Why SMEs Are Crucial to Defence Procurement
Small and medium-sized enterprises (SMEs) play a vital role in strengthening Britain’s defences. With their ability to innovate quickly, offer cost-effective solutions, and deliver niche technologies, SMEs are becoming increasingly important to the UK defence sector. Recent initiatives from the Ministry of Defence (MOD) aim to boost SME military contracts, setting new SME spending targets to increase economic growth and encourage more small businesses to join the defence supply chain.
Understanding Defence Procurement Structures
Key Stakeholders & Programmes
The UK defence procurement ecosystem includes several key agencies. Defence Equipment & Support (DE&S) manages equipment acquisition, while the Defence Infrastructure Organisation (DIO) oversees infrastructure projects. The Defence and Security Accelerator (DASA) runs innovation challenges for non-traditional suppliers. These organisations work in tandem with the Single Source Regulations Office (SSRO) to ensure transparent and accountable defence procurement processes.
Types of Opportunities Available
Opportunities range from framework agreements and open tenders to single-source contracts and DASA innovation programmes. For SMEs, smaller and more targeted tenders often provide a manageable entry point into the defence and security sector.
Pre-Qualification: Laying the Right Foundations
Registration Essentials for SMEs
Before a SME can bid on a MOD contract, it has to complete a number of registrations. In the case of UK contracts, join Defence Contracts Online (DCO) and Find a Tender Service (FTS) as well as paid portals such as Defence Contracts International. To do U.S. or NATO work, obtain a DUNS or UEI number, a CAGE/NCAGE code, and look at sites such as SAM.gov. These steps open access to defence procurement portals and government grants that support UK defence.
Certifications & Accreditations
SMEs must be certified with Cyber Essentials or Cyber Essentials Plus to address defence security requirements. ISO 9001 is an indicator of quality assurance and is commonly a minimum requirement. GDPR and ITAR/EAR compliance can be required by companies dealing with controlled technical data. SMEs can also stand out by qualifying to schemes such as the Small Business Research Initiative (SBRI) or 8(a) certification.
Finding the Right Defence Contracts
Best Platforms for Tender Discovery
Defence contracts are available to SMEs via Tenders Electronic Daily (TED), DASA innovation dashboard, FTS, and DCO. This is accelerated with the help of the contract search engine offered by DCI, especially when SMEs are using keywords such as “SME military contracts” or “breaking into defence contracts.”
Identifying High-Potential Work
Instead of targeting large system contracts, SMEs can target sub system components, logistic services or consultancy projects. Low-risk entry points, such as innovation-led bids, including those of the Defence and Security Accelerator, offer low-risk entry points with manageable contract values and shorter procurement cycles.
Building Partnerships for Market Entry
Working With Prime Contractors
Collaborating with defence primes such as BAE Systems or Thales is a practical route for SMEs. Many primes host SME engagement days or publish subcontractor opportunities. Prepare a strong capability statement that outlines past performance, cyber certifications, and value-added services.
Forming or Joining Consortia
For more complex bids, SMEs can team up with others to form a consortium. Clearly define roles, IP rights, and delivery responsibilities to ensure a coordinated proposal. Many successful SMEs win defence contracts by providing niche defence solutions within larger consortium bids.
Tendering Effectively as an SME
Compliance & Bid Structuring
Defence tenders demand formatting, schedules and technical requirements to be followed strictly. Create a compliance matrix to chart out all requirements. SMEs should make sure that their proposals meet the standards of the MOD procurement lifecycle, such as past performance and pricing realism.
Technical, Financial & Risk Requirements
Include details on scalability, delivery times, and security clearance readiness. Accurate cost breakdowns aligned with activity-based costing help demonstrate financial maturity. A basic risk register outlining mitigation strategies will further enhance bid credibility.
Meeting Security & Regulatory Standards
Personnel Vetting & Facility Access
Handling sensitive defence data requires security clearance. In the UK, this typically means Security Check (SC) or Developed Vetting (DV) via UKSV. SMEs should factor in vetting timelines when planning delivery schedules or hiring cleared subcontractors.
Data Handling & Export Compliance
SMEs involved in exporting defence equipment must comply with UK Export Control Organisation licensing and, for U.S. components, ITAR/EAR regulations. Failure to adhere to these standards can result in serious penalties and affect eligibility for future public contracts.
Mobilising and Delivering After the Win
Contract Execution Planning
Once a contract is won, SMEs should form an internal delivery team to manage project execution. Assign roles such as project manager, technical lead, and security officer to maintain contract integrity and support commercial success.
Managing Cash Flow & Quality
SMEs should negotiate milestone-based payments to avoid cash flow issues. Using basic cost tracking systems helps manage budget allocations and ensures financial transparency. Regular quality audits aligned with ISO standards ensure that deliverables meet MOD expectations.
From First Win to Sustainable Revenue
Leveraging Initial Contracts
A small defence contract, such as a DASA-funded trial or logistics support task, can serve as a stepping stone. Document your performance and use it in future bids or to build credibility with defence primes and procurement officers.
Maintaining Relationships & Scaling
Attend industry showcases like DSEI and participate in defence supplier forums to build long-term relationships. SMEs with proven track records can gradually bid for larger contracts or expand into allied nation defence markets.
Avoiding Common SME Pitfalls
Long procurement cycles, bid non-compliance, and overcommitting resources are common issues. SMEs should remain informed about policy shifts, like the Procurement Act, and regularly update certifications to remain competitive in the defence and security sector.
A Clear Path for SME Success
SMEs can win defence work by strategically targeting tenders, securing certifications, and aligning with key procurement priorities. With the right foundation and ongoing engagement, smaller firms can contribute significantly to the UK defence ecosystem and benefit from increased defence spending.
Final Checklist for SMEs Entering the Defence Space
- Register on DCO, FTS, and international portals
- Obtain Cyber Essentials and ISO 9001
- Set alerts for SME-focused defence opportunities
- Prepare a capability statement
- Engage with trade associations and regional clusters
- Maintain a simple quality and compliance plan
Subscribe to DCI’s SME Defence newsletter for updates on high-value contracts, innovation challenges, and MOD supply chain developments.
