UK Report Calls for Defence Procurement Reform to Boost SME Role
A new report urges structural reforms to help small and medium enterprises play a larger role in UK defence, arguing current processes favor larger firms and limit innovation and resilience in defence supply chains. The Next Line of Defence: Unlocking SME Potential in UK Defence from Policy to Practice, by Babcock International and the University of Exeter, identifies key barriers and recommendations to expand SME participation in defence procurement and capability development.
SME Role Seen as Central to Resilience
The report highlights that UK defence spending with SMEs remains low, at roughly four percent of total defence procurement, constraining the sector’s ability to harness innovation and support regional economic growth. Authors call for reforms in six priority areas, including simplifying procurement, modernizing infrastructure, building skills pipelines, and protecting sovereign capability.
In a joint statement, Babcock and University of Exeter contributors stress that SMEs can deliver niche technologies faster than larger firms, particularly in domains such as cyber, autonomy, and artificial intelligence, but face systemic hurdles in accessing defence contracts.
Six Priority Areas for Reform
Key reforms recommended by the report include:
- Simplifying bureaucratic procurement procedures that can disadvantage smaller suppliers.
- Rethinking the role of prime contractors so they act as partners rather than gatekeepers.
- Stabilizing funding cycles to give SMEs longer-term investment confidence.
- Strengthening the talent pipeline to ensure SMEs can access skilled workers.
- Upgrading infrastructure to support both digital and physical security needs.
- Ensuring sovereign capability by enabling more SMEs to contribute to critical defence systems.
Industry Charter and Ongoing Initiatives
Alongside the report, Babcock confirmed plans for an industry-led SME Charter to standardize how smaller firms are engaged across the defence sector. Details of the charter’s implementation have not yet been published but are expected in coming months.
The report aligns with ongoing UK government efforts to improve SME access to defence markets. Recent government announcements include new support measures and direct SME spending targets, alongside steps to reform procurement pathways to reduce administrative burdens on smaller firms.
Government Policy Context
The UK Ministry of Defence and government policy documents also emphasize SME engagement. The Defence and Security Industrial Strategy and associated Action Plan set out commitments to improve access to defence opportunities for SMEs, including revision of contracting standards, early market engagement practices, and proportionate risk-based approaches to liability.
Separate government policy measures have pledged support hubs and direct SME targets to increase participation in defence supply chains. Only a small share of MOD procurement currently goes directly to SMEs, and policymakers have signaled intent to raise that share as part of broader defence industrial strategy initiatives.
Barriers and SME Challenges
Despite policy commitments, SMEs still face hurdles in defense. Complex contracting standards and short funding cycles discourage smaller firms from pursuing defence work, while larger primes often dominate supply chains. Report authors argue that closer collaboration between government, primes, and SMEs is needed to unlock full value from the UK’s defence industrial base.
The report frames reform as essential not just for economic benefit but for defence resilience, especially as technological competition intensifies globally and demand for agile, innovative solutions grows.
What Happens Next
Industry and government stakeholders have called for a coordinated response to the report’s recommendations. Implementation will likely involve adjustments to procurement policy, new contractual frameworks, and formal mechanisms to track SME engagement. The proposed SME Charter and government-led initiatives may serve as key vehicles for change.
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