Guidance

Guidance on reserving competitions for below-threshold contracts

Published 3 December 2025

Applies to England

Introduction

1. To boost local and UK businesses, the government has introduced a new, voluntary policy that permits in-scope contracting authorities (‘authorities’) to reserve competitions for below-threshold contracts to local and UK businesses.

2. Authorities may also reserve such competitions to Small and Medium-Sized Enterprises (SMEs) and Voluntary and Community Social Enterprises (VCSEs) and may do so in conjunction with or in isolation of this policy.

3. Formerly, authorities were prevented from reserving below-threshold contracts by reference to the location of contractors as a consequence of section 17(5)(e) of the Local Government Act 1988 (‘the 1988 Act’). To bring the policy about, legislation has been made that disapplies the restriction in section 17(5)(e) of the 1988 Act, but only in specific circumstances and in relation to the award of below-threshold contracts.

4. While the policy is voluntary, when in-scope authorities do opt to use it, they must adhere to the provisions set out in the Local Government (Exclusion of Non-commercial Considerations) (England) Order 2026 (‘the 2026 Order’) and ensure that notice requirements are followed in accordance with the Procurement Regulations 2024 (‘the 2024 Regulations’).

5. This guidance is issued by the Secretary of State for Housing, Communities and Local Government and Deputy Prime Minister with reference to section 19 of the Local Government Act 1999 (‘the 1999 Act’).

6. Section 19(4) of the 1999 Act requires that authorities have regard to this guidance when exercising functions regulated by section 17 of the 1988 Act. This policy contains features that are both regulated by section 17 of the 1988 Act and those that are not. Where a feature of the policy is not regulated by section 17 of the 1988 Act then this has been identified in the guidance.

Scope of the policy

Authorities

7. Article 2 of the 2026 Order sets out that the following authorities are in-scope of the policy:

• all best value authorities in England within the meaning of section 1 of the 1999 Act to which section 17 of the 1988 Act applies, and
• all parish councils in England to which section 17 of the 1988 Act applies

This could include joint committees that are exercising the same procurement functions for best value authorities or parish councils.

8. Central government departments and their arm’s length bodies (such as executive agencies and non-departmental bodies) are not in-scope of this policy. Procurement Policy Note 005 sets out a separate below-threshold policy for those organisations.

Contracts

9. The policy is only available to authorities when they are conducting competitions for the award of ‘relevant contracts’.

10. The 2026 Order (article 2) defines a ‘relevant contract’ as a contract, to which section 17 of the 1988 Act applies, that is a below-threshold contract as defined in section 5(5) of the Procurement Act 2023 (‘the 2023 Act’). This includes contracts that have an estimated value that is less than the relevant threshold applicable under Schedule 1 to the 2023 Act and are:

a. for the supply of goods, services or works to a contracting authority

b. a framework, or

c. a concession contract

11. The policy may be applied in relation to contracts awarded in accordance with a framework (known as “call-off contracts”) if:

• the call-off contract is a below-threshold contract
• the authority is in-scope of the 2026 Order, and
• there is nothing preventing the authority from doing so under the terms and conditions of that framework

It is the responsibility of the authority to carefully consider the position before applying this policy.

12. Contracts that are subject to the Health Care Services (Provider Selection Regime) Regulations 2023 are not in-scope of this policy.

Options for reserving competitions for below-threshold contracts under the 2026 Order

13. When running a competition for a below-threshold contract, authorities are permitted to consider the following options:

a) Reserving the competition to only contractors based within the United Kingdom. Article 3(2) of the 2026 Order enables authorities to run a competition for a below-threshold contract in which only contractors based within the United Kingdom may participate. It does this by setting out that before inviting the submission of tenders, the authority must determine that contractors not based within the United Kingdom may not participate in, or progress as part of, the procurement of the contract. NB: Article 3(2) of the 2026 Order defines “based within”. That definition is included at paragraph 18 of this guidance.

