maximising SME integration into defence procurement, not only to invigorate the sector and shorten the supply chain, but to ensure Defence has access to the innovation and deep technologies SMEs develop. Despite this drive, only 5% of the procurement budget is currently allocated to SMEs and 42% of all advertised opportunities went to the MoD’s incumbent top 10 suppliers.

Explaining the disconnect

A significant proportion of MOD contracts relate to the procurement of large projects where systems integration is often a key factor - typically beyond the scope of most SMEs. Similarly, around half of MoD contracts are valued at more than £100m, and splitting work packages to make these contracts more accessible to smaller SME bidders is often not practical.

The MOD has adopted prime contracting for both acquisition and support to enable risk to be transferred to the prime where it can be managed most effectively. Thus, the bulk of MOD’s expenditure with SMEs lies at lower tiers of the supply chain, and SMEs are reliant on working with these large defence primes which can be challenging and create commercial difficulties.

Defence, sometimes by necessity, can be an opaque sector, leading to significant hurdles for SMEs. Like many complex domains, Defence is full of acronyms, initialisms, and terms of art that for the uninitiated can be baffling. Long contracting and payment time frames can exclude startups with limited runway and small teams, and investors who often have shorter-term views. The requirement to hold certain certifications, such as Cyber Essentials, or security clearances, can also deter SMEs who might otherwise be interested.

An introduction to current MoD Procurement

The MOD has made strides around the effectiveness and transparency of communicating opportunities. All defence procurement opportunities over £10,000 are now being advertised on the MOD’s new e-Sourcing platform - Defence Sourcing Portal (DSP) - and all tender opportunities have a further reach located through the Contracts Finder portal.

Defence has a vast range of needs; within the MOD are a variety of organisations responsible for procurement through various frameworks - with the exact route to contract depending on the customer and the type of capability required.

Relevant procuring organisations within the MOD to explore include:

  • Defence Digital (DD)
  • Defence Equipment and Support (DE&S)
  • Defence Infrastructure Organisation (DIO)
  • Submarine Delivery Agency (SDA)
  • Team Leidos
  • Defence Science & Technology Laboratory (DSTL)

DASA - A front door for SMEs

The Defence and Security Accelerator (DASA) “finds and funds exploitable innovation to support UK defence… by welcoming ideas from innovators small and large, providing support to those who have not previously worked with Government.” For a potential SME supplier, DASA often acts as a first port of call to understand what current challenges/user needs exist within Defence and as a potential route to either a contract or funding.

The Innovation Practitioners programme’s procurement panel

PUBLIC’s Innovation Practitioners programme recently hosted  a panel discussion on ‘Procurement and the Procurement Lifecycle in MOD - scaling and progressing your innovations in the MOD context’. Chaired by PUBLIC’s Johnny Hugill, and featuring Stacey Crump (DASA) and Stuart Donovan Holmes (The National Composites Centre), the session explored how best to commercialise new ideas within the MOD, and how to provide the financial, commercial and strategic wrap-around needed to secure buy-in when innovating in Defence. 

The following points were drawn out as the key themes throughout the discussion: 

Collaborative thinking has become a critical initial step of effective procurement in order to include key stakeholders as early in the process as possible. This entails recruiting partners and sponsors, and aiming to generate excitement about an outcome, be it saving lives, or saving thousands of hours of personnel time. If stakeholders can see the value of an idea and get excited by it, they will be more likely to help to drive change. The MOD could also drive this earlier and more energised championing by organising their business cases around three main aims: capability advancement, operational improvement (efficiency and/or effectiveness), and delivering value for money.

Sustainability and social value have become an increasingly important driver of procurement and whilst many of these factors are still being defined, they are likely to only increase in importance. Quantifying, engaging with, and leaning into these considerations wherever possible can help ensure the success of a proposal. 

Analysing business cases through activities such as red teaming can proactively identify potential challenges or blockers that an idea might face, allowing the development of solutions, or the avoidance of friction, at a much earlier stage. 

Finally, making processes SME-friendly and accessible to those outside of defence can be facilitated through building connections between primes & SMEs. Defence primes own are responsible for a significant element of defence procurement and enabling and encouraging their integrating more SMEs into their supply chain will catalyse the growth of dual-purpose technologies and effectively enhance our defence capabilities.

Change is happening

Lessons are being learned and shared not only across the MOD, but via allies - the USAF Kessel Run division for example is now a System Program Office for several Programs of Record but began life as a small team solving a specific challenge. In the UK, through various innovation hubs and teams/programmes within larger organisations such as Defence Digital’s Commercial X or the Future Capabilities Group within Defence Equipment & Support (DE&S), new procurement models are being trialled and developed to enable faster capability “pull-through”. Similarly, many defence primes are changing how they work with SMEs, from developing investment arms via CVCs, running incubator and accelerator programmes, and ensuring SME partners form a more significant element of programme teams.

This change was exemplified by Chief of the Air Staff, Air Marshal Sir Richard Knighton in his closing remarks at the recent Strategic Innovation Programme graduation, g a closing keynote address outlining his thoughts on more innovative procurement. He made the wider point that future ; conflict will be won by those able to adapt and innovate fastest and that UK Defence, and MOD leadership, is fully committed to changing its approach to capability development.

Not only is PUBLIC engaged directly with the MOD through innovation training to transform culture and process internally, but is actively working with industry - primes, systems integrators, advisors, SMEs, and investors - to help them better understand how they can become more innovative in their approach.

If you would like to learn more about PUBLIC’s work in Defence, or how SMEs might engage with the MoD please reach out.

For Reference:

Defence in a Competitive Age 2021

Defence and Security Industrial Strategy

MoD SME Case Studies & Annexes

SME Action Plan

Business Case and DLoD Explanation

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Matthew Long

Former Team Member

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Lucinda Angus

Associate

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