Successful applicants will be eligible for up to £60,000 Innovate UK funding to demonstrate their solution over a 3-month period.

The challenge holder is actively increasing its use of artificial intelligence to improve estimating, manufacturing and insight generation. It uses Microsoft 365 Copilot within a private tenant, holds Cyber Essentials Plus accreditation and is working towards ISO 27001. However, many specialist cloud applications require data to be transferred, processed or stored in environments that cannot currently be assured for sensitive defence work.
This prevents the organisation from taking full advantage of tools such as cloud based CNC programming and AI Estimating tools.&nbsp;The resulting constraint slows development, reduces productivity and makes it harder to compete, while conventional sovereign-cloud options are considered prohibitively expensive for the scale of the business.
A successful solution would enable faster estimating, CNC programming, manufacturing and data analysis without exposing information to unacceptable cyber, sovereignty or third-party-processing risks.
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Background

How can the challenge holder securely and cost-effectively use third-party cloud-based AI, engineering and manufacturing applications with sensitive customer and defence-related data, while maintaining appropriate control, assurance and compliance?
The solution may be a technical product, integration architecture, secure intermediary, privacy-enhancing technology, managed service or combination of approaches. Applicants should avoid assuming that a dedicated sovereign-cloud environment is the only acceptable route. The proposed approach should enable practical access to a range of commercial software-as-a-service tools without requiring those vendors to redesign their core platforms.
Any solutions should enable.
<ul>
<li>Safe adoption of AI-enabled estimating, CNC programming, manufacturing and data-analysis tools.</li>
<li>Reduced turnaround times and manual effort, with improved estimating consistency and manufacturing productivity.</li>
<li>Greater confidence that customer and defence-related data remains appropriately protected and governed.</li>
<li>A repeatable pathway for assessing and onboarding additional cloud applications.</li>
<li>Removal of a significant barrier to digital adoption for the challenge holder and potentially other SMEs across the UK defence supply chain.</li>
<li>Contribution to UK technological advantage, industrial competitiveness and secure adoption of AI.</li>
</ul>

The Challenge 

Any solution proposed should:
<ul>
<li>Enable authorised users to work with selected cloud-based AI, estimating, design and manufacturing applications.</li>
<li>Protect sensitive information before, during and after processing, including data uploaded to or generated by third-party tools.</li>
<li>Provide clear user and administrator controls over access, sharing, retention and deletion.</li>
<li>Support more than one software provider or demonstrate a credible route to broader interoperability.</li>
<li>Fit within the workflows and resources of an SME operating in a regulated defence environment.</li>
<li>Provide a cost model that is sustainable and materially more accessible than a dedicated sovereign-cloud environment.</li>
</ul>
Successful solutions should demonstrate.
<ul>
<li>A representative workflow can be completed using an approved cloud application without uncontrolled disclosure of sensitive data.</li>
<li>The solution produces auditable evidence of user access, data movement, processing and deletion.</li>
<li>Security controls and residual risks can be clearly understood and assessed by the challenge holder and its customers.</li>
<li>The pilot demonstrates a credible reduction in process time or manual effort.</li>
<li>The commercial model supports broader adoption across multiple users and applications.</li>
</ul>

Functional Requirements 

Any solution proposed should:
<ul>
<li>Integrate, where appropriate, with the organisation&rsquo;s private Microsoft 365 tenant and existing identity and access controls.</li>
<li>Provide encryption in transit and at rest, strong authentication, role-based access, logging and auditable data handling.</li>
<li>Offer transparent information about data location, subprocessors, retention, model training and deletion.</li>
<li>Prevent customer data, prompts, files or outputs from being used to train public or shared models without explicit permission.</li>
<li>Support risk assessment and evidence required for Cyber Essentials Plus, ISO 27001 and relevant customer or contractual security obligations.</li>
<li>Include mechanisms such as data minimisation, tokenisation, anonymisation, confidential computing, secure gateways or controlled workspaces where these improve assurance.</li>
<li>Demonstrate how the approach contains, detects and responds to attempted data loss or unauthorised access.</li>
</ul>

Technical Requirements

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<ul>
<li>The solution must be suitable for routine use by engineering, estimating and manufacturing staff rather than specialist security personnel alone.</li>
<li>It should operate with commonly available business connectivity and infrastructure.</li>
<li>It should be capable of a controlled pilot using synthetic, anonymised or appropriately approved data before progression to live customer information.</li>
<li>It should maintain acceptable performance for data-intensive engineering files and AI-supported workflows.</li>
</ul>

Operating Conditions

<ul>
<li>Solutions that depend solely on policy, staff training or manual checking without a technical control.</li>
<li>Unmodified use of public AI services with unclear data-processing or model-training arrangements.</li>
<li>Approaches that require sensitive data to be knowingly exposed to uncontrolled jurisdictions or unauthorised third parties.</li>
<li>Solutions whose cost or implementation burden is comparable to a dedicated sovereign cloud without demonstrating proportionate additional value.</li>
</ul>

Out of Scope

Successful applicants will be given an opportunity to pitch to the Challenge Holder. The winning applicant, as selected by the company, will then be eligible to apply for up to &pound;60,000 Innovate UK grant funding to kickstart the development of the proposed solution through a 3 month project.&nbsp;Selected solutions will be trialled by the Challenge holder where apropriate, with potential for further adoption if trials are successful.
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The benefits package for a successful applicant may also include:
<ul>
<li>Support from Innovate UK Business Connect</li>
<li>Support in the development of a prototype or pilot</li>
<li>Technical support</li>
<li>Invitation to attend or present at Innovate UK Business Connect events</li>
<li>A potential business collaboration</li>
<li>Investor introductions (if investment is required)</li>
<li>Support if any Innovate or similar competitions are relevant.</li>
</ul>
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Rewards

