Small and medium-sized enterprises (SMEs) play an important role in the UK's defence supply chain, providing specialist engineering, advanced technologies, professional services and other capabilities. However, competing for Ministry of Defence (MOD) contracts can be challenging for smaller businesses, particularly when procurement processes appear designed around larger, established contractors.
In January 2026, the MOD introduced its SME Commercial Pathway, setting out practical measures to make defence procurement more accessible. The guidance encourages MOD commercial teams to address barriers that may prevent smaller suppliers from competing, with changes covering market engagement, contract structures, financial assessments and payment practices. For SMEs considering defence opportunities, understanding these priorities could help them identify where and how to engage.
What is the MOD SME Commercial Pathway?
The MOD SME Commercial Pathway is a guidance document developed through the Accelerating Commercial Pathways (ACP) programme. It sets out ways that MOD procurement teams can simplify processes, improve supplier engagement and make more opportunities accessible to smaller businesses.
The guidance builds on the Procurement Act 2023, which requires contracting authorities to consider the barriers SMEs may face when participating in covered procurements and whether those barriers can be reduced or removed.
Importantly, the Pathway is directed at MOD commercial teams rather than suppliers. It isn't a certification, membership scheme or separate procurement portal. MOD teams must consider how the guidance could apply to their procurements, although not every recommendation will be appropriate for every contract. The intention is to encourage more proportionate buying practices while maintaining the standards necessary for defence procurement.
The initiative also supports the MOD's wider ambition to increase spending with SMEs by £2.5 billion by May 2028, as outlined in the Defence Industrial Strategy.
Five ways the SME Commercial Pathway aims to improve defence procurement
The guidance is organised around five priorities. Each addresses a different challenge that smaller suppliers may encounter when trying to secure defence work.
1. Better promotion of opportunities and earlier SME engagement
Smaller businesses can struggle to compete when they only discover a procurement after the requirements and contracting approach have already been decided. The SME Commercial Pathway encourages MOD teams to engage with a wider range of potential suppliers earlier in the buying process. This includes promoting opportunities more widely, improving preliminary market engagement and ensuring smaller businesses have opportunities to contribute to discussions about future requirements.
Early engagement can be particularly valuable where buyers are considering new technologies or services. It allows them to understand what the market can deliver before defining detailed specifications that could unintentionally exclude capable suppliers.
What this means for SMEs: Businesses should monitor preliminary market engagement notices, attend relevant supplier events and respond to requests for information where they can offer useful expertise. Engagement isn't a guarantee of future work, but it can improve understanding of buyer priorities and help businesses prepare for upcoming competitions.
2. More procurement opportunities that SMEs can realistically bid for
Large defence contracts can be difficult for smaller suppliers to pursue, even where they have the technical expertise to deliver particular elements. The Pathway encourages commercial teams to consider how contracts are structured and whether alternative approaches could improve SME participation. Possible measures include:
- Smaller contract packages: Dividing suitable requirements into lots or separate contracts so more suppliers can compete.
- SME-reserved opportunities: Considering the permitted reservation of below-threshold procurements for smaller businesses.
- More accessible procurement arrangements: Exploring open frameworks and dynamic markets where appropriate, rather than relying exclusively on closed supplier arrangements.
- Outcome-focused specifications: Giving suppliers more scope to propose innovative solutions instead of prescribing every aspect of delivery.
These approaches won't apply to every defence requirement. Some contracts must retain particular structures because of their scale, security needs or technical complexity. However, greater consideration of smaller procurement packages could create opportunities for specialist suppliers that previously found larger MOD competitions impractical.
What this means for SMEs: It's worthwhile to monitor changes in how requirements are advertised and packaged, including smaller contracts within wider defence programmes.
3. A more proportionate approach to supplier risk
Financial standing, security requirements and previous experience are important considerations in defence procurement. However, applying these requirements disproportionately can exclude capable smaller suppliers. The Pathway challenges MOD commercial teams to distinguish between genuine delivery risks and assumptions based primarily on business size. For example, a growing SME may have lower turnover than a long-established prime contractor while possessing the technical capability and resources needed for a particular contract.
The guidance encourages buyers to take a balanced approach to financial assessments, consider proportionate risk controls and remain open to consortium bids where businesses combine their capabilities. It also highlights security clearance as a potential barrier when requirements are applied unnecessarily or too early.
What this means for SMEs: Smaller businesses should be prepared to demonstrate their financial resilience, technical capabilities and proposed risk controls, rather than assuming that limited MOD experience automatically makes them unsuitable. Relevant case studies, quality assurance processes, delivery plans and evidence of successful contracts in other sectors can help support a credible tender response. The underlying principle is proportionality. Essential security and assurance standards still apply, but requirements should reflect the actual risks associated with the contract.
4. Greater collaboration and transparency across defence supply chains
Many SMEs work in defence as subcontractors to larger prime contractors rather than supplying the MOD directly. While this creates opportunities, smaller businesses may have limited visibility of future requirements, decision-making or their position within complex supply chains.
The SME Commercial Pathway encourages MOD teams to work more closely with prime contractors to improve transparency and strengthen SME involvement. This can include asking primes to demonstrate how they manage their supply chains, encouraging meaningful subcontracting opportunities and improving communication with smaller suppliers. The guidance also identifies opportunities to encourage greater competition and collaboration within supply chains, rather than relying automatically on existing subcontractor relationships.
