Defence procurement reform: The Defence and Security Public Contract Regulations

There are two sets of regulations that oversee defence procurement: The Defence and Security Public Contracts Regulations (DSPCR) and the Single Source Contract Regulations (SSCR).

This paper explains what the DPSCR are, how they came about, and how they will be replaced.

What are the DSPCR?

The Defence and Security Public Contracts Regulations 2011 (DSPCR) regulate the award of contracts for military and sensitive equipment, works and services.

In 2009 the EU adopted a new defence and security directive to improve efficiency and competition in the EU defence market. The directive was also intended to discourage the exemption of defence contracts from existing procurement rules. The Government transposed this directive (Directive 2009/81/EC) into UK law in 2011 as the DSPCR.

The DSPCR is ‘retained EU law’ by virtue of section 2 of the European Union (Withdrawal) Act 2018. The DSPCR was amended by two Statutory Instruments in 2019 and 2020 to ensure the rules continued to operate effectively after the UK left the EU.  

Coverage

The regulations apply to all contracts within its scope above the financial threshold.

However, the regulations do not apply in all circumstances. Government to government sales, intelligence activities and military operations outside the UK are excluded.

Contracts which are not competed are covered by the Single Source Contract Regulations.

Reforming the regulations

The Ministry of Defence (MOD) spends billions each year buying new equipment and supporting existing equipment for the armed forces.

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

MPs also raised concerns about the inability to restrict contracts to domestic suppliers under the regulations when the UK was a member of the EU. The Government amended the regulations to reflect the UK’s new position outside of the EU to provide a legal right of access to UK and Gibraltar based suppliers.

The Government says the UK’s departure from the UK offers it a chance to look again at procurement rules. In a Green Paper on transforming public procurement, the Government identified the DSPCR as one of several sets of procurement regulations it intends to replace with a single set of rules. These will be supplemented with sector-specific parts for defence.

In March 2021 the MOD published a new Defence and Security Industrial Strategy (DSIS). The MOD confirmed that it had embarked on what it described as an “ambitious and comprehensive” review of the DSPCR and that the proposed reforms will help speed up and simplify the procurement process:

We will improve the pace and agility of acquisition, simplify the regulatory framework, tailor it to better enable innovation and support the pull through of new technology into defence and security capability.

New legislation: The Procurement Bill

The Government’s proposals are laid out in the Procurement Bill, which was introduced in the House of Lords on 11 May 2022. The bill completed all of its stages in the House of Lords on 13 December and was introduced in the House of Commons on 14 December 2022.

The Government says existing rules on public procurement, which largely derive from the UK’s former membership of the EU, are complicated and restrictive and that the new legislation will be simpler and more flexible.

At Second Reading, Lord True, the Minister for State in the Cabinet Office, said defence procurement “will benefit from the simplification and increased flexibility of the core regime.”

This paper does not discuss the Bill at length. However, it does highlight some of the elements of the Bill which address defence and security contracts.

The Bill’s proposals to reform the Single Source Contract Regulations are discussed in Commons Library paper Defence procurement reform: The single source contract regulations (CBP 9645).

A Commons Library paper on the Bill will be published ahead of Second Reading in the House of Commons: Public Procurement Bill 2022-23.