Defence Procurement: Small and Medium-sized Enterprises

Alan Strickland Excerpts

Tuesday 28th January 2025 Westminster Hall

[Alan Strickland (Newton Aycliffe and Spennymoor) (Lab)]

I beg to move,

That this House has considered SME participation in defence procurement.

It is a pleasure to serve under your chairmanship, Mr Stringer. I recognise that procurement is not usually a topic that gets pulses racing, but the threats posed to the UK and our allies certainly should. Central to our ability to rise to these challenges is using the defence industrial strategy to unleash the inventiveness, ingenuity and creativity of British industry.

I will cover three things: our need to respond to the changing face of warfare; adopting a proactive entrepreneurial approach to acquiring the defence supplies we need; and the practical steps we can take to place small and medium-sized enterprises innovation in the service of our national defence.

I turn first to our need to respond to the changing face of warfare. Technology has been rapidly altering the nature of warfare at a pace rarely witnessed before. We see this most clearly in Ukraine, where drone technology has rewritten the rules of modern conflict. Putin’s illegal invasion of Ukraine and the resulting war have shown us the incredible speed at which military technology is advancing. Reconnaissance drones paint detailed maps of occupied territory, helping to guide unmanned attack drones in strikes on Russian vehicles and equipment. The role of this technology is now so important that a dedicated branch of the Ukrainian military has been established to deploy it. Here at home, I have seen first hand the RAF’s latest unmanned air systems as part of an armed forces parliamentary scheme visit.

Drones, artificial intelligence and rapidly evolving satellite technology are being used to redefine all aspects of conflict, from the battlefield to the information war, to who controls space. Amid those significant and growing global threats, it is vital that Britain is at the forefront of developments to ensure that we can defend not only ourselves, but our allies and interests across the globe.

[Mr Tanmanjeet Singh Dhesi (Slough) (Lab)]

I congratulate my hon. Friend on securing today’s debate on SME participation in defence procurement. Having run my own start-up construction business in bonnie Scotland many years ago, I can appreciate full well that small and medium-sized enterprises are not given their due and rightful importance by Government structures, and more generally. The Government’s own Green Paper notes there is a need

“to address issues that inhibit or prevent growth in the defence sector”.

Does my hon. Friend agree that defence contract opportunities must be made more accessible to SMEs in order for us to support their growth and continue innovation?

[Alan Strickland]

I thank my hon. Friend for his intervention. He is absolutely right: across the economy with the Government’s growth mission, defence must be a crucial sector, but as he has said, too often SMEs are shut out by bureaucratic processes, which I will be keen to talk more about.

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[Graham Stringer (in the Chair)]

Order. This debate is for an hour and is well-subscribed, so I ask hon. Members to be brief in their interventions.

[Alan Strickland]

I thank the hon. Member for his intervention. He is absolutely right that the commitment of Ministers and the defence industrial strategy to sovereign supply must include all parts of our United Kingdom, including the excellent capabilities in Northern Ireland.

Being war-ready for conflicts we cannot predict that will use technology that has not yet been invented, means giving our military the agility and capability to adapt to this changing landscape. Changing the way in which we think about defence procurement is central to this. My second point is around adopting a proactive, entrepreneurial approach to acquiring the defence supplies we need.

[Alison Bennett (Mid Sussex) (LD)]

I thank the hon. Gentleman for giving way and for securing this important debate.

Universal Quantum is an SME based in Haywards Heath, in my constituency, which builds utility scale quantum computers. It already works in partnership with leading organisations and investors in the field. Does the hon. Gentleman agree the Ministry of Defence should ensure emerging technologies, such as quantum computing, that are being spearheaded by SMEs like Universal Quantum are part of its procurement strategy?

[Alan Strickland]

I thank the hon. Member for her intervention. I agree. As she rightly says, warfare is developing very quickly and high-tech solutions, of the excellent type she described in her constituency, must absolutely be part of that.

When I talk to innovative SMEs at the Durham University spinout science park in my constituency, it is clear we need to think differently about defence procurement. NETPark in Sedgefield is home to more than 40 cutting-edge firms, many of which supply major defence companies and our allies across the globe. They include Kromek, which invented new ways of detecting radiation and biological weaponry; Filtronic, which manufactures satellite components; and Graphene Composites, which produces ultra-light ballistic shields. Their experiences suggest that we need to do more to remain globally competitive. As other hon. Members have rightly said, too often small businesses can feel that UK defence procurement focuses on process at the expense of outcomes and can stifle bottom-up inventiveness with top-down bureaucracy.

Our allies show us how we might do this differently. The United States Defence Department takes a broader approach to encouraging and funding military innovation. SMEs are encouraged to approach the Government directly with ideas for new products or with potential technologies they are developing and to showcase tech solutions to problems that may not have even been considered yet by officials. In turn the US Defence Department and its research agency, the Defence Advanced Research Projects Agency, proactively seek out innovative small companies that offer new ideas and technologies that contribute to tackling future military challenges.

[Matt Rodda (Reading Central) (Lab)]

I am grateful to my hon. Friend for securing today’s debate. Is he suggesting that the Ministry of Defence needs to completely change its culture and processes in the way it liaises with these important and innovative companies? Certainly that appears to be the issue in my constituency, where there are many very innovative SMEs.

[Alan Strickland]

I thank my hon. Friend for his intervention. I absolutely agree. In my previous life in the housing and the charity sector, I have interacted with Government procurement across Departments. There is a challenge with culture across Whitehall, as my hon. Friend says, of often struggling to deal with the realities of innovative and agile small firms.