What this means for SMEs: For businesses providing specialist engineering, software, manufacturing or professional services, this could create additional opportunities to establish relationships with established defence contractors. However, SMEs should still approach potential partnerships strategically. Understanding a prime contractor's requirements, supplier onboarding processes and future projects is essential before committing significant resources.
5. Improved payment practices and cash flow
Cash flow can be a major challenge for smaller defence suppliers, particularly where contracts require substantial investment in equipment, materials or development before payment is received. The final priority focuses on improving payment practices and the commercial arrangements that affect SME financial resilience.
The guidance encourages MOD teams to consider measures such as staged payments, milestone-based arrangements and improved oversight of payment practices throughout prime contractor supply chains. For example, where a supplier must purchase expensive materials at the beginning of a project, an appropriate interim payment arrangement could reduce the amount of working capital required. The Pathway also reinforces the importance of prompt payment and greater scrutiny of how prime contractors treat subcontractors.
What this means for SMEs: This is particularly relevant when assessing the commercial viability of an opportunity. A contract may appear profitable overall but still create considerable financial pressure if expenditure occurs long before payment. Businesses should therefore examine payment milestones, invoicing conditions, upfront costs and subcontract terms as part of their bid/no-bid assessment.
Does the SME Commercial Pathway guarantee easier access to MOD contracts?
The Pathway represents an important commitment to addressing barriers, but suppliers should distinguish between procurement guidance and guaranteed changes to individual competitions. It doesn't automatically reserve all smaller MOD contracts for SMEs, remove mandatory security requirements or guarantee that suppliers will receive contracts.
Commercial teams are expected to consider the guidance, but they must still assess which measures are appropriate for the procurement concerned. The practical impact will depend on how consistently these approaches are adopted across MOD buying organisations and programmes.
Nevertheless, the guidance signals an expectation that smaller suppliers should be considered earlier and more deliberately when procurement strategies are developed. For SMEs, that creates a reason to engage with the defence market, while remaining realistic about the competitiveness and complexity of individual opportunities.
How can SMEs prepare to benefit from the Commercial Pathway?
To benefit from the SME Commercial Pathway, businesses should concentrate on becoming better positioned to identify and compete for opportunities as MOD procurement practices evolve.
There are several practical steps worth taking:
- Monitor relevant MOD opportunities. Register with the Defence Sourcing Portal and use appropriate tender monitoring services to identify opportunities, including early market engagement.
- Prepare a clear capability statement. Explain what your business delivers, the problems it solves and the evidence supporting its technical expertise. Make this relevant to defence buyers rather than relying on a generic company profile.
- Develop relevant case studies. Demonstrate successful delivery, quality standards, risk management and measurable results. Experience outside defence can be valuable where the requirements are comparable.
- Review supplier readiness. Identify potential gaps in cyber security, financial assurance, certifications or contract management processes before a suitable tender is published.
- Explore partnerships and subcontracting. Research relevant prime contractors and consider whether collaboration could provide access to opportunities that would otherwise be difficult to pursue independently.
- Engage with buyers where appropriate. Respond to market engagement exercises and use supplier events to understand future requirements, while respecting procurement rules and communication procedures.
Our wider guide to winning UK defence contracts explains the main routes into the market, where to find opportunities and how to develop competitive tender submissions.
How does the Pathway fit with the MOD SME Action Plan 2026?
The Commercial Pathway forms part of a wider programme intended to increase SME participation in UK defence procurement. The MOD's SME Action Plan 2026 sets out broader commitments, including spending ambitions, supplier engagement and the role of the Defence Office for Small Business Growth. The Office provides a dedicated point of contact for smaller businesses, with support intended to help them navigate defence opportunities and raise concerns about barriers they encounter. The Commercial Pathway complements these measures by concentrating on the decisions and processes used by MOD buying teams.
Together, the initiatives address two connected challenges: helping smaller suppliers engage with the defence market and encouraging MOD procurement practices that give those suppliers a fair opportunity to compete. The success of these changes will ultimately depend on implementation, but they provide a clearer framework for increasing SME participation in defence contracts.
How Thornton & Lowe can help SMEs compete for defence contracts
Greater access to procurement opportunities is valuable, but businesses still need to demonstrate that they can meet the MOD's requirements and deliver a competitive solution. At Thornton & Lowe, we help SMEs and established suppliers navigate public sector procurement, assess suitable opportunities and prepare stronger tender submissions.
Our bid writing services support businesses with developing persuasive responses, demonstrating relevant experience and addressing detailed evaluation criteria. We also provide bid management, tender reviews and strategic support to help suppliers approach opportunities with greater confidence.
For smaller businesses considering their first defence contract, early preparation can be particularly valuable. Understanding likely requirements, building relevant evidence and selecting suitable opportunities can make the bidding process more manageable.
As the MOD continues implementing its SME Commercial Pathway, Thornton & Lowe can help your business identify relevant opportunities and develop competitive submissions that demonstrate your capabilities. If you're looking to enter or expand within the UK defence market, contact Thornton & Lowe to discuss how we can support your bidding strategy.
