The UK Government has unveiled reforms to tighten defence procurement, linking contractor profit more closely to on-time and on-budget delivery in a bid to tackle persistent delays and cost overruns.
Announced on 14 May by the
Ministry of Defence (MOD) and Minister for Defence Procurement and Industry Luke Pollard MP, the changes to the Single Source Contract Regulations (SSCRs) will see suppliers rewarded for strong performance and penalised when projects slip. Incentive payments could rise to as much as 10% of contract costs for companies that meet agreed targets, while weaker performers may see reduced returns.
The move forms part of a broader push to accelerate procurement and improve value for money across the defence estate. Ministers argue that every saving generated through better supplier performance can be reinvested into frontline capability.
Mr Pollard said the reforms were essential to improving delivery standards across major programmes.
He explained: “To deliver the warfighting readiness our country requires, we need procurement that delivers on time and on budget. We inherited a programme where 96% of our major defence projects had issues with delivery or cost. That is not acceptable. That’s why suppliers who deliver better outcomes and take on appropriate risk will be rewarded, but those who do not, will make less profit.”
Alongside enhanced incentives, the reforms reduce guaranteed profit levels on lower-risk contracts, encouraging suppliers to improve performance. Conversely, companies taking on higher-risk work will be able to earn stronger returns, aligning with government ambitions to stimulate greater industrial investment.
A key feature is a new ‘Innovation Uplift’ initiative, aimed particularly at smaller and emerging firms. This mechanism will reward businesses that invest their own funds in developing new technologies without the certainty of a government contract, with the aim of bringing fresh ideas into service more quickly.
In a further effort to support SMEs, the threshold for contracts covered by SSCR reporting requirements will rise from £5 million to £25 million. The MOD says this will remove administrative burdens from smaller suppliers while still capturing the vast majority of single-source spending.
Rupert Pearce, National Armaments Director, commented: “These changes give us better tools to reward innovation, incentivise delivery, and ensure that public money is spent where it generates real value.”
The reforms are being introduced through a series of statutory instruments, with further consultation expected before the summer recess.