The Defence SME Action Plan: What it means for the defence supply chain

Land March 9, 2022

The Ministry of Defence (MOD) has released its refreshed ‘SME Action Plan’.

The key document outlines ambitions to improve relationships with small and medium-sized enterprises (SMEs), focusing on procurement models and how best to support innovation and exports for UK suppliers.

Minister for Defence Procurement Jeremy Quin: “We want cutting-edge and innovative suppliers to see defence as a priority market, enabling us to exploit the very latest technological advances to maintain the UK’s world-class Armed Forces’ battle winning edge.

“Key to this aim is making sure that SMEs have a fair opportunity to contribute to UK defence and security, and the ability to compete successfully in international markets. This plan sets out how we intend to do this.”

(Image) The Defence SME Action Plan: What it means for the defence supply chain The Ministry of Defence (MOD) has released its refreshed ‘SME Action Plan’. The key document outlines ambitions to improve relationships with small and medium-sized enterprises (SMEs), focusing on procurement models and how best to support innovation and exports for UK suppliers. Minister for Defence Procurement Jeremy Quin: “We want cutting-edge and innovative suppliers to see defence as a priority market, enabling us to exploit the very latest technological advances to maintain the UK’s world-class Armed Forces’ battle winning edge. “Key to this aim is making sure that SMEs have a fair opportunity to contribute to UK defence and security, and the ability to compete successfully in international markets. This plan sets out how we intend to do this.” (Image) can we link to DPRTE with him speaking? It follows the publication of the Defence and Security Industrial Strategy (DSIS) last year. The DSIS recognised the importance of SMEs; the economic benefit they bring to the UK and the impact on the defence supply chain through their innovation, diversity and resilience. It also recognised the importance Government places on enhancing SME support so they can realise their potential in defence and security export markets. (Image) Importance of SMEs to the defence supply chain SMEs are seen as the backbone of the UK economy and a vital part of the UK defence and security supply chain. The MOD is committed to supporting SMEs seeking to work in defence, whether contracting directly with the MOD or through larger prime contractors and has set an ambitious target that 25% of its procurement spend will go directly and indirectly to SMEs in 2022. In 2019-20 SMEs contributed more than £4.5bn to defence projects, accounting for over 21% of Defence’s total spend with industry. For the MOD, these smaller businesses are central to a strong and agile UK defence industry that provides a wide variety of high-quality jobs across the UK. There is also the recognition that these companies face unique challenges and barriers that hinder their ability to deliver on these valuable contributions. (Can we give some examples of the SMEs which are supplying into defence here please?) Progress since the last SME Action Plan in 2019 Since the publication of the last Action Plan in 2019, the MOD has hit a number of milestones to help its engagement with SMEs in its supply chain. The strategy highlights the introduction of a new Defence Suppliers Forum SME Working Group and the implementation of regular meetings with the Defence focused Trade Associations (ADS, Make UK Defence and techUK) to identify and address existing and emerging SME-specific issues. Other measures include a refreshed Early Market Engagement strategy, making opportunities easier to find and improved visibility of opportunities with suppliers of major contracts being required to advertise sub-contracting opportunities on the Defence Sourcing Portal. There’s also been efforts to make lower value contracts for less complex procurements and for the procurement of innovative requirements below £1 million simpler and written in plain English. The Government’s Social Value policy has also been implemented, which means the MOD will now consider any bidder’s approach to social value, which includes business creation and growth, and the development of more diverse supply chains. How will the new SME Action plan improve engagement? The MOD’s strategy to improve its engagement with SMEs focuses on simplifying procurement models; increasing the level of support given by the MOD itself and its prime contractors; and understanding how best to support innovation and exports for UK suppliers. The plan outlines a number of policies and approaches that will help deliver on the MOD’s commitment to SMEs and support the aims set out in the DSIS. The Defence Suppliers Forum SME Working Group The DSIS contained a commitment from the MOD to give SMEs a say in the development of the defence marketplace through the strengthening of the Defence Suppliers Forum. This has resulted in the creation of the new Defence Suppliers Forum SME Working Group. It is envisaged that by including the government customer, SMEs, prime contractors, and Make UK Defence (representing the defence-focused Trade Associations) the outcomes will be relevant and deliverable. Opportunities such as standardising and simplifying procurement processes to reduce the overheads associated with working in defence will be discussed and through similar open dialogue it is hoped that a tangible benefit will be felt by SMEs. Key targets for the group include greater visibility of frameworks and contract opportunities and the development of methods to gauge MOD’s engagement with SMEs to improve understanding and measure progress. Strategic Partnering Programme (SPP) Another aspect to improving engagement across the entire defence industry supply chain will be the MOD’s Strategic Suppliers through the Strategic Partnering Programme (SPP). It is hoped this will help to encourage greater diversity, innovation and sustainability at all levels of the defence supply chain. Revised Industrial Participation Policy As part of efforts to maximise economic opportunities for the UK supply chain, there are plans for the Government to revise its Industrial Participation policy. Suppliers will be asked to put in place voluntary targets for UK content and outline their plans for opening up opportunities to the UK supply chain pre-contract and will be regularly assessed against them. A pilot programme will be launched by the Government to develop