For small and medium enterprises (SMEs) across the UK, the defence and security sector represents a vast and often untapped source of opportunity. Once seen as a closed world dominated by prime contractors, the landscape is shifting. Reforms such as the Procurement Act 2023 and a growing suite of innovation programmes mean SMEs now have greater access than ever before to lucrative contracts in this space, with the benefit of increased access to contracts, growth opportunities, and government support.
Breaking into defence procurement may still seem daunting, but with the right strategy, compliance credentials and tools, small and medium enterprises can position themselves to win. Within the UK defence sector, SMEs play a crucial role in driving innovation and supporting national security objectives. This article outlines the new opportunities available, the platforms and certifications you’ll need, and how DCI supports SMEs in securing contracts.
Introduction to the Defence Industry
The defence industry is a cornerstone of the UK’s national security, underpinning the country’s ability to protect its interests at home and abroad. As one of the largest sectors in the UK, it not only safeguards national security but also drives significant economic growth through investment in defence equipment and technology. The government’s commitment to strengthening the defence supply chain is evident in its robust procurement strategy and the introduction of new SME spending targets. These targets are designed to ensure that a greater share of defence contracts is awarded to small and medium-sized businesses, opening up new opportunities for innovation and competition.
By actively encouraging SMEs to participate in the defence supply chain, the government aims to foster a more resilient, diverse, and agile sector, one that leverages the unique strengths of UK businesses to deliver cutting-edge technology and services. For SMEs, this evolving landscape presents a chance to contribute to critical national security objectives while benefiting from increased contract opportunities and government support.
Understanding the Opportunities for SMEs
The New Procurement Landscape
The Procurement Act 2023 has streamlined and modernised UK public procurement, replacing a patchwork of older EU-derived regulations such as PCR 2015 and DSPCR 2011. The new legislation consolidates procurement rules for defence and security contracts, providing a unified legal framework that governs how these contracts are awarded. For SMEs, this translates into a procurement environment that is not only clearer but also much more accessible and responsive to smaller suppliers.
Key features include:
- Simpler, faster bidding – the Act consolidates multiple regulations into a single, flexible system, cutting layers of bureaucracy that previously discouraged new entrants. Contracting authorities are now responsible for implementing these streamlined procedures.
- Shorter procurement cycles – defence programmes that once took up to six years can now move forward in as little as two, with quicker “off-the-shelf” purchases for urgent needs. Contracting authorities have greater flexibility under the new procurement rules.
- Reserved competitions for SMEs – below-threshold contracts can be ring-fenced specifically for SMEs or local suppliers, creating entry-level pathways that exclude larger rivals. Contracting authorities play a key role in applying these exemptions.
- Government SME participation targets – the UK has committed to steadily increase the share of public procurement spend going to SMEs, positioning them as vital contributors to defence resilience. Contracting authorities are tasked with meeting these targets under the new legislation.
For SMEs that once felt shut out by red tape, this represents a genuine moment of opportunity. By reducing timeframes, encouraging innovation, and levelling the playing field, the new framework gives smaller businesses a stronger chance to compete and win.
Innovation Programmes and Funding
The UK Ministry of Defence (MOD) and government back a range of initiatives that actively support SMEs with funding, R&D opportunities, and early engagement. These are designed not only to inject capital into promising ideas but also to integrate smaller firms into the wider defence innovation ecosystem:
- Defence and Security Accelerator (DASA) – runs regular themed innovation challenges to encourage novel solutions from non-traditional suppliers. Funding can reach up to £1m, with an example being AI-enabled logistics tools that improve supply chain efficiency, or new protective materials for troops. Successful projects often transition into formal MOD procurement after trials.
- Defence Technology Exploitation Programme (DTEP) – a £16m scheme offering government grants of up to £500k for collaborative projects between SMEs and primes. This not only strengthens SME cashflow but also provides mentorship and supply chain access from industry giants like BAE Systems or Thales.
- Ideas Marketplace– an online portal where SMEs can float early-stage concepts directly to MOD stakeholders months before formal tenders. By engaging here, businesses can influence future requirements while gaining valuable feedback.
- Innovate UK Contracts – provides contracts (rather than grants) for SMEs to solve defined public sector challenges, giving suppliers both funding and a clear route into operational use.
Collectively, these programmes act as stepping stones. They allow SMEs to prove their innovation at lower risk, build relationships with buyers and primes, and gain credibility through smaller funded projects before scaling into larger defence supply opportunities.
