Latest developments in UK and NATO DIANA defence procurement: Defence procurement panel overview and key takeaways

On 21 May 2025, Bird & Bird hosted its 2025 Annual Aviation & Defence Conference. This year the conference’s main theme was how the aviation and defence sectors continue to be revolutionised by geopolitical tensions, the transformative potential of AI and the ongoing transition to net zero.

Context

The turbulence and instability of the geopolitical context hardly needs any emphasis. The war in Ukraine, the situation in Gaza, continued rivalry between the US and China, particularly over Taiwan, tensions with Iran and North Korea and the policies of the Trump administration are creating something of a perfect storm for European governments, including here in the UK. This is creating a greater sense of insecurity (and a perceived greater fear of war) than we have seen for many years, compounded by the uncertainty surrounding the US’s commitment to NATO.

In the UK, the Chancellor of the Exchequer, Rachel Reeves, recently committed to spend 2.5% of GDP on defence from April 2027 and an ambition to raise this to 3% of GDP in the next Parliament, which she described as “the biggest sustained increase in defence spending since the end of the Cold War”.

How the announced, and any future, increase in defence spending will be allocated, and the strategic priorities for UK defence policy going forward, is in something of a state of flux following the recent Strategic Defence Review (“SDR”). The SDR report was published on 2 June, following a ‘root and branch’ review of the entire UK defence enterprise it provided 62 recommendations to meet the challenge, threats and opportunities of the 21st century. Notwithstanding, the need to balance policy imperatives with the fiscal constraints (that any government will be under) will remain. And that in turn means that the relentless pressure ‘to do more with less’ and to make sure maximum benefit is derived from every taxpayer pound isn’t going to go away.

Overview & key takeaways of the defence procurement panel

Andrew Dean opened the session by highlighting how procurement’s role has evolved from a purely technical exercise into a broader strategic tool for governments to respond to shifting global politics. For example, the UK-India Free Trade Agreement (which we have recently discussed in our article: UK-India Trade: Opportunities for your business under the new Free Trade Agreement) and the EU and UK’s Security and Defence Partnership (to set the framework for a new era of security co-operation between the UK and EU, which we discuss in our article: UK-EU Security Partnership: Bold Step Forward or Missed Opportunity?). 

Andrew explained how defence procurement comes with its own layer of complexity. Special rules and exemptions mean foreign access often depends on the nationality of the supplier, the location of the buyer, and the prevailing political winds. The result is a fragmented, fast-evolving patchwork — one that’s increasingly hard to navigate for defence contractors looking to spot opportunities and manage risks.

UK perspective: The Procurement Act 2023

Tom Ward presented a defence-focused overview of the UK’s new Procurement Act 2023 (“PA23”), emphasising its key changes and the complex nature of the patchwork of legislation.

Key changes include:

• Consolidation: PA23 consolidates the various procurement regimes into one act, although it retains many of the specific defence derogations. However, arguably, defence procurement has not been consolidated as there remains the parallel Defence and Security Public Contracts Regulations 2011 (for procurements launched prior to 24 February 2025), and the Defence Reform Act 2014 and Single Source Contracts Regulations 2014 regime.
• Scope & Language: There has been a widening of what is considered to be a “defence and security contract” for the purposes of the PA23. A defence and security contract now includes a contract for the supply of “goods, services or works that are otherwise relevant to the operational capability, effectiveness, readiness for action, safety or security of the armed forces” (s.7(1)(g) of the PA23). In light of the UK Govt’s Guidance – Defence and Security Contracts, this appears to incorporate ‘dual-use’ goods, services or works into the defence and security contract regime. This adds a further layer of complexity as for defence and security contracts falling under s.7(1)(g) of the PA23, the financial thresholds are different to the other types of defence and security contracts. Furthermore, for such contracts, suppliers may have additional rights (compared to the lack of access security for other types of defence and security contracts) under the PA23, subject to international trade agreements. 
• Exclusions & Debarment: There are new and expanded grounds for excluding suppliers, including national security risks and unsatisfactory performance. There is also a centralised debarment list (i.e. a public register of suppliers who have been blacklisted).
• Flexibility: PA23 offers more flexibility to contracting authorities compared to the ‘more prescriptive’ EU-derived regime. This may foster a more innovative mindset and culture in how contracting authorities' procure defence and security contracts. In addition, there is arguably a wider exemption ground for national security (para 25 of Schedule 2 of the PA23).
• Direct Awards / Modifications: There are specific defence and security grounds for direct awards and for modifications (e.g. to take advantage of developments in technology). According to the UK Govt’s Guidance – Defence and Security Contracts, the MoD has agreed with the Cabinet Office that it will not use paragraph 20 of Schedule 5 of the PA23 direct award ground (i.e. a defence authority contract that meets certain conditions including that it is necessary in order to enhance or maintain the operational capability, effectiveness, readiness for action, safety or security of the armed forces) for contracts exceeding £20 million without obtaining Cabinet Office approval.
• Transparency: There is increased transparency. However, with respect to transparency requirements, there are potentially less exemptions for defence and security contracts than one may have expected.
• SSCR amends: There are various reforms to support the delivery of the Defence and Security Industrial Strategy (“DSIS”). Please see our article The Reform of the UK Single Source Contracting Regime for more information.