these approaches, including engagement with large defence equipment suppliers on an initial set of MOD procurement programmes for both options. Defence Supply Chain Development and Innovation Programme A Defence Supply Chain Development and Innovation Programme will also be established to aid leveraging wider government investment to develop stronger mid-tier defence companies and support SME growth across the UK. Defence Technology Exploitation Programme (DTEP) initiative A UK-wide Defence Technology Exploitation Programme (DTEP) initiative will be created to support SMEs across the defence industry to develop innovative technologies and secure new business through collaboration with higher tier companies. Partial grant funding of projects will also be made available. These funding opportunities are a collaboration between UK SMEs and one or more higher-tier partners, and support MOD’s current and upcoming equipment capabilities and technology priorities. Acquisition and Procurement Policy – Simplifying the procurement process The MOD’s SME Action Plan acknowledges that for any company engaging with the defence supply chain for the first time, this can be a daunting experience. Overcoming this challenge and encouraging non-traditional businesses into the marketplace is critical to meeting the MOD’s SME procurement target and achieving its overarching strategy outline in the Integrated Review. The plan calls for the procurement process to be ‘simpler, more transparent, and more accessible’ and outlines the Government’s high-level policy commitments that will help those SMEs looking to break into the defence marketplace. These commitments include a comprehensive review of the Defence and Security Public Contracts Regulations (DSPCR) as part of the broader government review of the Public Procurement Regulations. The review will seek to improve the pace and agility of procurement, simplify the regulatory framework, tailor it to better enable innovation and support the pull through of new technology into defence and security capability. It is hoped this will also make it easier for businesses to access funding and investment. Similar benefits are expected to be felt through carrying out a comprehensive review of the Single Source Contract Regulations. Proposals include reducing the number of steps in the profit calculation process, cutting the reporting requirements and improving the dispute resolution process. The MOD also hope that by limiting contractor liability, another potential barrier to companies considering engaging with the defence supply chain can be overcome. Greater investment into the MOD’s commercial function will also be made, with increases to its capacity and capability as it seeks to implement the DSIS. A contract for virtually any type of business… The Plan highlights the sheer range of different contracts available within the defence supply chain. The abundance of different types of work available with the MOD represents an opportunity for an abundance of different types of businesses – especially SMEs. The MOD’s procurement activity covers a very wide range of requirements such as facilities management, construction, goods and services, catering, IT, logistics, training and fleet management, to name but a few. In financial year 2019/20, the MOD spent £1.1bn directly with SMEs, up from £775m in the previous year. For indirect spend, which makes up the majority of the MOD’s engagement with SMEs, the figures were £3.4bn up from £3.2bn. Innovation and technology The importance of technology and innovation in providing the UK’s Armed Forces with every battlefield advantage is critical. Technology presents both an opportunity and a potential threat to the UK so being ahead on the technology curve is of paramount importance. The MOD are keen to attract innovation and engage with suppliers that aren’t currently working in the defence supply chain and a key tool to harnessing this innovation is the Defence and Security Accelerator (DASA). DASA’s mission to find and fund exploitable innovation to support UK defence and security quickly and effectively, and support UK prosperity extends to all SMEs ‒ and SMEs regularly submit over half of all new ideas. DASA works locally, to support and advise innovators of all shapes and sizes, providing a critical link to pull through innovation to help the Ministry of Defence, Home Office, Department for Transport and other Government departments keep the UK safe by staying ahead of the threats we face. DASA has two main mechanisms for funding innovation ‒Themed Competitions and the Open Call for Innovation. DASA has also launched a new defence funding competition, the Defence Innovation Loan, which has currently made £10 million available to fund Innovative Defence solutions. The loan provides the chance for single SMEs to apply for a Defence Innovation Loan of between £250,000 and £1.6 million with an interest rate of 7.4% per annum. Delivered through a partnership with DASA and Innovate UK, the loan can be used to cover up to 100% of eligible project costs to aid the commercialisation of the solution. The SME Action Plan contains a number of case studies that highlight recent success stories and help to demonstrate the various routes that SMEs take to engage in with the defence marketplace. Through these outlets, the MOD, through DASA, will continue to increase its engagement with innovative SMEs. (Image) Conclusion This widely anticipated refresh of the MOD’s SME Action plan is a critical piece of the jigsaw for defence. The Integrated Review set the course for the UK’s national defence strategy for the next decade, while DSIS created the framework for industry to help to achieve these ambitions. The SMEs in the defence supply chain are rightly seen as critical to achieving these goals. Furthermore, it is hoped that the need for innovation and disruptive technology will see non-traditional suppliers engage with the defence supply chain. For this to happen, any potential barriers for businesses thinking of entering the defence marketplace need to be removed. The MOD is clearly very serious about achieving its target of 25% of its procurement spend going directly and indirectly to SMEs in 2022 and the measures outlined in this Plan will help to deliver this ambition. There are also clear UK-wide economic benefits to a robust SME presence in the defence supply chain. The refreshed Plan provides the platform for SMEs to succeed both in the domestic and international marketplace.