The approach I described means the US spends around a quarter of its entire military budget directly with SMEs, much higher than the comparable figure for the UK. The UK Defence and Security Accelerator does good work in directly using SMEs to fill technology gaps. However Northern Defence Industries, representing more than 300 companies, has called on the MOD to do more to facilitate open call competition. That would allow SMEs to showcase their defence products directly to Government, without having to wait for specific procurement projects and tenders to be opened.

I strongly welcome the intention of Defence Ministers to use the defence industrial strategy to drive engagement with non-traditional contractors, including SMEs. We have a real opportunity to change the way Government think about procurement and a real chance to grow the culture, to which my hon. Friend the Member for Reading Central (Matt Rodda) referred, that gives us the wartime pace of innovation that we need. Just as Churchill’s groundbreaking military technology labs did during the second world war, let us use the resources of the British state to harness the inventiveness and ingenuity offered by our world-leading science and tech companies.

Turning finally to the practical steps we can take to place SME innovation in the service of our national defence, one of the key things we could look at is the reliance across Government on the prime contractor model. In practice this means that the Ministry of Defence often uses large contractors to work with SMEs further down the supply chain rather than engaging with them directly. For some years it has been common across Government, under all parties, to shift to working with smaller pools of larger suppliers. That has some obvious benefits, such as reducing the number of contracts that officials need to manage, transferring financial risk and outsourcing much day-to-day contract management, but there is also evidence that the approach can have its downsides, particularly in squeezing out smaller, innovative suppliers. When I worked in the charity sector, strengthening the prime contractor approach in delivering the Work programme led to a number of innovative charities with a real track record of getting people into jobs being unable to work with Government in the future.

So what can be done? Where possible, let us try to reserve complex framework contracts for large projects that genuinely need them, reducing the proportion of tenders available only to prime contractors. Where large contracts are required, can we look at these to see whether we can break them down into smaller components that are more accessible to SMEs? Secondly, where working through a prime contractor is the right answer, could we strengthen the requirements for them to engage with SMEs proactively and simplify contract arrangements? Thirdly, could we open up opportunities for the Ministry of Defence to contract directly with SMEs by removing red tape and doing so with an agile and entrepreneurial mindset? If businesses at NETpark can be direct suppliers to DARPA, the US Defence Department, NASA and other allied Governments, I am confident that, through the defence industrial strategy, we too can open up more opportunities for SMEs.

[Mrs Sharon Hodgson (Washington and Gateshead South) (Lab)]

My hon. Friend is making an excellent speech. To simplify the point he is making, we should all remember that from small acorns great oaks grow, and even big companies in my constituency such as Rolls-Royce and BAE Systems will have started at some point as an SME. What he is suggesting today would help those SMEs that we all have in our constituencies maybe one day to grow into those grand great oaks.

[Alan Strickland]

My hon. Friend makes a really important point. Considering that we have shop-bought drones making such a difference in Ukraine and that technology is being used in all sorts of ways, my hon. Friend is absolutely right that we need to hunt out and support the small, innovative businesses doing very different and distinctive work in constituencies around the country.

It has been a privilege to set out some of the challenges faced by our innovative SMEs and how the defence industrial strategy can address them. I look forward to welcoming the Minister to my constituency soon for a business roundtable to discuss these issues in more detail. I strongly welcome the Government’s putting growth at the heart of the new defence industrial strategy. The defence sector supports one in 60 jobs in the UK, the majority of which are outside London, so this is a real and tangible way of spreading growth, skills and opportunity to all corners of our country. More than that, if we can improve the way we work with SMEs, it will allow us to build an ironclad, sovereign supply of vital defence equipment. Not only will that provide jobs and drive growth but it will protect us from global shocks in the supply chain.

Warfare is changing, and we must change with it. Global production is threatened, so we must ensure sovereign supply. As the threat grows, so must our defence manufacturing base. I look forward to working with Defence Ministers on this important strategy and to further contributions from hon. Members of all parties in this debate.

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[Alan Strickland]

I thank the Minister for her strong leadership on this vital issue. We have discussed these matters on a number of occasions and I know the Minister is committed to really driving this priority through the defence industrial strategy and the wider strategic defence review, which I strongly welcome.

I also thank hon. Members around Westminster Hall for what I think has been a strong shared sense of purpose about the importance of tapping in to our innovative small businesses to meet the challenges we face. We have heard about the real pride in defence contractors around the country from the hon. Member for Honiton and Sidmouth (Richard Foord), my hon. Friend the Member for Mansfield (Steve Yemm) and my hon. Friend the Member for Middlesbrough South and East Cleveland (Luke Myer). We have heard of the importance of ensuring that economic growth across the country is driven by the defence industry from the hon. Member for Strangford (Jim Shannon) and the hon. and learned Member for North Antrim (Jim Allister). We have also heard really important points about payments from the hon. Member for Caerphilly (Chris Evans). I thank the Minister and everybody who has taken part today.

We have all acknowledged that the global threat is growing, becoming more complex and evolving much more quickly. There has been broad agreement that part of the answer is ensuring that we can open up more opportunities to small, nimble, agile high-tech SMEs across the United Kingdom which can be at the forefront of helping us and our allies to meet this challenge.

Question put and agreed to.

Resolved,

That this House has considered SME participation in defence procurement.