Strategic Defence Review offers hope of shake up for UK procurement to deliver ambitious security goals

The UK government's eagerly awaited Strategic Defence Review (SDR), which was published on 2 June, is both a sobering read that details threats to the UK's and its allies' security and offers an ambitious statement of how the UK will respond to a new era of heightened risks.

As the SDR acknowledges, achieving those ambitions must include a genuine and swift improvement of how the Ministry of Defence (MOD) procures equipment and services. MOD's current processes and contracts too often introduce delay, drag and unnecessary cost. The review identifies changes that would speed up procurement, properly harness the strength of the defence industry and deliver better taxpayer value.

'Events, dear boy, events'

The review is very much shaped by recent global developments, if not a new world order.

Russia's invasion of Ukraine, and the bitterly fought war that has followed, has brought into sharp contrast how new technologies are influencing conflict between well-equipped adversaries. Those step changes – drones, AI, battlefield cloud, cheap expendables and counter-weapon technology – were always going to influence the SDR.

The new US administration's approach towards Nato and the transactional nature of its support to its allies have necessitated an even more fundamental reassessment of defence and security priorities. The UK (and European and other allies) are now clear that more self-reliance is essential – US support from a position of shared values is no longer a given. It's no surprise that the SDR has been delayed so that the UK government can take these dynamics into account.

Defence procurement ambitions

Will the UK government's approach to defence procurement match its SDR ambitions?

SDR, with recent international realignments being front and centre, acknowledges a range of critical threats to the UK. For obvious reasons the document also analyses in a positive light the state of the nation's and, by extension, its close allies' ability to handle serious external threats and aggression. 

Some of the SDR's noteworthy ambitions are:

• Increase to 12 the number of new attack submarines.
• Invest £1 billion in battlefield artificial intelligence.
• A ringfenced fund of £400 million for swift development of new defence technology.
• £1.5 billion in investment into military personnel accommodation.

Speeding up and streamlining defence procurement will be crucial if these ambitions are to be delivered successfully. The yet to be published Defence Industrial Strategy will comment on this in more detail.

Discussions across the sector indicate that there is a genuine willingness at the highest political levels to shake up defence procurement and that desired direction of travel has largely been welcomed by industry.

The prime minister, Sir Keir Starmer, in his introduction to the review, stated: "We must drive a new partnership with industry and a radical reform of procurement, creating jobs, wealth, and opportunity in every corner of our country – this is the ‘defence dividend’ which we are determined to seize." 

However, on the contractor side, there is a dose of realism that what happens on the ground may fall short. This road has been travelled before without any properly impactful change taking effect. Policy authors are rarely the people who must then design and implement changes to make the policy a reality. 

What will industry want to see? 

The UK can engage with industry on a more-agile-than-normal basis when the need is there – support to Ukraine is a great example. The ringfenced £400 million UK Defence Innovation initiative for driving fast technology-based procurement looks to have been influenced by recent experience and as a statement of intent it's positive.

How MOD, its agency Defence Equipment & Support (and other procuring arms) implement the SDR and how they might change some of their approaches will be central to whether the government achieves its wider ambitions. 

There is a broad range of areas of change that contractors, procurement teams and the industry will be looking at with hopeful expectation.

Reducing the amount of specification change by the contracting authority

On occasion a specification change is crucial. But changes that strive for a perceived performance improvement often add substantial delay to procurements without necessarily materially moving the capability dial.

Procuring teams having greater flexibility on the contract terms which apply to procurements

Even MOD's current "light touch" templates are heavy and create barriers to swift negotiation in critical areas; for example, termination rights and rights to technical data. MOD has demonstrated that it views this as healthy contract negotiation, but it's clear this causes drag.  Contractors also need to mitigate the risks that arise from MOD  holding onto very one-sided positions (for example, on access to know-how) and suppliers' understandable caution means that MOD sometimes risks getting less than it would have done had it been less dogmatic.

How MOD engages with "new entrants" into the UK market (both domestic and non-UK businesses), predominantly in tech, cyber and smaller unmanned systems

There is real interest in the UK from likely new entrants.  MOD must find a way to enable the right products and services to progress smoothly and quickly from proof of capability phases (which often move quickly) to full production and operational contracts (which can simply take too long).

Again, flexibility is crucial and MOD needs to listen to and actively collaborate with businesses that have developed their products and services using veterans' hard-won experience and learnings from other commercial fields.

Delivering on the promise to support SMEs

MOD has for a number of years published policies and statements that it supports small to medium-sized enterprises (SMEs). The reality is not as rosy. This is often evident when prime contractors negotiate exemptions from flowdown obligations so that SMEs can be encouraged to participate in a supply chains and also from helping SMEs negotiate direct with MOD.  

The contracting authority understandably has to look at the financial stability and longevity of its suppliers but it can strike a better balance between those concerns and the contractual hoops which it makes SMEs jump through – a more progressive risk analysis must be achievable.

Expanding the scope and use of procurement frameworks

Increasing the breadth and use of procurement frameworks, such as the recently announced Defence and Security Open Framework, could also reap dividends. This would help MOD and other procuring agencies get swift access to the rapidly evolving spectrum of technologies under development across the market, with the flexibility to procure them as needed, while reducing procedural friction for suppliers. 

Osborne Clarke comment

What can defence contractors do now? Defence contractors have frequent dialogue with the procuring arms of MOD and related agencies. The SDR will no doubt open up new discussion points. While the to-be-published Defence Industrial Strategy is likely to give more detail of any planned defence procurement reshaping – which we hope will include themes outlined here, we suggest it is helpful to keep the following in mind:  

• Defence contractors should encourage the relevant procuring authority customer to approach current and new procurement discussions with the spirit of the SDR in mind.
• Where possible, use statements in the SDR to influence discussions and negotiations on procurement procedures under the Procurement Act 2023, which recently came into force.
• Pay close attention to the direction of travel on social value embodied in the SDR. The government is drawing a direct connection between investment in defence supply chains and a strengthening economy.  That in turn is directly relevant to contractors' public procurement social value obligations.
• MOD has in recent years sought to improve the modularity and inter-operability of equipment and systems  that it purchases. This will be central to successful bids and, where possible, embedding this further into industry offerings to MOD will be increasingly important.