The UK government has reinforced its commitment to supporting small and medium-sized enterprises (SMEs) in public procurement. Procurement Policy Note (PPN) 01/2025 mandates that all central government departments, executive agencies, and non-departmental public bodies (NDPBs) must set three-year targets for direct spending with SMEs, starting April 1, 2025. This initiative aims to drive economic growth, increase SME participation in public contracts, and create a fairer and more transparent procurement process.
Departments must set targets that reflect their direct spend with SMEs and, where applicable, may also voluntarily track their indirect spend (spend via larger contractors). These targets must be approved by the relevant department minister and submitted to the Parliamentary Secretary at the Cabinet Office by May 31, 2025. The Cabinet Office will then collate and publish all SME spend targets centrally.
Annual Reporting and Transparency
All in-scope organizations must publish annual progress against their SME spend targets by September 30 for the previous financial year. This allows up to six months for data collection, verification, and ministerial approval. If an executive agency or NDPB has an annual procurement spend exceeding £100m, its SME spend must also be reported separately. The government aims to centralize all published SME spend data on a Central Digital Platform, allowing for comparisons across departments and greater public transparency.
Indirect SME Spend and Supply Chain Impact
While direct SME spend is the primary focus, PPN 01/2025 also encourages departments to track and report on indirect SME spend (procurement through larger suppliers who subcontract to SMEs). The Cabinet Office will collect and share indirect SME spend data from strategic suppliers, ensuring that SME contributions across supply chains are recognized. Departments that choose to set indirect SME spend targets can conduct their own additional surveys to track non-strategic supplier engagement.
Integration with Procurement Act 2023
• Mandatory consideration of SME participation in public contracts.
• Early market engagement, ensuring SMEs understand contract requirements before bidding.
• 30-day payment terms across all public sector contracts, improving cash flow for SMEs.
• Prohibition of excessive insurance requirements before contract awards, reducing barriers to entry.
• Encouraging the division of large contracts into smaller lots, making opportunities more accessible to SMEs.
Why This Matters for SMEs
• A structured reporting system ensures departments are accountable for SME inclusion.
• Potential funding and support as departments aim to hit their SME spend targets.
• Stronger payment protections through mandatory 30-day payment terms.
• Greater supply chain access through indirect SME spend tracking and reporting.
How to Prepare
• Stay updated on department-specific SME Action Plans and opportunities.
• Engage with procurement teams early to understand requirements.
• Ensure compliance with new procurement regulations to maximise bid success.
PPN 01/2025 represents a major step toward integrating SMEs into public procurement, ensuring more inclusive and competitive government contracting. By staying informed and proactive, SMEs can take advantage of these new opportunities and secure a stronger foothold in the public sector marketplace.