Defence Minister Jeremy Quin, who will be delivering a keynote speech at DPRTE (image © Creative Commons)

It follows the publication of the Defence and Security Industrial Strategy (DSIS) last year.

The DSIS recognised the importance of SMEs; the economic benefit they bring to the UK and the impact on the defence supply chain through their innovation, diversity and resilience.

It also recognised the importance Government places on enhancing SME support so they can realise their potential in defence and security export markets.

SME Action plan

Importance of SMEs to the defence supply chain

SMEs are seen as the backbone of the UK economy and a vital part of the UK defence and security supply chain.

The MOD is committed to supporting SMEs seeking to work in defence, whether contracting directly with the MOD or through larger prime contractors and has set an ambitious target that 25% of its procurement spend will go directly and indirectly to SMEs in 2022.

In 2019-20 SMEs contributed more than £4.5bn to defence projects, accounting for over 21% of Defence’s total spend with industry.

For the MOD, these smaller businesses are central to a strong and agile UK defence industry that provides a wide variety of high-quality jobs across the UK. There is also the recognition that these companies face unique challenges and barriers that hinder their ability to deliver on these valuable contributions.

SMEs who supply to the MOD include a wide variety of companies such asCDS Defence & Security; CP Cases; Princeps; Optima; Sellox; Subsea Craft and Lincad to name but a few.

Progress since the last SME Action Plan in 2019

Since the publication of the last Action Plan in 2019, the MOD has hit a number of milestones to help its engagement with SMEs in its supply chain.