When applying for these programmes, it is essential to provide full details about your project, objectives, and capabilities to maximize your chances of success.
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Building the Competency to Win
Compliance and Certifications
Success in defence procurement is not only about spotting opportunities—it’s about meeting strict compliance standards. SMEs should invest early in key certifications:
- Cyber Essentials (or Plus) – mandatory for all MOD contracts handling sensitive information.
- ISO 9001 – recognised quality management accreditation, often a baseline requirement.
- Security Clearances (SC/DV) – personnel may require a security check (SC) or developed vetting (DV) depending on the contract, especially for procurements involving classified data.
- DEFCONs – standard MOD contract conditions covering cyber, sustainability, and IP.
- ITAR/EAR – export control compliance for projects involving US technologies.
The Single Source Regulations Office oversees single source contracts, providing guidance and addressing industry concerns to streamline the compliance and negotiation processes.
Compliance with these regulations protects taxpayer interests and ensures value for money in defence procurements. Download our Bidding Process Guide.
Partnering and Consortia
Not every SME can bid directly for a MOD framework—but collaboration is a proven entry point:
- Subcontracting to primes – large contractors like BAE Systems, Thales, or QinetiQ frequently engage SMEs for niche skills or technologies.
- Joining consortia – SMEs can pool expertise to jointly bid for larger, complex projects.
- Networking at events – industry days, DSEI, and DPRTE provide face-to-face opportunities to connect with primes and MOD stakeholders.
DCI supports SMEs in building these partnerships through market intelligence, award data, and access to face-to-face events, making it easier to identify the right collaborators.
From First Tender to Sustainable Growth
Winning that first contract, whether a DASA-funded trial, a subcontracted component, or a below-threshold service, is a milestone. But sustainable growth requires more than a single success; it demands a disciplined, long-term approach that balances ambition with operational resilience.
Delivering flawlessly
- Meeting delivery deadlines and budgets is non-negotiable. SMEs should document results with case studies, customer references, and evidence packs that include all relevant details to strengthen future bids. Even a small innovation pilot can become a powerful proof point when positioned as a success story.
Scaling gradually
- Instead of jumping straight into high-value contracts that could overstretch resources, SMEs should build up step by step. A subcontract on a prime’s naval system today could evolve into a direct MOD opportunity tomorrow. Gradual scaling allows firms to hire strategically, refine processes, and maintain quality.
Maintaining compliance
- Certifications such as Cyber Essentials, ISO 9001, and security clearances are not one-off achievements; they must be kept valid and upgraded when needed. Lapses in compliance can disqualify bids or undermine credibility. SMEs should maintain an internal compliance calendar to track renewals and evolving DEFCON requirements.
Managing cashflow
- Defence contracts often rely on milestone or phased payments. SMEs should plan for these cycles by securing credit facilities, negotiating progress payments, or partnering with primes who can shoulder upfront costs. Cashflow discipline is key to avoiding financial strain during project delivery.
Stay informed
- The defence market evolves quickly. Changes in procurement law, new frameworks, or increased emphasis on social value can alter scoring criteria. SMEs that monitor policy updates, MOD announcements, and market intelligence through platforms like DCI will adapt faster than competitors.
Over time, SMEs that follow this roadmap can transition from first-time supplier to trusted, preferred partner. As part of a growth strategy, it is essential to monitor new procurements and stay alert to upcoming contract opportunities. With persistence, strong delivery, and strategic reinvestment, even smaller firms can build a track record that opens the door to allied international markets—an area where DCI’s global feeds provide unique visibility and advantage.
Request a demo to see how DCI can help your business grow in the defence sector.
Resources and Final Checklist
To help SMEs get defence-ready, here’s a quick-start checklist:
- Register on DSP and FTS
- Obtain Cyber Essentials and ISO 9001
- Set up tailored tender alerts (via DCI)
- Prepare a capability statement
- Engage with industry clusters and events
- Maintain a compliance plan
- Network with primes and consortia
Access our Market Reports to make sure you are up to date with all the defence market trends.
Recap
The UK’s defence and security market is evolving rapidly, and SMEs are now at the centre of this transformation. Policy reforms, innovation schemes, and contracting platforms have lowered barriers to entry, but success still depends on preparation, compliance, and strategic engagement.
With the right approach, and with DCI’s intelligence tools to guide the way, SMEs can move from ambition to achievement, winning defence contracts and scaling into long-term, sustainable success.
Take your first step and let DCI help you find, bid, and win in the defence sector.
