25 May 2006 | Paul Snell

Small businesses may lose out if the Ministry of Defence (MoD) increases its use of long-term agreements with large suppliers, according to a parliamentary committee.

The House of Commons Defence Committee said the MoD's plans to use larger organisations outlined in the Defence Industrial Strategy last year could harm SMEs. The strategy gave details on what capabilities should be made in the UK - including submarine systems and technology for nuclear deterrents - and what could be sourced from abroad.

In it, the MoD signalled an intention to form more long-term partnerships. It named BAE Systems and AgustaWestland as two firms it was considering establishing partnership arrangements with.

The committee, which published its report on the strategy this month, said that if defence contracts are handed to larger companies they may sub-contract work to their own subsidiaries or firms they regularly deal with, freezing out small and medium-sized enterprises.

Responding to the report, minister for defence procurement Lord Drayson, said: "I anticipate we will be able to demonstrate how we have incentivised our partners for the long-term and ensured their sub-contractors are treated fairly in those partnership agreements."

Last week a number of EU defence ministers agreed to adhere to a member state voluntary code making it easier for member states to bid for defence contracts in other EU countries.

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