30/06/2026
Background
Recent global instability has placed significant emphasis on the government’s defence procurement plans. Keir Starmer has today announced £15 billion in new funding for key defence equipment and technology, backed by almost £300 billion of investment across the next four years.
£15 billion new funding boost to transform Armed Forces and keep the UK safe - GOV.UK
The outgoing PM seems keen to ensure that an increase in defence spending is part of his legacy, and press reports suggest that the incoming PM understands the electoral advantages and importance of continued focus in this area.
Not only is it clear that the government wants to “back British” through the creating of almost 60,000 jobs through this increased investment, the government also wants to protect national interests by making full use of national security exemptions under the Procurement Act 2023 (“Act”) in relation to four areas which are considered critical to national and economic security, namely shipbuilding, energy infrastructure, AI and steel procurement.
Written statements - Written questions, answers and statements - UK Parliament
Earlier this month, a new Procurement Policy Note was published setting out detailed guidance on how exemptions in these fields can be applied.
PPN 025 - Protecting the UK’s national security through public procurement (HTML) - GOV.UK
In this article we look at recent developments in the field of defence procurement (not including single source regulations which have also undergone revision in recent years).
How has the legislative framework changed recently for defence procurement?
The Procurement Act 2023 was introduced on 24 February 2025 and replaced the Defence and Security Public Contracts Regulations 2011 (“DSPCR”), as well as procurement rules in respect of other types of public contracts.
For suppliers operating in the defence sector, the Act presents both opportunities and challenges. Whilst the legislation generally provides greater transparency over procurement processes, contracting authorities awarding defence contracts continue to have greater flexibility to apply certain exemptions. This means that suppliers in the defence sector may not always benefit from the increased transparency provided for in the Act. The Act also introduces a broader exclusions regime, which suppliers should understand to ensure that they are not inadvertently exposing themselves to risk of exclusion.
What types of contracts are covered by the wider flexibility offered by defence procurement?
Whilst the defence and security specific provisions in the Act will largely apply to the same contracts as the DSPCR did (such as contracts for military equipment and sensitive equipment, works and services), there is a wider definition of a “defence and security contract” as it now also includes “goods, services or works that are otherwise relevant to the operational capability, effectiveness, readiness for action, safety or security of the armed forces”. The Government guidance gives an example of where this may apply: a drone designed for the civil market, but which is being put to military use. In that case, the defence and security provisions in the Act should apply in order to ensure operational advantage is maintained.
What rules apply to defence procurement?
Once you have established whether the contract falls within the definition of a “defence and security contract”, it is important to consider what rules the authority must follow in respect of the defence procurement. A defence and security contract is a public contract (and therefore subject to largely the same rules as other public contracts) where the estimated value of the contract exceeds the threshold for defence and security contracts, and the contract is not an exempted contract. There are also some direct award justifications and permitted contract modifications which only apply if the procurement is undertaken by a ‘defence authority’. It is important to understand when and how the specific defence rules may apply, and the Government guidance is a useful starting point for this: Guidance - Defence and Security Contracts (HTML) - GOV.UK
When can defence be exempted from procurement?
The Act includes similar exemptions to the DSPCR. The exemptions are set out in Schedule 2 of the Act, and include, for example, an exemption where the contracting authority considers that it would not be in the interests of national security for a contract to be procured in accordance with the Act. However, the Government guidance is clear that this should only be relied upon when properly justified.
Where a contracting authority relies on an exemption, this may significantly reduce transparency, limit competition or result in a direct award being made. Suppliers should therefore carefully assess whether the legal basis for any claimed exemption is clear and properly justified. Suppliers should consider:
- Whether the exemption genuinely applies to the goods, services or works being procured;
- Whether the scope of the exemption has been interpreted too broadly;
- Whether sufficient reasons have been provided to explain the contracting authority’s approach; and
- Whether there may be grounds to seek clarification during the procurement process, or in appropriate circumstances, to challenge the procurement decision.
Note that although the national security exemption may mean procurement of a contract is exempted, authorities must also award the contract in a way which is consistent with the UK’s trade agreements.
What difference does the recent national security PPN make?
The PPN applies to central government departments, their executive agencies and non-departmental public bodies. It applies to four areas (at present) that are considered relevant to protecting the UK’s national security:
- Shipbuilding contracts with a value over £1m also covering maritime technology and associated technologies and skills. Authorities are encouraged to engage with the National Shipbuilding Office for contracts lower than £1m.
- Steel with a value of £10m or more or whether in excess of 500 tonnes of steel will be required.
- AI over £5m for AI hardware, related to Critical National Infrastructure, sensitive or personal information.
- Energy Infrastructure for electrical equipment or other energy infrastructure including but not limited to offshore wind infrastructure, nuclear infrastructure, solar, CCUS, hydrogen and heat pumps. We will return to this topic in a later article.
Authorities conducting procurements in any of the areas covered by the PPN on national security exemptions may welcome the idea of having a “Sector Lead” (one of which has been appointed to each of the four areas) to work with to identity procurements, whether they fall within an exemption and if so what the appropriate route to market is. The approach to be taken is detailed in a Step by Step Annex to the PPN.
PPN_025_Protecting_the_UK_s_national_security_through_public_procurement_Guidance.pdf
When conducting “relevant procurements”, authorities will be expected to engage early with Sector Leads to ensure that their commercial approach will protect the UK’s national security interests, and to deploy the national security exemption where appropriate and justified in a relevant procurement.
The PPN makes clear that the national security exemption must only be applied in accordance with the Procurement Act 2023, so it does not add an extra layer of exemption on top of what is already in the Act, but it does suggest that the “Sector Leads” appointed for each of four “Pathfinder” sectors will support authorities to coordinate the procurement pipeline across government, apparently to “support the shift to a more interventionist, market-shaping approach in central government procurement as well as considering the national security exemption”.
Other authorities (such as Local Authorities) are encouraged to engage “Sector Leads” when conducting procurements which are high value, complex or related to the national interest.
