Acquiring Defence Sector Winners: A Guide to UK Ministry of Defence (MOD)-Focused Deals
As a leading investor, you’ve thought about the financial health, performance, management, competition and business model of your target company and have confidence in their game-changing product to sell into MOD. The market is buoyant and speaking to your contacts, this product is massively in demand within the sector. All signals are green and you are ready to sign on the dotted line and release the cash…or are you?
After the initial excitement of identifying an investment and securing the deal, the hard reality of actually selling into and deploying products into MOD can come as a hard reality check to those unprepared. MOD is one of the most complex areas within government for procurement, contract management and deployment and failing to consider this from the outset can leave you with a white elephant of an investment – one which on paper seemed like a fantastic idea but for a myriad of reasons cannot be adopted by MOD.
This piece aims to cover some of the considerations that should be at the forefront of investors’ minds prior to any agreed investment and is structured as follows:
- Determining whether a supplier can navigate towards successful contract award
- Determining whether a supplier can meet MOD compliance policies
Furthermore, this piece will not explain MOD procurement process for which there is ample guidance online. What is covered however, are some of the specific nuances when trying to sell into MOD that investors should consider from the outset.
Background to Selling into MOD
Like all UK government spending, MOD is bound by the principles of achieving value for money for the taxpayer, transparency in spending and supporting the efficient running of the public sector. To this end, MOD spending is bound by the Procurement Act 2023 (PA23) particularly the specific defence and security provisions. Whilst these provisions stipulate the broad principles a procurement must follow, each department/project has the discretion to include additional requirements that suppliers must meet if they want to provide their goods/services. MOD like all public sector bodies must demonstrate a clear rationale as to why a particular supplier(s) has been selected, including on what basis this decision was made. Under the PA23, contracts are awarded based on the ‘Most Advantageous Tender’ (MAT) tender which provides new opportunities for suppliers into the market as the focus has shifted from simply achieving the lowest price, to one which can be determined on the basis of a wide range of other factors e.g. social impact. Whether any details of the award of a contract are publicly published depends on a range of factors and determined by existing legislation.
The MOD follows the rest of government in making use of Crown Commercial Services (CCS) frameworks, its own bespoke competitions and new emerging routes like those spearheaded by the internal CommercialX team in order to go to market. MOD is also a heavy user of direct awards, i.e. where no competition is run and contracts are directly awarded to a company in line with the permitted provisions in the Procurement Act 2023. In certain cases, a demo of the product or service may be required, rather than set piece negotiations. This is dependent on the nature of the requirement or commercial strategy.
It should be noted that MOD does invest in smaller R&D projects, sometimes with different routes to market, however, the focus of this piece is on the wider product or service-based contracts. R&D projects carry their own inherent risks in terms of conversion into an agreed longer-term contract but can often act as a gateway to this. Regardless, investors will find the due diligence principles outlined here are still applicable in the R&D space.
1. Determining whether a supplier can navigate towards successful contract award
To successfully secure sales with MOD, a supplier must not only understand the complex working environment and requirements but also proactively demonstrate how it meets and exceeds them. Additionally, there are several commitments that come with being a supplier into government e.g. reporting requirements, data management, social/employment policy, that suppliers have built into their solutions. Fundamentally, without an agreed contract between parties any product cannot be leveraged across the MOD estate.
Figure 1 highlights some of the fundamental due diligence questions, which, as an investor, you should ask to test any supplier’s commitment and knowledge of MOD procurement to achieve a successful contract award. If a supplier initially is unable to answer these questions affirmatively, do they have a credible ‘path to green’ plan?
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Some common issues that occur when submitting a compliant tender should also be considered upstream when considering investing in a supplier (this list is not exhaustive):
Once a contract is live, there are further still obligations upon suppliers around contract management in a complex environment including significant requirements for reporting, maintenance and responsiveness in life of operations. Hence a supplier needs to be able to manage both the delivery and administration sides when working with MOD.
UK MOD © Crown copyright 2025
2. Determining whether a supplier can meet MOD compliance policies
As much as any supplier understanding the commissioning and bid process, MOD is a highly-regulated environment and compliance with policy is a typical requirement that new suppliers may fail to grasp when trying to break into the market. As part of your due diligence as an investor, it is essential to understand whether a supplier is currently, or has a credible plan to be, compliant with MOD policies. Figure 2 highlights some, but not all, of the key compliance policies for consideration.
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UK MOD © Crown copyright 2025
So Where Do I Start?
Effective due diligence on potential investment suppliers/products and ensuring this encompasses a downstream view i.e. can this product actually be sold into MOD and does the supplier team know how to effectively do this, will determine the success and realisation of investment benefits. An exciting and novel technology is only as good as its ability to be purchased and adopted by MOD, particularly due to the limited nature of this market. It should be noted that the guidance in this piece is not static, UK government and MOD policies around procurement and compliance is ever changing and ensuring you are up to date is vital.
At Deloitte, we can help with due diligence and review a potential acquisition’s understanding and readiness to meet MOD compliance policies. We have unparalleled experience and knowledge of navigating the MOD procurement lifecycle across multiple categories of spend.
Please get in touch for more information.
