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The Ministry of Defence (MOD) spends billions each year buying new equipment and supporting existing equipment for the armed forces. It has allocated £238 billion on equipment procurement and support over the ten years from 2021 to 2031.

However, successive governments have struggled to deliver key equipment capabilities within agreed costs and timescales.

There have been many reviews and reforms of procurement over the years. In 2021 the Government set out a new approach in the Defence and Security Industrial Strategy. In 2022 the Government introduced new legislation that will reform the regulations that oversee defence procurement.

This paper explores the challenges of defence procurement, tracks the reforms introduced since 1997, discusses the new policy and the regulatory framework. It replaces Library paper An introduction to defence procurement.

The challenges of defence procurement

Buying equipment for the armed forces brings a unique set of challenges.

Historically there have always been certain capabilities that the MOD has sought to retain a domestic industrial base. This may be for national security reasons or to ensure critical supply chains are not dependent on allies or vulnerable to embargoes.

Major equipment programmes can take years or even decades to come to fruition. This means governments may inherit programmes begun under very different financial circumstances. Requirements may change, which can inflate costs and extend delivery times.

Historically the MOD has allocated a significant proportion of contracts to single source suppliers. A third of contracts in 2020-21 were awarded without competition, amounting to £9.3 billion.

The Defence and Public Accounts Committees, and the National Audit Office, have repeatedly criticised the MOD’s management of major programmes, identifying budget overruns and the late delivery of major programmes in reports dating back decades.

Since 2012 the MOD has published an annual equipment plan outlining its planned expenditure on equipment and support over a rolling ten-year period. In January 2021 the National Audit Office said “for the fourth successive year, the equipment plan remains unaffordable”. In February 2022, the NAO said that the multi-year spending review settlement “gives the Department a rare opportunity to break old habits and set the plan on course to be affordable.

A new policy approach

In 2021 the MOD adopted a new approach to defence procurement in the Defence and Security Industrial Strategy (DSIS). This replaced the former policy of “global competition by default” with a “more flexible and nuanced approach”.

The MOD will use competition “where appropriate”, but will also consider other approaches. As with other central Government departments, the MOD will include social value in procurement (above the threshold). The MOD will pilot a revised industrial participation policy and will “encourage and support defence suppliers, whether headquartered here or overseas, to consider carefully what can be sourced from within the UK.”

Regulatory framework, reform and the Procurement Bill 2022

There are two sets of regulations that oversee defence procurement:

  • The Defence and Security Public Contracts Regulations (DSPCR)
  • The Single Source Contract Regulations (SSCR)

The Government intends to reform and streamline public procurement in 2022 and replace several different regulatory regimes, including the DSCPR, with a single set of rules. This is set out in the Procurement Bill, announced in the Queen’s Speech 2022, and introduced in the House of Lords on 11 May 2022. The Bill allows for a limited number of derogations that meet the specific needs of defence and security procurements, and a national security exemption. It will also enable reforms to the SSCR.

This paper explains how the regulations have evolved. It will be updated once the Procurement Bill has received Royal Assent to reflect the new regulatory system.

Forthcoming Library papers will discuss the DSCPR and SSCR in detail, including the proposed reforms set out in the Procurement Bill.

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