Small businesses can help solve defence procurement
A neutral vendor model for defence procurement will solve issues of scale, reduce bureaucracy and reduce the risks of engagement for all sides, says Rob Levene
John Healey and Al Carns may have quit, but the final answer to the question that triggered their exits as defence secretary and armed forces minister has been left hanging: just how much will be spent on defence?
Sir Keir Starmer has promised to settle the Defence Investment Plan before the Nato summit early next week and intense negotiations are underway with his new defence secretary Dan Jarvis on a package that Number 10 will desperately hope can draw a line under the row.
While most people won’t be following the exact details the public understands we as a country face some painful choices as we seek to repair our defences against a rising threat from Russia and elsewhere. As the government seeks to maintain public support on defence, it can only battle against the legacy of adverse publicity generated by some of the high-profile procurement controversies. Critics are on standby, waiting and watching for any evidence that can be used to suggest scarce resources are being misspent. Likewise, there will be extra scrutiny especially if UK taxpayers are seen to be lining the pockets of firms based overseas.
To be fair to the ministry of defence, they are clearly aware of the headwinds and are showcasing a real desire to learn the lessons from the past as they drive through significant reforms across the department.
One of the most vital of those reforms is to make it easier for smaller firms to bid for contracts. This drives down prices by increasing competition and crucially gives the MoD access to the widest range of the latest innovations in the marketplace.
Whereas the US allocates 20 per cent of its annual defence budget to be spent on SME’s, the UK only achieves just four per cent, translating to £1.2bn a year
Notably, whereas the US allocates 20 per cent of its annual defence budget to be spent on SME’s, the UK only achieves just four per cent, translating to £1.2bn a year. The government has now set a target to reach £7.5bn by May 2028, a 50 per cent increase on the 2023/4 baseline.
A vital factor in streamlining procurement is the adoption of what is called a neutral vendor model (NVM). Under this model an intermediary works with pre-qualified suppliers. The model solves issues of scale, reduces bureaucracy and it reduces the risks of engagement for all sides. Working with Constellia, the MoD has its own version: The Neutral Vendor Framework for Innovation. This allows the MoD to benefit from the agility and innovation of smaller firms, and for them to access MoD budgets while reducing the cost and hassle to both. Early signs are promising. Just last month 13 British defence SMEs were awarded contracts up to £4m for autonomous systems to secure communications, space manufacturing and synthetic training.
Britain leads in frontier technology
This is particularly helpful in some of the frontier technologies that Ukraine has shown are vital for modern warfare. Thankfully, Britain has a lead in many – British companies are working on quantum navigation systems that work even when GPS doesn’t. They are developing AI-enabled logistics platforms that promise dramatic gains in efficiency. And of course the ever-evolving digital battlespace is being driven by cyber capabilities that depend on British brilliance.
Nobody can suggest that the politics or the economics or the defence settlement are easy. With little to no appetite for increased taxes or borrowing, governments of whatever stripe are going to have to reallocate existing resources accordingly.
What they can and should do, however, is to show the public how their cash is going further, directly benefiting British jobs and driving innovation in fields where we already enjoy a world-beating advantage. Small businesses are driving that innovation, and early signs are that the ministry of defence – and therefore the British taxpayer – is reaping the benefits of bringing more of them to the table.
Rob Levene is chairman of Constellia, a leading neutral vendor procurement provider across public and private sectors, with a marketplace of 4,000 suppliers, mostly UK SMEs.