or

b) Reserving the competition to only contractors based within the local area. Article 3(3) of the 2026 Order enables authorities to run a competition for a below-threshold contract in which only contractors based within the local area may participate. It does this by setting out that before inviting the submission of tenders, the authority must determine that contractors that are not based within the local area may not participate in, or progress as part of, the procurement of the contract. Authorities are required to stipulate in an advertisement inviting tenders (including, where relevant, the below-threshold tender notice) the extent of the local area for the purposes of the procurement in question (see article 3(8)). The local area can include any number of the bordering counties or London boroughs as set out in article 3(5) and which is reproduced in the table below.

Definition of local area

The “local area” is:

a. where there is one relevant authority which intends to enter into a relevant contract:

i. the area of that authority, or

ii. the area of that authority and any of the areas of the counties or London boroughs that border that area

b. where there are two or more relevant authorities intending to enter into a relevant contract:

i. the areas of those authorities, or

ii. the areas of those authorities, and any of the areas of the counties or London boroughs that border those areas

In some cases an authority may be wholly located within a county or London borough. Here, the authority is permitted to set its area (for the purpose of stipulating the local area above) as being only its area, or the area of that county or London borough it is located within (article 3(6) of the 2026 Order).

14. The area of an authority is ‘determined by reference to where the authority primarily exercises its functions, disregarding any areas outside the United Kingdom’ (article 3(7) of the 2026 Order). It will be for the authority to determine what that area is, in accordance with its functions. No authority to which the 2026 Order applies has responsibility for the whole of England and the local area reservation cannot be used to restrict the competition for a below-threshold contract to England only.

15. Authorities are not permitted to reserve a competition for a below-threshold contract, based on the location of the supplier, except to the specified extent that one of the location reservations (whether UK or local area) apply. This is to safeguard the wider purpose and effect of section 17 of the 1988 Act. That section restricts authorities from considering non-commercial matters when conducting their procurements and prevents them from using procurement procedures to discriminate against or favour contractors based on a number of defined matters (including the location of a contractor’s business activities or interests). The aim of the section is to ensure fair competition and prevent authorities from using public money to pursue their own social or political agendas through procurement.

Reserving a below-threshold competition to SMEs and/or VCSEs

16. Authorities may also consider whether it is appropriate to reserve a below-threshold competition (either in conjunction with or independently of the location reservations above) to SMEs and VCSEs. To be clear, authorities already have discretion to reserve the competition to:

i. SMEs only

ii. VCSEs only, or

iii. SMEs and VCSEs

Definitions of what constitutes a SME or VCSE are set out at paragraphs 19 and 20 of this guidance.

17. As these options are not contained within the 2026 Order (because authorities are not prevented from reserving to SMEs and VCSEs under section 17 of the 1988 Act) any guidance in respect of them is not subject to the duty in section 19(4) of the 1999 Act, or the requirements in the 2026 Order. Authorities must still ensure they comply with any other relevant duties under the 2023 Act and 2024 Regulations.

Definitions

18. ‘Based within’ is defined in article 3(4) of the 2026 Order as being “where that contractor is based or has established substantive business operations, not taking account of the location of the corporate ownership or control of the contractor”. For example, if the competition is reserved for contractors based within a single authority such as South Gloucestershire Council (specified as the ‘local area’ for the purposes of the procurement), this should not preclude foreign suppliers or suppliers that are foreign-owned from participating, as long as they are based or have substantive business operations in South Gloucestershire. Likewise if the reservation is for contractors based within the UK, this should not preclude foreign suppliers or suppliers that are foreign-owned from participating, as long as they meet the ‘based within’ criteria.