The strategy highlights the introduction of a new Defence Suppliers Forum SME Working Group and the implementation of regular meetings with the Defence focused Trade Associations (ADS, Make UK Defence and techUK) to identify and address existing and emerging SME-specific issues.

Other measures include a refreshed Early Market Engagement strategy, making opportunities easier to find and improved visibility of opportunities with suppliers of major contracts being required to advertise sub-contracting opportunities on the Defence Sourcing Portal.

There’s also been efforts to make lower value contracts for less complex procurements and for the procurement of innovative requirements below £1 million simpler and written in plain English.

The Government’s Social Value policy has also been implemented, which means the MOD will now consider any bidder’s approach to social value, which includes business creation and growth, and the development of more diverse supply chains.

How will the new SME Action plan improve engagement?

The MOD’s strategy to improve its engagement with SMEs focuses on simplifying procurement models; increasing the level of support given by the MOD itself and its prime contractors; and understanding how best to support innovation and exports for UK suppliers.

The plan outlines a number of policies and approaches that will help deliver on the MOD’s commitment to SMEs and support the aims set out in the DSIS.

The Defence Suppliers Forum SME Working Group

The DSIS contained a commitment from the MOD to give SMEs a say in the development of the defence marketplace through the strengthening of the Defence Suppliers Forum.

This has resulted in the creation of the new Defence Suppliers Forum SME Working Group. It is envisaged that by including the government customer, SMEs, prime contractors, and Make UK Defence (representing the defence-focused Trade Associations) the outcomes will be relevant and deliverable.

Opportunities such as standardising and simplifying procurement processes to reduce the overheads associated with working in defence will be discussed and through similar open dialogue it is hoped that a tangible benefit will be felt by SMEs.

Key targets for the group include greater visibility of frameworks and contract opportunities and the development of methods to gauge MOD’s engagement with SMEs to improve understanding and measure progress.

Strategic Partnering Programme (SPP)

Another aspect to improving engagement across the entire defence industry supply chain will be the MOD’s Strategic Suppliers through the Strategic Partnering Programme (SPP). It is hoped this will help to encourage greater diversity, innovation and sustainability at all levels of the defence supply chain.

Revised Industrial Participation Policy

As part of efforts to maximise economic opportunities for the UK supply chain, there are plans for the Government to revise its Industrial Participation policy.

Suppliers will be asked to put in place voluntary targets for UK content and outline their plans for opening up opportunities to the UK supply chain pre-contract and will be regularly assessed against them.

A pilot programme will be launched by the Government to develop these approaches, including engagement with large defence equipment suppliers on an initial set of MOD procurement programmes for both options.

Defence Supply Chain Development and Innovation Programme

A Defence Supply Chain Development and Innovation Programme will also be established to aid leveraging wider government investment to develop stronger mid-tier defence companies and support SME growth across the UK.

Defence Technology Exploitation Programme (DTEP) initiative

A UK-wide Defence Technology Exploitation Programme (DTEP) initiative will be created to support SMEs across the defence industry to develop innovative technologies and secure new business through collaboration with higher tier companies.

Partial grant funding of projects will also be made available. These funding opportunities are a collaboration between UK SMEs and one or more higher-tier partners, and support MOD’s current and upcoming equipment capabilities and technology priorities.

Acquisition and Procurement Policy – Simplifying the procurement process

The MOD’s SME Action Plan acknowledges that for any company engaging with the defence supply chain for the first time, this can be a daunting experience.

Overcoming this challenge and encouraging non-traditional businesses into the marketplace is critical to meeting the MOD’s SME procurement target and achieving its overarching strategy outline in the Integrated Review.

The plan calls for the procurement process to be ‘simpler, more transparent, and more accessible’ and outlines the Government’s high-level policy commitments that will help those SMEs looking to break into the defence marketplace.

These commitments include a comprehensive review of the Defence and Security Public Contracts Regulations (DSPCR) as part of the broader government review of the Public Procurement Regulations.

