Defence Procurement: Small and Medium-sized Enterprises

Chris Evans Excerpts

Tuesday 28th January 2025 Westminster Hall

[Chris Evans (Caerphilly) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Stringer, and I congratulate my hon. Friend the Member for Newton Aycliffe and Spennymoor (Alan Strickland) on securing this timely debate.

I also welcome—quite belatedly—the Minister to her place. She has an extremely tough job, as was underlined by Sir Jeremy Quin, the former right hon. Member for Horsham, who had her role in the last Conservative Administration, when he said:

“Defence procurement is never easy—it is a tough thing to get right—and I have not yet found a state anywhere on earth that can really deliver to the kind of standards that I am sure the hon. Gentleman would wish to see.”—[Official Report, 18 July 2022; Vol. 684, c. 718.]

That is further underlined by the latest figures from the MOD about Government projects, which were set out in the portfolio in March 2024. That document said that 88 projects are on red, 18 are on amber and only one is on green. Behind those figures is a supply chain that will also be affected. Many firms in that supply chain will be small and medium-sized businesses that do not have large bid-writing or tendering teams. Under the Procurement Act 2023, if all goes according to plan, SMEs will spend less time bidding for contracts that they do not win and many of the tick-box exercises will be reserved for the company that is offered the work.

During my time in opposition, I was often told that the MOD has a tendency to change its mind at short notice. The best example of this, which I am sure the Minister has sleepless nights about, is the Ajax programme; it wasted £5.5 billion, including in my former constituency.

It is important to strike the right balance between removing unnecessary red tape and ensuring that contractors can prove that they are up to the job. When I was in opposition, the most important thing that I learned when speaking to SMEs was about late payments. In all the time that I shadowed the role of the Minister for Defence Procurement, I got angry only once, when a prime contractor stood in front of me and said, “Now we’ve finally been paid by the MOD, we can pay the supply chain”—18 months later.

The businesses involved in the supply chain are not large—very often, they consist of just five or six people being innovative—yet they lose out because prime contractors put the needs of other people above their needs. Of course, there will always be examples of good practice, but one major defence contractor operating here in the UK was, at the last count, taking an average of 101 days to pay its supply chain. Would any of us accept a three or four-month wait to get paid?

In 2020, multiple major defence firms were suspended from the prompt payment code for consistently failing to pay their suppliers on time. SMEs across all sectors spend a total of 50 million hours a year chasing payments. If the Government mean what they say about promoting productivity and growth in defence SMEs, addressing late payment must surely be a priority going forward.

Voluntary codes are all very well, but they are just that—voluntary. If we are serious about this issue, we must enshrine redress in legislation. It is unacceptable to pay our SMEs—the lifeblood of our economy—late, and there should be penalties for that. Late payments create cash-flow problems, which in turn affect SMEs’ access to finance. That cannot go on.