Defence Procurement: Small and Medium-sized Enterprises

Matt Rodda Excerpts

Tuesday 28th January 2025 Westminster Hall

[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.