A raising of the contract value thresold when bids for public sector work are assessed for their social value will help more smaller businesses win deals, the government has said.
When central and local government authorities look at bids for public sector work, they must consider how the goods or services being procured will improve the economic, social and environmental wellbeing of an area. A minimum weighting of 10% for social value is applied to the evaluation criteria.
But in changes to the rules, the government has announced that the threshold at which this applies will increase to contracts of more than £1 million from 1 January 2027.
In a press release, the government said:
“The changes will also help smaller, scaling and innovative businesses and civil society organisations who have so much to offer the public sector, but often find themselves locked out of contracts because of layers of red tape and burdensome requirements, which larger organisations know how to navigate.
“The rules have been simplified and the threshold raised to contracts of more than £1 million so they don’t typically apply to the work smaller firms and local social enterprises are bidding for. This will better allow both smaller businesses and civil society to showcase their innovation and the benefits they are already delivering in communities.”
Responding to the change, Craig Beaumont, executive director at the Federation of Small Businesses (FSB), said:
“FSB is pleased to have worked with the government on making social value work better for small businesses. Lifting the threshold to £1 million ought to see many more small firms winning contracts, as small businesses deliver huge intrinsic social value but they can often struggle to demonstrate this in procurement processes.
“This is an example of the government and the public sector acting as a good customer, paying invoices rapidly, and helping drive economic growth through small businesses in every postcode.”
Maggie Berry OBE, SME procurement lead at Enterprise Nation, which runs the Supply Connect programme, added:
“For smaller opportunities, SMEs don’t necessarily need to be thinking about social value formally. That’s a really good thing because it’s quite difficult for small businesses to create jobs or take on apprenticeships at scale to compete for contracts.
“If you’re a small business with a staff of five, you’re probably not going to hire a new person just to meet procurement criteria. If you did, it might be a part-time role. And taking on an apprenticeship when you’re that small creates real challenges around staff capacity and supervision.”
The raising of the threshold was part of several social value changes in procurement announced by the government.
From 1 January 2027, businesses bidding for government contracts will be judged on their commitment to creating jobs, tackling local skills shortages, and supporting young people into apprenticeships and work placements.
Other areas businesses have to currently prove they are acting on, such as net zero and environmental factors, will be scrapped.
Under the changes, the score for bringing benefits to the local community will be raised from 10% to 20% for contracts worth £5 million or more. For contracts from £1 million to £5 million it remains at 10%.
First Secretary of State Louise Haigh said:
“Every pound of taxpayer money should be spent in a way that benefits local communities – creating good jobs and giving young people the skills they need for the future.
“For too long, securing government contracts has been a tick box exercise that fails to deliver the positive change that people feel in their pocket and see in the places they live.
“We are doing things differently. These new rules will ensure the £90 billion that is spent each year through government contracts supports British jobs, skills and people in every postcode.”
Maggie Berry added that the new procurement model could change the way larger contractors approach social value commitments to the benefit of small businesses.
She said: “The real difference this should usher in is big businesses buying from small businesses locally as part of their social value approach. Buying from locally based SMEs should be part of how larger contractors demonstrate their commitment to community benefits under these new rules.”