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Challenges and actions for UK Defence leaders: Fostering innovation through SME engagement

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Insight
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Authors: Laura Marsden Payne, Dave Hurst, Joseph Gross, Andrew Black

Fostering Small and Medium Enterprise (SME) participation in Defence capability development  is a priority to unlock novel technologies – particularly in areas such as space, unmanned aerial systems, and artificial intelligence – that are now critical to the UK’s defence and national security strategy. However, despite the MOD’s commitment to increasing expenditure with SMEs, it remains fundamentally ill-equipped to engage small businesses, remaining excessively reliant on Primes.

This article is the second in a three-part series that breaks down the challenges facing UK Defence procurement and proposes solutions for policy and procurement leaders.

Challenge 1: Procurement complexity deters engagement from SMEs

Lengthy and complex public procurement processes, combined with SMEs’ often-limited resources, are the primary obstacle to SME participation in Defence procurement. While the Procurement Act should add some flexibility to these processes, the MOD’s rigorous policies, approval routes, and associated documents – which often far exceed legal requirements – add significant complexity for SMEs.

These policies also stifle creativity among Defence procurers, boxing them into the same rinse-and-repeat approach each time with little room for innovative approaches. Defence suppliers are subject to complex Defence Conditions (DEFCONs), which require significant time and resources from Defence commercial and legal teams to amend; for procurers, it is often easier and safer to leave them as they are – which ends up being off-putting for smaller businesses lacking the extensive legal resources of larger suppliers. This is exacerbated for procurements considered “novel or contentious”, which are subject to even more scrutiny.

Challenge 2: Fragmented engagement and limited SME participation 

Despite efforts to engage SMEs through incubators, industry days, and contracting vehicles, there is no single, clear entry point for a novel supplier looking to provide goods or services to Defence.

Even more concerningly for SMEs, many Defence initiatives heavily depend on Primes, which creates risks for smaller suppliers, including limited authority, difficulties protecting their Intellectual Property, and talent retention challenges.

 

Actions for Defence leaders: Fostering innovation 

UK Defence must foster innovation in its supply chain to cultivate the agility and ingenuity to meet future challenges. Risk avoidance has characterised UK Defence procurement so far, but leaders must embrace innovation and the risks it entails to accelerate the development of next-generation defence technologies.

The Defence Supply Chain Capability Programme is a good example of a step forward in engaging more effectively with SMEs, but more must be done. Key actions for Defence leaders include:

  1. Streamlining procurement processes to be more simple, proportionate, and accessible to all players, regardless of their size.
  2. Developing clearer, more direct channels for SMEs to engage with Defence. 
  3. Upskilling and empowering stakeholders – including legal, financial, and commercial colleagues – to make the context-driven decisions that drive SME participation and innovation. 

In the final article of this three-part series, we will offer additional insights into how Defence leaders can more effectively leverage the “people” side of procurement – from organisational structures to skills development – to maintain the UK’s competitive advantage.