The Ministry of Defence (MoD) is underusing small firms in its supply chains and urgent action is needed or it will fail to meet its required SME spend target, according to the Federation of Small Businesses (FSB).
FSB’s latest report shows that in the last financial year, the MoD only spent 16.5% of its £20.2bn procurement budget with small firms. If the MoD is to hit its target of 25% of total procurement spend by 2022 at the current budget level, they will need to up its spending by £2bn each year. The MoD has the highest procurement budget of all central government departments but the lowest proportion of direct spend with SMEs.
Currently, the majority of MoD procurement spend goes through five large suppliers including BAE Systems, Babcock, Airbus, Rolls-Royce and Lockheed Martin.
MOD must take steps to open up accessibility and transparency of EDPs. Including publishing a formal process to join the EDP, feedback on all failed applications, and publishing the bidding structure within the EDP.
As a longer term solution, MoD should explore the introduction of Dynamic Purchasing Systems where appropriate to do so, and continue using Framework Agreements for Technical Support (FATs) where not.
For those businesses working directly with MoD though, the vast majority of payments are received within five working days. However, our research suggests that payment to SMEs further down MoD supply chains still needs significant improvement. That is why, where businesses are found to be in serious breach of the prompt payment code but still of strategic importance, any future awards to that businesses should have to involve the use of project bank accounts for all awards above £5m (in line with the construction sector).
You can read the full report here