The Vital Role of SMEs in Defence Procurement: Unlocking Innovation, Economic Growth, and Job Creation

Small and Medium-sized Enterprises (SMEs) are the backbone of the UK economy, driving innovation, creating jobs, and strengthening national resilience. Their role in defence procurement is crucial, not just for supplying essential technology and equipment, but also for ensuring the UK maintains a dynamic and competitive defence industry. However, SMEs face numerous challenges in accessing Ministry of Defence (MOD) contracts, often hindered by bureaucracy, financial barriers, and complex procurement processes.

The recent Westminster Hall debate on SMEs in defence procurement, led by Alan Strickland MP, highlighted both the opportunities, and struggles that SMEs encounter. It underscored the urgent need for streamlined procurement processes and frameworks, such as Resilience & Security Frameworks (RSF), to lower barriers to entry while enhancing efficiency through upfront due diligence and digital solutions.

SMEs as Catalysts for Innovation in Defence

One of the strongest themes emerging from the debate was the role of SMEs in driving technological advancements and innovation. Defence technology is evolving rapidly, with areas like artificial intelligence (AI), cybersecurity, quantum computing, and advanced materials becoming critical to modern warfare. Yet, traditional procurement models often favour large contractors, side lining smaller companies that could offer ground-breaking solutions, but are unable to directly access key decision makers in. This means ground-breaking solutions don’t come to the attention of decision makers and are not able to be accounted for and included as part of strategies they develop. The result being that SMEs are left finding it difficult to sell their goods enabling them to survive, grow, employ more staff, and support both their local and the UK economy as a whole.

MPs such as Alison Bennett (LD) pointed to SMEs like Universal Quantum, a company in Haywards Heath specialising in quantum computing, as an example of cutting-edge innovation that should be prioritised in MOD procurement. Similarly, Alan Strickland highlighted businesses at NETPark (North East Technology Park), including Kromek, Filtronic, and Graphene Composites, which are revolutionising fields like radiation detection, satellite communication, and ballistic protection. These firms are proving that SMEs can be world leaders in defence-related technologies—if they can access the right opportunities.

In the United States, the Department of Defense engages directly with SMEs through agencies like the Defense Advanced Research Projects Agency (DARPA), allowing small firms to pitch solutions before formal procurement processes begin. Speakers at the Westminster debate, including Matt Rodda MP (Lab), emphasised that the UK should adopt a similar model to encourage direct engagement and ensure the MOD stays ahead in emerging technologies.

Economic and Regional Benefits of SME Engagement

Beyond innovation, SMEs contribute significantly to local and regional economies. Richard Foord MP (LD) spotlighted Supacat, a Devon-based SME producing high-mobility military vehicles like the Jackal and Coyote, which are vital to UK forces. With over 95% of its supply chain based in UK SMEs—85% of which are in the South West—Supacat demonstrates how SME involvement in defence contracts directly sustains local jobs and economic growth.

Similarly, Chris McDonald MP (Lab) highlighted Tracerco in Teesside, whose life-saving detection equipment is actively used in Ukraine. Luke Myer MP (Lab) praised Tees Components for supplying precision parts for Astute-class submarines, proving that local businesses can play pivotal roles in defence supply chains.

Jim Allister MP (TUV) drew attention to the disparity in MOD procurement spending, citing that Northern Ireland SMEs received only £2 million in contracts in 2022-23 compared to £29 million in Scotland and £408 million in the South West. This imbalance, he argued, stifles job creation and limits growth potential in key regions. Addressing this inequality by expanding SME access to contracts would help level up regional economies while strengthening national security.

Challenges Faced by SMEs in Defence Procurement

Despite their potential, SMEs face significant hurdles in securing MOD contracts. Key challenges discussed in the debate included:

• Bureaucratic Procurement Processes: SMEs often struggle with overly complex bidding processes, requiring extensive resources they may not possess.

• Delayed Payments: Chris Evans MP (Lab) highlighted that some SMEs wait over 100 days for payment from prime contractors, straining their cash flow and limiting their ability to scale.

• Dependence on Prime Contractors: Most MOD contracts are awarded to large firms, forcing SMEs to work as subcontractors, reducing their margins and limiting direct engagement with the government.

The Role of Procurement Frameworks in Supporting SMEs

A central solution discussed in the debate is the need for procurement complex and burdensome frameworks to be removed for all, but the largest most complicated tenders led by Primes. Instead, systems designed to support SMEs were needed for most procurement needs, supporting and enabling a two way flow of needs, ideas, and strategic planning.

This is where Resilience & Security Frameworks (RSF) can play a transformative role. By simplifying procurement and reducing administrative burdens, RSF enables SMEs to compete more effectively for defence contracts and can champion them and their technologies to defence planners.

Key benefits of RSF’s framework include:

• Lowering Barriers to Entry: RSF’s digital processes streamline due diligence (DD) upfront, reducing repetitive paperwork and making it easier for SMEs to bid for contracts.

• Ensuring Faster Payments: RSF promotes financial transparency and contract terms that prioritise prompt payment to SMEs, ensuring they remain solvent and can reinvest in growth.

• Encouraging Direct SME Engagement: By pre-vetting suppliers and categorising them based on capabilities, RSF allows MOD buyers to access innovative SMEs directly, bypassing excessive reliance on prime contractors.

• Facilitating Collaboration: RSF connects SMEs with larger defence firms and government agencies, fostering strategic partnerships that drive innovation and long-term success.

• Consortia Tendering: This allows Primes and SMEs to work together on an equal footing to fulfil or tender for contracts meaning all share the pain and reward equally benefiting all parties, not just financially but strategically for the future.

A Call for Action: Strengthening Defence Procurement for SMEs

The Westminster Hall debate reinforced the urgent need to reform defence procurement to ensure SMEs can thrive. The MOD’s new Defence Industrial Strategy, expected later in 2025, presents a crucial opportunity to integrate frameworks like RSF, which support SMEs while maintaining procurement efficiency.

James Cartlidge MP (Con) emphasised the importance of securing SME confidence by outlining a clear pathway to 2.5% GDP defence spending. He also stressed that investing in defence is ethically positive and crucial for national security, urging the government to ensure pension funds support the sector.

As Maria Eagle, the Minister for Defence Procurement, concluded, improving SME engagement in defence is a national security priority. She committed to visiting key SME hubs across the UK to hear directly from businesses and incorporate their insights into the evolving industrial strategy.

Conclusion

The role of SMEs in defence procurement cannot be overstated. From fostering cutting-edge innovation to driving regional economic growth and job creation, SMEs are essential to the UK’s security and industrial future. However, for SMEs to reach their full potential, barriers to entry must be lowered, payment structures must be improved, and direct engagement with the MOD must increase.

By adopting streamlined procurement frameworks like RSF, the UK can unlock the power of SMEs, ensuring a robust, resilient, and innovative defence sector that benefits the entire nation. Now is the time to act and position SMEs at the heart of the UK’s defence strategy for years to come.