Defence firms building Royal Navy ships and other tech to be punished if 'unacceptable' delays happen

Under-pressure defence firms building new Royal Navy ships and making other equipment will be punished if they fail to meet cost targets and timelines.

The Ministry of Defence (MoD) will also reward business who complete procurement projects on time and to budget under new rules. Labour minister for defence readiness and industry, Luke Pollard, said the government inherited a programme where 96 per cent of major defence projects had cost or delivery issues.

“That is not acceptable,” he added. “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. That is how we make sure we get more equipment to the front line faster.”

Businesses are being incentivised to provide equipment for the armed forces faster and more efficiently, under changes to Single Source Contract Regulations. Payments of up to 10 per cent will be awarded to suppliers who meet these measures - rising from two per cent - but those who fail to deliver will earn less.

Every pound saved through better performance will be reinvested into equipping the armed forces, the MoD said. Other changes include profit floors on lower-risk contracts being reduced, so suppliers could earn less if they do not improve performance. “The new rules will allow higher-risk contracts to attract stronger returns - motivating suppliers to take on the risk-bearing work the Defence Industrial Strategy specifically committed to encouraging,” the MoD said.

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A new “innovation uplift” will reward suppliers who invest their own money into developing new products without a guaranteed government contract, particularly smaller businesses and newcomers to the defence sector. The threshold at which contracts come under the regulations will rise from £5m to £25m, so any agreement above that threshold will come under scrutiny.

This includes any businesses involved in shipbuilding, submarine manufacturing, and other matters. This comes at a time when all eyes are on the projects to build new Type 26 and 31 warships, to replace aging Type 23 frigates.

National Armaments Director Rupert Pearce said: “The NAD Group is committed to driving greater performance across the defence enterprise. These changes give us better tools to reward innovation, incentivise delivery, and ensure that public money is spent where it generates real value. We will work closely with industry and the Single Source Regulations Office to implement them effectively.”