UK Defence Procurement: an imminent test for the Procurement Act 2023?

Last week, the Defence Secretary, announced the appointment of Rupert Pearce as National Armaments Director (NAD) at the Ministry of Defence.

His role is described as “a key pillar” of the Strategic Defence Review published in June.

Mr Pearce’s appointment is made in the midst of a once in a generation surge in defence spending. The UK government plans to increase defence spending to 2.5% of GDP by 2027, to 3% in the next parliament, and to 5% of GDP by 2035.

At the heart of the NAD’s role is a mandate to deliver the Defence Industrial Strategy (published last month), to cut ‘procurement waste and duplication’ and to ‘support delivery of the biggest defence reforms for more than 50 years’.

But what are these reforms? And does the UK’s newly minted Procurement Act (which came into force in February this year) provide a suitable framework to deliver what will be an unprecedented program of defence contracts and programs?

In this blog we touch on what the Defence Industrial Strategy has to say about defence procurement reform and the NAD’s role within it.

The Defence Industrial Strategy casts the NAD – and Chief of Defence Nuclear in the case of nuclear – as the guardians of rapid delivery: both will “hold all the levers of procurement to oversee the end-to-end acquisition process”. By 1 December 2025 the NAD will establish a new coordinating authority for market engagement to set “a stronger demand signal” to industry. But while the NAD may control procurement decision making, the Strategy implicitly recognises that it must do so within the existing legal framework.

Despite much speculation in the industry of major procurement reform, the Defence Industrial Strategy does not envisage hard edged amendments to the Procurement Act 2023 (the Act). Rather, it contemplates exploiting its “defence specific flexibilities”, including:

• Direct Awards.  The Defence Industrial Strategy notes the ability to directly award “where it is necessary for operational capability” (a reference to para 20, Sch 5 of the Act). But this route is not without risk: a new feature brought in by the Act is the requirement for contracting authorities (CAs) to publish a transparency notice (s. 44) setting out the intention to make the award, before it is made. The notice should include (among other things) the identity of the supplier (if known), the subject matter of the contract, its value, and the estimated date the contract will be entered.[1] Publication marks the start of a potential window for scrutiny where disgruntled market players can consider challenging the CA’s decision to make the direct award. Doing so is not without hurdles: potential challengers would need to prove that the CA had breached a duty that caused it loss. The merits of any such action would need to be considered swiftly and by reference to the circumstances of the process and parties involved.
• Contract Modifications.  The Defence Industrial Strategy notes MOD’s ability to “modify a contract due to a technology refresh” and “to avoid a capability gap”. These are references, it seems, to the new ‘permitted contract modification’ grounds brought in at paras 10 and 11 of Sch 8 of the Act. In both cases, where MOD has an existing contract, using the ‘permitted modifications’ route could avoid the time and expense of tendering a fresh contract. While the modification of defence and security contracts are not subject to the same transparency obligations of direct awards, MOD’s reliance on these mechanisms must be properly justified by reference to the language of Schedule 8 if they are to withstand scrutiny.
• National Security exemption.  As compared with the previous regime, the Act contains a range of new exemptions for defence and security contracts.[2] In particular, a contract will be exempt from the Act where MOD determines that it should be exempt in the interests of national security.[3] The Act does not define “national security” (to retain flexibility to protect the UK’s national security interests). Further, HMG is currently considering feedback on a consultation (which closed last month) that tabled a proposal that Ministers be given powers to “designate services, works or goods as critical to national security” and directing contracting authorities to take this into account when considering whether the national security exemption applies. The results of the consultation are yet to be seen, but all indicators point in the direction of an expanded use of the national security exemption.

Changes to Single Source Contracts Regulations (SSCRs)? Further reform of the SSCRs has been on the cards for some time. But with the SSCRs governing procurements that account for around half of annual defence spending, and the desire to deliver greater innovation, efficiency and rapid delivery, the government has announced a review (with the assistance of the CMA) of defence contracting, including the SSCRs. The review will evaluate options for better incentivisation under the SSCRs to support productivity and innovation investigating different ways “to reverse the [historical] trend of fewer MOD contracts being awarded without competition”.

In summary, the Defence Industrial Strategy signals a more agile and expedited procurement approach, leveraging specific flexibilities within the Procurement Act with reforms to the SSCRs to follow. These shifts present both opportunities, and heightened regulatory scrutiny for all players. As the MOD seeks to transform defence into an 'engine for growth' and ensures the industry can meet future strategic demands, stakeholders across the ecosystem must remain vigilant and adaptable to navigate this evolving landscape effectively. 

See our previous blogs:

• The UK’s Strategic Defence Review 2025: Risks, Readiness & Regulatory considerations, Kate Gough, Alex Potter, Julian Pritchard, Robert Colvin, Olivia Valner, Remony Vials
• Roadmap for EU Defence Consolidation: Guidance on M&A and State aid in the EU Commission’s Defence Readiness Omnibus, Andreas von Bonin, Thomas Janssens, Katharina Kunert, Edward Dean, Conor Leavy
• New EU Regulation on defence-related investments - EU opens up additional funds for defence investments, Boris Kasolowsky, Enisa Halili, Mara Okmazic
• REARM Europe: Antitrust considerations following the White Paper on Defence, Thomas Janssens, Alex Potter, Andreas von Bonin, Conor Leavy, Remony Vials