Government departments required to set new targets for buying from small businesses, with spot checks to ensure they pay on time
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Posted: Thu 13th Feb 2025
Government departments and arm's length bodies will be required to set three-year targets for direct spend with small businesses, charitable organisations and social enterprises, and publish their annual progress towards meeting those goals.
There will also be regular spot checks to ensure smaller companies in the supply chain are paid within 30 days, and the government is working on changes to allow local councils to reserve contracts for small businesses.
The measures were included in a written statement by Cabinet Office Georgia Gould, who announced that the government has published a new National Procurement Policy Statement (NPPS) ahead of the Procurement Act 2023 coming into force on 24 February.
Public organisations must consider the NPPS when selecting suppliers for contracts. The statement says they are required to "maximise procurement spend with small and medium-sized enterprises (SMEs) and voluntary, community and social enterprises (VCSEs)".
The Procurement Act, passed by the previous Conservative government, was originally due to come into force last October, but it was delayed by the new government who said the NPPS published last May did "not meet the challenge of applying the full potential of public procurement to deliver value for money, economic growth, and social value".
The new regulations will introduce several reforms to procurement rules including changes aimed at reducing red tape so more small businesses and social enterprises can compete for and win public sector contracts.
In today's statement, Gould said:
"The government is determined to ensure the £400 billion of public money spent on public procurement annually delivers economic growth, supports small businesses, champions innovation, and creates good jobs and opportunities across the country.
"For too long, small and medium-sized enterprises (SMEs) and voluntary, community and social enterprises (VCSEs) have been held back by government procurement processes that are too slow, bureaucratic, and difficult to navigate."
The three-year targets for direct spend with SMEs will begin on 1 April 2025, and for VCSEs from 1 April 2026.
Social value in public procurement
Gould also said the way social value is taken into account in central government procurement will be "streamlined".
In a press release, the government said:
"There are currently multiple different approaches used across the public sector and potentially many different criteria, confusing business and making it harder to ensure the commitments made are actually delivered.
"The government will be updating and streamlining the system used by all central government departments and their agencies.
"This will make it simpler to use, giving small businesses a better chance when bidding for contracts, and will make sure companies who profit from government work give back to the community."
To deliver this, the Cabinet Office has published a new procurement policy note (PPN) on taking account of social value when awarding central government contracts.
The PPN, which applies from 1 October 2025, says organisations must apply a minimum 10% weighting to social and environmental benefits. All social value commitments made by suppliers during the procurement process must be reflected in the contract either as contract terms, key performance indicators, or performance indicators.
When taking account of social value benefits, the note calls on organisations to ensure that unnecessary burdens are not placed on suppliers, particularly small businesses and social enterprises.
In her statement, Gould also said a new "commercial innovation hub" will trial new approaches to service design and procurement, and a "digital commercial centre of excellence" will "bring together digital and commercial expertise to make it possible to buy once and well, and to open up opportunities for small and medium businesses to work on digital transformation".
The government plans to consult on further reforms to public procurement to support small businesses and increase innovation.
Gould said:
"This government is clear we want the value of contracts to go into delivering for citizens and are making changes to deliver value for money in procurement through stronger expectations around commercial capability and contract management.
"A new online register of commercial agreements will increase visibility of frameworks and fees, curbing excessive profits.
"We will deploy new AI commercial tools to cut bureaucracy, boost productivity, and free-up commercial staff for higher-value tasks."
Commenting on the announcements, small business minister Gareth Thomas said:
"For too long small businesses have been stuck on the sidelines of the procurement process with complicated bureaucracy and a confusing system. That changes today.
"These measures will mean small firms can more easily offer their expertise to key projects both locally and nationally, helping SMEs to scale up, securing jobs and creating opportunities across the country."
Enterprise Nation's reaction
Emma Jones, founder of Enterprise Nation, said:
"The government has today set out its ambition to unleash the power of £400bn in public procurement spend to maximise its impact on the economy by strategically spending more with small businesses.
"By setting new standards in creating social value and reinforcing 30-day payment terms, this new approach could see many more opportunities opening up for the UK's small business community to grow.
"Allowing local councils to reserve contracts for small businesses will have a long-term impact on local economies. Accessing public sector work can act like a growth accelerator for SMEs, encouraging them to develop and invest in new processes, products and efficiencies, as well as take on more staff in their local community.
"We look forward to working with the government to ensure this is a success and contributing to the revised sourcing playbook."
Relevant Procurement Act resources
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