By Max Clarke

A complete overhaul of how the Ministry of Defence (MoD) engages with small businesses is needed to help save the UK taxpayer money as well as provide a better level of service for Armed Forces personnel, according to a new report by the Federation of Small Businesses (FSB).

The report, ‘The global defence and security industry: why small businesses matter', looks at how the MoD can better engage with the small business sector to make procurement opportunities fairer as well as the role the Government can play in facilitating small business access to the defence export market.

The UK is the second largest defence exporter in the world with 9,000 small firms operating in the defence sector — more than the French, German, Italian, Spanish and Norwegian industries combined. Yet 90% of the UK's defence exports are won by just the 20 largest UK companies.

The FSB believes that the MoD and the wider Government should learn from best practice in public procurement from abroad — especially those countries which have policies which help small firms such as the Small Business Innovation Research Programme and ‘set asides' in the US.

These initiatives award a proportion of each contract to small firms and provide access to funding and support to encourage innovation.

There has long been an issue for small businesses when it comes to accessing public sector contracts, and the defence sector is even harder to get into. The FSB is concerned that the red tape around the MoD's preferred suppliers and contractors list does not provide opportunities for other, perhaps more specialist firms, to bid for contracts.

Furthermore, there is a lack of an effective voice for small businesses operating in the defence sector, with existing organisations being dominated by the largest businesses operating in the industry.

The FSB is concerned that the genuine concerns of smaller businesses are not being heard by the Government and that decisions are being taken with big business in mind and small businesses, if they are considered at all, being very much an afterthought. The FSB is calling for the MoD to open up a dedicated channel of communication for this vital sector.

John Walker, National Chairman, Federation of Small Businesses, said:

"The Government has put the private sector and exporting at the heart of its plans for economic recovery. With the UK being the second largest defence exporter in the world, and with 9,000 small businesses operating in this sector in the UK alone, facilitating small business access to this sector should be top of the Government's agenda.

"There is however, a justified feeling among small firms that the MoD either does not recognise or understand the small business community — despite rhetoric to the contrary.

"It is obvious that small businesses are still placed at a significant disadvantage compared to their prime competitors, if this were not the case approximately 90 per cent of defence exports would not be won by the 20 largest UK companies. In order for this situation to be improved it is vital that the voice of small businesses is heard by the decision makers at the MoD and beyond.

"In our report we have highlighted a number of problems faced by small businesses operating in this sector and have put forward a series of solutions that would not only directly benefit such businesses, but would also help the MoD, save the UK taxpayer money and most importantly provide a better level of service for our armed forces personnel."

This report will form the basis of the FSBs response to the MoDs consultation on their recently launched Green Paper entitled, ‘Equipment, support and technology for UK defence and security'.