UK unveils its offset policy for defence procurement

On 30 October 2026, the Ministry of Defence (“MOD”) published its long-awaited UK Offset Policy. This follows the MOD’s consultation last year – see our previous post. The policy applies to selected MOD procurement from non-UK suppliers and covers the purchasing of defence or national security equipment, systems, services, support, upgrades or through-life support. It can also catch UK-registered suppliers where a significant part of the contract value, production, or value creation is sourced from abroad. 

What is an “offset”?

An "offset" is a commitment given by an overseas supplier to invest back into the UK economy through, for example, technology transfer, innovation, and research and development, in return for winning large defence contracts.

The policy aims to support a more innovative, resilient, and competitive UK defence industry and supply chain. It aims to use selected imports of defence capability to create lasting benefits for the UK, including sovereign capability, supply chain resilience, skills, innovation, exports, and growth for small and medium-sized enterprises. 

The policy involves the setting up of an Offset Authority within the MOD, whose role will be to manage implementation, supervision, and administration of the policy.

What procurements does the policy cover?

The policy applies to selected MOD purchases from non-UK suppliers of defence or national security equipment, systems, services, support, upgrades or through-life support. It can also catch UK-registered suppliers where a significant part of the contract value, production, or value creation is sourced from abroad. 

The default trigger is where the contract value is £50 million or more. Related purchases over a period of up to five years may be added together to meet the threshold. However, application of the policy above this threshold is not automatic. Offset is reserved for large, strategically important procurements.

How will it work in practice? 

Where the MOD intends to apply the policy for a given procurement, it is required to signal this as early as possible, most likely through relevant notices and in the procurement documents. To participate in the process, all bidders will be required to confirm in writing that, if selected, they will enter into an offset agreement on the terms outlined in the procurement documents. The MOD will then not sign the main contract until the offset agreement is in place.

While the Offset Authority may set a lower figure after considering various factors, the standard form offset agreement requires suppliers to deliver value equal to 100% of the contract’s value into the UK through projects agreed between the supplier and the Offset Authority.  Suppliers have to present their strategy for fulfilling these projects within three months of signing the offset agreement. 

How will offsets be assessed and valued?

Offsets can be "direct" (directly linked to what is being bought, such as technology transfers), "indirect" (not linked to what is being bought, but otherwise supporting the UK defence and security sector, such as innovation, research and development, and skills and exports), or a “hybrid” (a combination of direct and indirect offsets). 

Every project needs the Offset Authority's prior written approval to earn credit and must be "additional" (new or materially enhanced) and "causal" (causally linked to the offset requirement). Existing or routine activity or commitments will not normally count, however, contribution to social value outcomes may. 

"Multipliers" may be applied to boost the credit given to activity that supports priority locations (such as regional industrial clusters), activities (such as skills, innovation, or SME growth) or sectors (such as sovereign capabilities and critical supply chains). 

Monitoring and enforcement 

The standard fulfilment period will be ten years and unless agreed otherwise, suppliers must deliver 30% of the commitment by the end of year three, 50% by the end of year five, and 100% by the end of year ten. If a supplier fails to meet these milestones or otherwise breaches the Offset Agreement, the Offset Authority may impose penalties. These are to be a measure of last resort. The penalties include: 

• Financial compensation not less than 10% of the unfulfilled value;
• Bank guarantees;
• Withholding or adjusting credits; and
• Where lawful and proportionate, exclusion from future competitions.

Practical takeaways

• Check your pipeline: identify any MOD opportunities above £50 million, or contracts that could be aggregated, and consider potential for offset requirements.
• Identify potential offsets you can offer: a 100% commitment over up to ten years is significant and requires careful planning as part of UK market strategy.
• Consider engaging with local partners, SMEs and supply chains whose involvement could be genuinely additional and attract multipliers.
• Look out for further guidance: much detail, including valuation methods and multiplier levels, will follow in future Offset Authority guidance.

If you would like to discuss how the UK Offset Policy may affect your business or how to navigate defence procurement in the UK more generally, please contact one of the CMS Antitrust, Competition & Trade team.