The review will seek to improve the pace and agility of procurement, simplify the regulatory framework, tailor it to better enable innovation and support the pull through of new technology into defence and security capability. It is hoped this will also make it easier for businesses to access funding and investment.

Similar benefits are expected to be felt through carrying out a comprehensive review of the Single Source Contract Regulations. Proposals include reducing the number of steps in the profit calculation process, cutting the reporting requirements and improving the dispute resolution process.

The MOD also hope that by limiting contractor liability, another potential barrier to companies considering engaging with the defence supply chain can be overcome.

Greater investment into the MOD’s commercial function will also be made, with increases to its capacity and capability as it seeks to implement the DSIS.

A contract for virtually any type of business…

The Plan highlights the sheer range of different contracts available within the defence supply chain.

The abundance of different types of work available with the MOD represents an opportunity for an abundance of different types of businesses – especially SMEs.

The MOD’s procurement activity covers a very wide range of requirements such as facilities management, construction, goods and services, catering, IT, logistics, training and fleet management, to name but a few.

In financial year 2019/20, the MOD spent £1.1bn directly with SMEs, up from £775m in the previous year. For indirect spend, which makes up the majority of the MOD’s engagement with SMEs, the figures were £3.4bn up from £3.2bn.

Source: MOD Categorised Spend return to Crown Commercial Service (CCS) Data is Procurement spend only, Non-Procurement (Grants, staff related costs) are not included.

Innovation and technology

The importance of technology and innovation in providing the UK’s Armed Forces with every battlefield advantage is critical. Technology presents both an opportunity and a potential threat to the UK so being ahead on the technology curve is of paramount importance.

The MOD are keen to attract innovation and engage with suppliers that aren’t currently working in the defence supply chain and a key tool to harnessing this innovation is the Defence and Security Accelerator (DASA).

DASA’s mission to find and fund exploitable innovation to support UK defence and security quickly and effectively, and support UK prosperity extends to all SMEs ‒ and SMEs regularly submit over half of all new ideas.

DASA works locally, to support and advise innovators of all shapes and sizes, providing a critical link to pull through innovation to help the Ministry of Defence, Home Office, Department for Transport and other Government departments keep the UK safe by staying ahead of the threats we face.

DASA has two main mechanisms for funding innovation ‒Themed Competitions and the Open Call for Innovation.

DASA has also launched a new defence funding competition, the Defence Innovation Loan, which has currently made £10 million available to fund Innovative Defence solutions.

The loan provides the chance for single SMEs to apply for a Defence Innovation Loan of between £250,000 and £1.6 million with an interest rate of 7.4% per annum.

Delivered through a partnership with DASA and Innovate UK, the loan can be used to cover up to 100% of eligible project costs to aid the commercialisation of the solution.

The SME Action Plan contains a number of case studies that highlight recent success stories and help to demonstrate the various routes that SMEs take to engage in with the defence marketplace.

Through these outlets, the MOD, through DASA, will continue to increase its engagement with innovative SMEs.

Conclusion

This widely anticipated refresh of the MOD’s SME Action plan is a critical piece of the jigsaw for defence. The Integrated Review set the course for the UK’s national defence strategy for the next decade, while DSIS created the framework for industry to help to achieve these ambitions.

The SMEs in the defence supply chain are rightly seen as critical to achieving these goals. Furthermore, it is hoped that the need for innovation and disruptive technology will see non-traditional suppliers engage with the defence supply chain. For this to happen, any potential barriers for businesses thinking of entering the defence marketplace need to be removed.

The MOD is clearly very serious about achieving its target of 25% of its procurement spend going directly and indirectly to SMEs in 2022 and the measures outlined in this Plan will help to deliver this ambition.

There are also clear UK-wide economic benefits to a robust SME presence in the defence supply chain. The refreshed Plan provides the platform for SMEs to succeed both in the domestic and international marketplace.

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