Commercially Connected Shorts - 11 June 2025

This week we look at:

• Strategic Defence Review – what it means for industry
• ESG – update on the approach to modern slavery for NHS in England
• Tech – International Digital Strategy unveiled
• AI – update on the latest EU developments

Strategic Defence Review – what it means for industry

The Strategic Defence Review (‘SDR’) was published by the UK Government on 2 June 2025. The remit of the SDR was challenging and radical: to determine the roles, capabilities and reforms required to meet the challenges, threats and opportunities of the twenty first century for the defence of the United Kingdom.

The report makes 62 recommendations across a wide range of areas to meet that challenge. If fully implemented, the recommendations will transform the defence sector in the UK and should bring about sweeping reforms to UK Government transactions with the defence industry.

Key points for industry include recommendations as follows:

• The creation of a new partnership with industry, with the objectives of engaging industry earlier on in the procurement process, ensuring that suppliers are rewarded for productivity and greater risk with their investments, and removing barriers to collaboration
• The new partnership should include a fundamental change in the approach to joint working with industry, including bringing in a wider range of partners alongside its prime contracts, from startups to SMEs and private investors

The recommendations from the SDR could bring about massive investment and spending in new capabilities and technologies positively impacting businesses of all sizes involved across the defence industry and supply chain across the country.  Nicolette Sanders, our Partner in Governments and Infrastructure Sector comments “large Government programmes often face challenges in meeting deadlines and budgets, especially when external factors or politics come into play. Nonetheless, the current global climate may drive significant progress. We advise engaging with the proposals early to align your business priorities with the new regime”.

For more on the implications of the much trailed UK SDR for the defence industry in the UK and beyond see: UK Strategic Defence Review - what does it mean for industry?

Update on the approach to modern slavery for NHS in England

On 5 June 2025, the government published its response to a consultation on the draft National Health Service (Procurement, Slavery and Human Trafficking) Regulations 2024 and associated guidance. These rules will only apply in England but (as the response highlights) may set a precedent for the approach in other areas of government.

By way of reminder, the draft Regulations will require public bodies that are procuring good or services for the purposes of the health service in England to:

• carry out a pre-contract assessment of the extent of modern slavery risk
• take reasonable, proportionate and relevant steps to address, and where possible eliminate, any modern slavery risk that is identified. The ‘reasonable steps’ include:
  • the setting of relevant contractor selection criteria
  • contract terms to require the contractor to undertake supply chain due diligence and to flow down measures to address modern slavery risk
  • compliance monitoring and risk reassessment

Key messages from the consultation highlight:

• broad support for the approach taken in the draft regulations and guidance
• further clarity required on the appropriate level of responsibility for risk management when dealing with dynamic market and framework procurements
• further clarity on identifying and assessing the risk of modern slavery in complex procurement situations, where works and services are procured under a single large procurement
• possible supplementary guidance on service provider risk assessment duties and the assessment of supply chain risks
• that a programme of training, guidance, and support will be created to improve the current resources available to procurement professionals and suppliers. All relevant stakeholders should carefully review and adopt the best practice recommendations outlined in the TISC guidance
• support for wider reform across government to ensure a harmonised approach

These regulations and final guidance are expected to come into force in 2026 and, whilst focussed on NHS England, it will be interesting to see the direction of travel in the final drafts and how this aligns and possibly moves forward the approach to modern slavery (given previous official review criticisms that the UK is lagging behind other jurisdictions).

International Digital Strategy for Europe

On 5 June 2025, the European Commission and High Representative published a joint communication on the EU International Digital Strategy.

The Strategy draws from the call for evidence last month for ideas to help shape the EU’s external digital policy and the European Council’s call last April to “strengthen the EU’s leadership in global digital affairs”.  The Strategy identifies its key objectives as:

• Expanding international partnerships – focus on contributing to partnerships and dialogues covering cyber-security, trade, tech competitiveness and collaborate through a new Digital Partnership Network
• Deploying an EU Tech Business Offer – public/private investment focussed on priority areas of AI, digital infrastructure, quantum, cyber-security, digital identity, semi-conductors, 5G/6G and online platforms - the aim is to expand Europe’s “global tech footprint”
• Strengthening security and global digital governance – setting standards and governance measures which evolve with technology and promote a “rules based” digital order

Once the Strategy has been adopted, work will begin to implement the actions so businesses in the EU might expect:

• Further detail on the EU’s digital direction from its collaborations, such as work on submarine communication cable projects
• Announcements on funding which will boost the tech and cyber sectors, joint research and innovation projects
• Regulations and guidance taking account of the drive for digital advancement with focus on responsible cyber behaviour, digital signatures and digital identity projects

The latest developments on AI in the EU

The end of May and early June has seen a flurry of activity on the topic of AI in the EU:

• On 3 June 2025, the European Commission published a proposal for a decision to initiate the conclusion of the ‘Convention on AI for the EU’. This international agreement will enable the EU to be part of a unified approach to AI regulation globally and facilitate cooperation with other Council of Europe members and third countries.  (The Council of Europe is the continents leading human rights organisation and has 46 members).

  The ‘Convention on AI’ seeks to ensure that all activities related to AI systems align with human rights, democracy, and the rule of law. Parties to the treaty will need to implement its provisions through suitable legislative or administrative measures, based on the severity and likelihood of adverse impacts. In the EU, this will be done via the AI Act as there is significant overlap and alignment between the Convention and the AI Act.

  The EU Parliament will need to consent to the proposal before being adopted by the European Council (the EUs co-legislators).

• On 6 June 2025, the Commission launched a public consultation on the implementation of the AI Act’s rules for high risk AI systems. This is an opportunity to shape the upcoming guidelines and practical examples (due by 2 February 2026) on high risk AI system classification which are currently classed as:
  • those important for product safety
  • those that can significantly impact on people’s health, safety and fundamental rights

  and the responsibilities along the AI value chain.

  The consultation is open until 18 July and will be of interest to providers and deployers of high risk and AI systems generally, industry, academia, public and civil organisations to name a few. The aim is for the final guidelines to help organisations understand their responsibilities under the AI Act

• Further indications that the proposed AI Liability Directive may be withdrawn as the Committee on the Internal Market and Consumer Protection of the European Parliament added its weight to the process at the end of May. Seeing the adoption of the Directive as “premature and unnecessary” the committee by majority voted to reject the Directive’s progress any further in the legislative process and called on the Parliament’s JURI committee (the committee responsible for the file) to support rejection of the proposal for a Directive at this stage.  Waiting for the AI Act and revised Product Liability Directive to take effect and conscious of the need for less regulation / red tape within the EU were some of the key reasons for the adopted approach. The draft report of the JURI is expected this month.
• And finally, the European Commission (EC) is considering a delay to the enforcement of the EU AI Act, currently scheduled for August 2026. The move follows ongoing tensions over a proposed code of practice for AI models, including pushback from industry, the US government, and delays in developing technical standards – see our Flash Update Potential delay of AI Act for more!