<ul>
<li>Challenge launch: 5th October 2026</li>
<li>Deadline for applications: Friday 6th November 2026</li>
<li>Review of applicants: Monday 9th &ndash; Friday 13th November 2026</li>
<li>Selection and notification of finalists: Friday 13th &ndash; Tuesday 17th November 2026</li>
<li>Pitch Day: 30th November</li>
<li>Confirm selected solution provider: By Friday 4th December 2026</li>
<li>Submission to Innovation Funding Service (IFS): December 2026</li>
<li>Project length:&nbsp;3-months. (Starting by 1st March 2027 and complete no later than 31st May 2027)</li>
</ul>
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Timescales

Entrants to this competition must be:
<ul>
<li>Established businesses, academic institutions, start-ups, SMEs, or individual entrepreneurs</li>
<li>UK based or have the intention to set up a UK base</li>
</ul>
Your project must:
<ul>
<li>Have a grant funding request up to &pound;60,000 (eligible costs only, see below).</li>
<li>Start 1st March 2027 and complete by May 2027</li>
<li>Carry out its project work in the UK.</li>
<li>Intend to exploit the results from or in the UK.</li>
</ul>
Applications will be assessed on: 
<ul>
<li>Relevance to the defined challenge</li>
<li>Benefit of implementation</li>
<li>Feasibility/economic viability</li>
<li>Innovative nature</li>
<li>Ability to launch in line with expected timescales</li>
<li>Credibility of applicant company</li>
<li>Coherence of the proposed business model</li>
<li>Development potential</li>
<li>Maturity of the solution</li>
<li>Suitability for the intended geographic market</li>
</ul>
If selected through this competition, you will be invited to apply for up to &pound;60,000 grant funding through the Innovation Funding Service (IFS). Applicants will need to upload the following documents to IFS once notified:
<ul>
<li>Project plan</li>
<li>Project costing</li>
<li>Minimal Financial Assistance (and de minimis where applicable) declaration (details can be found <a href="https://www.ukri.org/councils/innovate-uk/guidance-for-applicants/general-guidance/funding-rules/">here</a>)</li>
</ul>
Minimal Financial Assistance:
Grant funding in this competition is awarded as Minimal Financial assistance (MFA). This allows public bodies to award up to &pound;315,000 to an enterprise in a 3-year rolling financial period. If your application is successful and you are invited to apply for grant funding you will be asked to declare previous funding received by you. This will form part of the financial checks ahead of Innovate UK making a formal grant offer.

Eligibility and Assessment Criteria 

Existing background IP associated with a potential solution will remain with Solution Provider(s). Where any new IP generation is envisaged, it will be subject to the mutual IP agreement of the solution provider(s) and challenge holder.
Any commercial deployment of a transferred solution or newly developed solution, through licensing, joint venture, partnership, or direct investment, will be subject to the commercial agreement between the solution provider(s) and challenge holder.
Where necessary, a non-disclosure agreement (NDA) may be signed to uphold confidentiality in the engagement between the solution provider(s) and challenge holder. (This would be expected to be after company selection, it is suggested that details of IP be not disclosed, focus on the outcomes of the technology proposed).
Innovate UK and Innovate UK Business Connect do not take any share of IP ownership or enter commercial ventures through the iX programme.
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IP & Potential Commercial Route 

The application form for this challenge will require applicants to provide company information and answer 3 questions - Idea Summary, Technology Readiness and Intellectual Property &ndash; each with a limit of 300 words.
Additionally, the following documents must be attached for your application to be considered: 
<ul>
<li>Project plan and Project costings &ndash; only eligible costs will be funded, please read the Innovate UK Costs guidance for further information</li>
<li style="font-weight: bold;">Within your documentation, you should also include the following information</li>
<li>The security architecture, threat model and evidence supporting the principal assurance claims.</li>
<li class="MsoListParagraphCxSpFirst">Data residency, processing, retention, deletion and model-training arrangements.</li>
<li class="MsoListParagraphCxSpMiddle">Implementation requirements, dependencies, indicative timescale and support model.</li>
<li class="MsoListParagraphCxSpLast">Ongoing costs, including licences, integration and managed-service charges.</li>
</ul>
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We recommend that you complete the application form in Google Chrome as other browsers may have compatibility issues. The application form does not need to be completed in one session and can be saved for future edits. Please ensure that you toggle &ldquo;Stage Complete&rdquo; for each section before submission. Note that you will no longer be able to edit your application once you have clicked &ldquo;Submit Idea&rdquo; at the bottom of the Summary page.

Application and Technical Guidance 

By submitting an application to this Innovation Exchange (iX) challenge, you acknowledge and agree that the information you provide will be shared with Innovate UK Business Connect and the challenge holder for the purposes of assessment and selection. All information submitted will be handled in confidence and shared only with those involved in the assessment and selection process under appropriate confidentiality expectations.
Please consider the level of detail you share in your submission to ensure it aligns with your own internal confidentiality or disclosure policies.
A selected panel of assessors will review and score your application. The panel of assessors will meet and agree a consensus score. Successful solutions will be selected by the challenge holder. Success will be based upon total consensus scores, a portfolio approach and capacity within the challenge holder&rsquo;s organisation to carry out the projects.
For more information on how Innovate UK Business Connect handles personal data, please refer to our&nbsp;<a href="https://iuk-business-connect.org.uk/privacy-policy/" target="_new">Privacy Policy</a>.

Secure, Cost-Effective Use of Cloud-Based AI Tools in the Defence Supply Chain

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Secure, Cost-Effective Use of Cloud-Based AI Tools in the Defence Supply Chain