How Contracting Authorities Can Spend More with SMEs and VCSEs

PPN 002 and Social Value Model Explainer series: For Contracting Authorities

The Procurement Act 2023, the National Procurement Policy Statement, PPN 002, and the new Social Value Model all make one thing very clear: The government wants to direct a greater proportion of public spending towards Small and Medium Enterprises (SMEs) and Voluntary, Community and Social Enterprise (VCSEs).

That’s not just an aspiration. 

Since April 2025, all central government departments and their arms length bodies (ALBs) have been required to publish three-year targets for direct SME spend and to report progress on an annual basis. 

VCSE spending targets will be required as well from April 2026. 

So how should contracting authorities respond to this imperative? 

In this blog, we’ll explore:

• What contracting authorities can do right now to support SME and VCSE participation
• What the government has done and what it’s planning to do to make this easier

Ten Steps for Contracting Authorities to Promote SME and VCSE Participation

In spite of the benefits, according to the Tussell Trust and the British Chambers of Commerce, in 2023 only 20% of direct public spending (£39.7 billion) went to SMEs. 

60% of that (£24.1 billion) came from local government, with the NHS and central government spending accounting for far less. 

The Social Value Model and its accompanying Guide give plenty of pointers as to how procurement professionals need to respond. Here are ten steps to take now!

1. When selecting Model Awards Criteria (MACs), subcriteria, and metrics, ensure that SMEs and VCSEs are not put at any disadvantage and ensure that potential suppliers are permitted to offer solutions that they can integrate into their operating models for the contract

2. Reduce bureaucracy by adopting standardised contract templates for common goods and services

3. Consider how SMEs and VCSEs can contribute when putting planned projects together, for example:
   • By inspecting local growth priorities, Local Economic Growth Plans, County Council social value plans, and local needs analyses applicable to where the contract will be delivered
   • Assess market maturity in the sector and district, and map the types of supplier who could take part in any competitive process – including SMEs, VCSEs, and mutuals
   • Undertake Preliminary Market Engagement to understand the drivers of cost, quality, efficiency, and social value
   • Decide whether these factors together justify a greater or lesser than 10% weighting for social value considerations

4. Split major projects into smaller lots or allow for a range of different award sizes and sub contracts. The Guide is explicit that bids must be assessed on qualitative grounds only when it says “volumes are not evaluated”

5. Plan to work with a diverse range of businesses in engagement activities prior to appointing sub contractors

6. Make full use of Find A Tender – avoiding jargon and technical language wherever possible

7. Be open and transparent about bid assessment criteria ahead of procurements, and provide detailed, consistent, and timely feedback on why bids were successful and others not afterwards

8. Help to build supplier capacity – by hosting bid writing workshops, providing training materials, carrying out pre-procurement health checks for common compliance requirements, etc

9. Publicise the fact that SMEs and VCSEs can work together to bid for larger contracts that they would otherwise be unable to deliver on by setting up consortia. The Cabinet Office has guidance on bidding as consortia here

10. Commit – and stick to – prompt payment of invoices. SMEs often struggle with cashflow and delays to payment can be a big deterrent to working with the public sector

What’s Changed and What’s Coming Soon

A lot has already been done to make it easier for SMEs and VCSEs to win public business. Work began under the last government with the Crown Commercial Service’s 2021 SME Action Plan, but the changes introduced this year have gone further:

• The Procurement Act 2025 has simplified the wide variety of procurement regimes into a more manageable number – making limited expertise more transferable
• It also mandates that all public contracts include a 30-day payment term (which also covers payments to subcontractors)
• The enhanced Find a Tender service acts as a Central Digital Platform
  • Providing a “tell us once” passporting system for suppliers
  • Requiring procurement data to made public in a standard, open format 
  • Publicising all In-scope procurements in advance on this free, publicly accessible portal

And that’s not all. In June 2025 a consultation on further public procurement reform began, which will (amongst other things) look at:

“Requiring large contracting authorities with spend over £100m pa to publish their own 3-year target for direct spend with SMEs and VCSEs and report against it annually, as well as extending spend reporting requirements.”

“Requiring contracting authorities to exclude suppliers from bidding on major contracts (+£5m) if they cannot demonstrate prompt payment of invoices to their supply chains.”

“Clarifying in primary legislation where it may be appropriate to award contracts for certain services delivered to vulnerable citizens without full competitive procedure, so that decisions can be driven by the needs of the individuals and vulnerable groups.”

The consultation closes on September 5, 2025. Until then, you can respond to the government’s survey here. 

Why Are SMEs and VCSEs Important?

In February 2025, Cabinet Office Minister Georgia Gould said: 

“The Procurement Act, supported by our new National Procurement Policy Statement, will tear down barriers that stop small businesses from winning government work, giving them greater opportunity to access the £400 billion spent on public procurement every year, investing in home-grown talent and driving innovation and growth.”

The NPPS itself explains why this matters as it puts a duty on contracting authorities to “maximise procurement spend” with SMEs and VCSEs:

“Small businesses and social enterprises are more likely to generate diverse and thriving local economies, creating jobs and economic growth. Increasing procurement spend with these suppliers is a national priority to drive economic growth. This government wants to maximise every opportunity for these suppliers by opening up competition in public contracts and removing the barriers to participation they face.”

And the “Kickstart Economic Growth” Mission in the new Social Value Model is very clear that spending money with organisations of these types counts towards social value created. The Model presents:

• Policy Objective 3 – “Resilient, innovative and flexible supply chains: Support economic growth through enabling resilient businesses, opportunities for small businesses and voluntary, community and social enterprises”
• MAC 3a – “Create a diverse supply chain to deliver the contract including new businesses and entrepreneurs, start-ups, SMEs, VCSEs and mutuals, including creating opportunities for entrepreneurship and helping new organisations to grow, supporting economic growth and business creation”
• Standard Reporting Metrics (SRMs) – For “the value of contract opportunities awarded under the contract in £”, with (3ai) SMEs, (3aii) VCSEs, and (3aiii) mutuals

Spending with SME and VCSE suppliers generates social value by keeping money circulating in local economies, creating jobs and training opportunities, fostering resilient supply chains, promoting innovation, and – ultimately – by encouraging economic growth. 

It’s clear that promoting SME and VCSE spend will be critical to how government departments and ALBs deliver on their social value responsibilities, so we’re looking forward to lots of innovative and development in this space over the coming months and years!