Defence Manufacturers On Brink Of Administration While Waiting For Strategic Defence Review
4 min read
Small to medium sized defence manufacturers are close to falling into administration, as they wait for the publication of the Strategic Defence Review (SDR).
Defence companies had expected the government’s landmark review into the UK’s preparedness for war to be published around Easter. However, industry figures now fear the SDR will be published towards the end of the year, The Telegraph recently reported.
While the government denies there is a moratorium on procurement spend, defence manufacturers understand there to be a ‘de-facto’ freeze on the limits of capital and resource department spending until the next spending review. They believe the government is reluctant to sign off on new procurement expenditure because it wants to include announcements in its SDR.
Brad Hayward, head of commercial for a UK micro-SME defence manufacturer and chair of the ADS Defence UK SME Committee, said that the UK SME community has experienced “a highly challenging 12 months”, where the pipeline of UK defence procurement opportunities has “significantly reduced in scope and consistency”.
He added “continued pauses” brought on by events such as the general election, Autumn Budget and Strategic Defence Review have created a “continual delay in demand signals to industry”.
This has resulted in “an alarming number of organisations downsizing” in the UK, with companies either “removing themselves from the defence sector” or “liquidating entirely”.
Samira Braund, defence director of trade body ADS Group, said that a few small to medium sized defence manufacturers could “very likely” be facing administration due to cash flow issues caused by paused contracts.
Of the more than 900 British defence equipment manufacturers represented by ADS, “upwards of 30” have come to the body seeking support. Braund added that some SMEs have been awarded contracts, but these have been “put on hold” while the government waits to deliver its SDR.
“These concerns have been raised up to senior officials within the Ministry of Defence, noting a lot of our SMEs’ cash flow challenges could be three to six months, and therefore they are looking to potentially diversify or exit the market.
“That goes against all of the work that the new government and officials are trying to put in place in the SDR in creating long term demand signals.”
One defence manufacturer employing between 50 and 100 staff said that government’s decision to freeze procurement for two months last year saw “less opportunity for work”. They also claimed they are “not allowed to invoice” the Ministry of Defence for contract work immediately, but have to wait until they are told to, which can take up to four months.
“They might have 30 day payment terms, but it’s from the point we’ve been allowed to invoice,” they said. “That really hurts us badly.”
The SME added that it is resorting to “seeking finance in terms of business loans” to help the company grow, but that if they were paid on time, they would be able to use their cash reserves.
“If they don’t pay us on time, we may cease to exist. People have ceased to exist not because they’re not profitable, but rather because they’re not paid on time.”
Larger defence manufacturers have also been affected by the government’s delayed publication of its SDR, with some companies struggling to recruit staff.
Braund said that the lack of a “continuous cycle” of procurement means “highly talented people” are lost from the defence sector. “We already have at least 10,000 vacancies across our sectors, and this just exacerbates the problem,” she said.
A Ministry of Defence spokesperson said: “We do not recognise these claims. We're continuing to invest in British businesses, including through recent contracts such as enhanced support Navy ship deployments. The timeline of the Strategic Defence Review does not prevent investment and we continue to engage closely with industry partners, including the SME community, as we develop the new Defence Industrial Strategy.
“We have a cast-iron commitment to increasing defence spending to 2.5 per cent of GDP.”
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