Although there have been a number of changes, the panel concluded that it is unlikely that suppliers in the defence sector are going to see significant changes in the way defence and security contracts will be procured, in particular due to the continued trend that an enormous proportion of the UK’s defence spending is on a single source basis.

NATO DIANA: Innovation accelerator and rapid adoption service

Rounding out the panel, Kornelija Zilionyte from NATO’s Defence Innovation Accelerator for the North Atlantic (“DIANA”) presented DIANA’s mission and its supporting initiatives to find and accelerate dual-use innovation.

Kornelija explained that DIANA through an Alliance-wide network of innovators, accelerators, 180+ test centres, and end users, is solving critical defence, security and resilience challenges to support a more peaceful future.

The DIANA Accelerator Programme is designed to equip businesses with the skills and knowledge to navigate the world of deep tech, dual-use innovation. It does this through providing an immersive curriculum and ‘boot-camp’ involving the NATO innovation network and strategic business partners from the commercial and defence markets.

The 2025 challenge will soon be open to applicants with the potential of up to 150 innovators being invited to join. Although DIANA’s 2024 challenge is closed, as an insight into DIANA’s current focus areas, the 2024 challenge call included:

• Energy & Power: enhancing energy and power resilience.
• Data & Information Security: technology that facilitates data production, utilisation, distribution, and protection in multi-domain environments.
• Sensing & Surveillance: solutions that enable forecasting, indications and warning, situational awareness, post-action assessment, and understanding of behaviour drivers.
• Human Health & Performance: solutions that improve the understanding and enhancement of human health and wellbeing, both physical and psychological.
• Critical Infrastructure & Logistics: technology focused on the secure and trustworthy operation of critical national and international infrastructure, and global supply chains across various domains.

With the cross-cutting themes of:

• Space: space-based technologies.
• Resilience: solutions and technologies that can withstand and quickly recover from disruptions or threats across all domains.
• Sustainability: developing and implementing environmentally friendly, energy-efficient technologies and practices that ensure long-term viability.

Kornelija provided examples of success stories as a result of previous challenge calls, and explained DIANA’s Rapid Adoption Service (“RAS”). RAS aims to bridge the gap between DIANA and national and/or NATO procurement by providing a single, agile set of rules that facilitates quick and efficient contracting of innovators. The RAS accomplishes this using three pathways:

• Tech to Market: Rapid distribution and facilitation of NATO and Allied testing, experimentation, and procurement opportunities.
• Agile Adaptation: DIANA Innovator solutions can be continuously co-developed towards TRL 7 alongside the capability developers and operational end users.
• Rapid Procurement: DIANA Innovator solutions that have achieved TRL 7 can then be considered for NATO procurement contracts under NCIA/NSPA regulations without competition.

For more information, please visit DIANA’s website or its Linkedin site. 

Get in Contact

If you have any queries related to any of the above, please get in contact with Andrew Dean and Tom Ward, and visit our Defence & Security Procurement Hub for a comprehensive view of the defence procurement regimes in 8 European countries and Australia.