19. ‘Small and Medium-Sized Enterprises’ is defined in section 123(1) of the Procurement Act 2023 as meaning suppliers that:

a. have fewer than 250 staff, and

b. have a turnover of an amount less than or equal to £44 million, or a balance sheet total of an amount less than or equal to £38 million

20. ‘Voluntary, community and social enterprises (VCSEs)’ is not defined in legislation. Broadly however, it can be taken to mean any organisation (incorporated or not) working with a social purpose. This could range from small community-based groups/schemes, through to larger registered charities and social enterprises, public service mutuals and co-operatives that operate locally, regionally and nationally. The term ‘VCSE’ is often used interchangeably with the terms ‘third sector’ or ‘civil society’ organisations.

Using the reservation options

21. The options to reserve competitions for below-threshold contracts should be considered on a case-by-case basis.

22. For example, the same authority in relation to different below-threshold contracts may:

a. decide to reserve one procurement for contractors based within the ‘local area’ and specify this to include the authority’s area and two of the three counties that border it. This may be appropriate where, due to the nature of the services required, there is a limited number of contractors who are able to provide those services in the immediate locality of the authority, but a greater pool in the bordering counties allowing the authority to achieve better value for money, and

b. decide to reserve a different procurement to contractors based within the ‘local area’ and specify this to include only the authority’s area, and additionally reserve the competition to SMEs only. This may be appropriate where, due to the nature of the goods required, there is a larger availability of SMEs locally that can perform the contract.

23. Authorities may still choose to procure below-threshold contracts on an open basis without using any reservation in respect of a contractor’s location or SME/VCSE status, where it is considered the approach will deliver better value for money, for example because there is a lack of a competitive market. This could include bids from overseas suppliers.

24. The policy should not be used as a way to de facto directly award contracts, and when applied correctly should result in some level of competition (as between UK suppliers or those within the local area). While below-threshold contracts may be awarded without competition in certain limited circumstances (further information is available on the Guidance on below-threshold contracts), in order to ensure value for money authorities should be cautious about such an approach. Utilising this reservation policy may be an appropriate measure which allows an authority to restrict the suppliers eligible to bid for contracts while still maintaining competition.

25. In opting to reserve a procurement by contractor location and/or SME/VCSE status, authorities will still need to comply with their own internal guidance, governance and procedures. This includes considering a range of additional information to identify and manage risks and ensure value for money, as well as good commercial practices.

Publication of notices

26. It is government policy across the public sector to adopt and encourage greater transparency in its commercial activities.

27. When an authority chooses to apply one of the location reservations in respect of competitions for below-threshold contracts and advertises for the purpose of inviting tenders, then article 3(8) of the 2026 Order requires the authority to specify which reservation (UK or ‘local area’ as set out in the table at paragraph 13 above) it is relying on in the advertisement. If relying on the ‘local area’ reservation, then the authority should also specify the areas that constitute the ‘local area’ for the purposes of the procurement. This will enable suppliers to identify whether they are eligible to bid for the contract.

28. This means that the reservation status of a contract must be included in:

a. the below-threshold tender notice if an authority is advertising the competition of a ‘notifiable below-threshold contract’, or

b. the advertisement if the authority is advertising the competition of another ‘relevant contract’ (that is not a notifiable below-threshold contract)

Notifiable below-threshold contracts

29. A notifiable below-threshold contract is defined in section 87(4) of the 2023 Act as a regulated below-threshold contract with a value of not less than £30,000 (for authorities that are not central government authorities) including VAT.

30. Where it is an authority’s intention to advertise in respect of a notifiable below-threshold contract, the authority must publish a below-threshold tender notice, in accordance with section 87(1) of the 2023 Act. This means the notice must be published on the Central Digital Platform, before being published elsewhere, in compliance with regulation 24 of the 2024 Regulations.

31. To comply with (the amended) regulation 24, authorities must identify their intention to reserve the competition by location within the below-threshold tender notice by inserting appropriate text in the ‘Conditions of Participation’ free text box field. For example: “This contract is reserved to suppliers based within [insert UK or specified local area] in accordance with article 3 of the Local Government (Exclusion of Non-commercial Considerations) (England) Order 2026.”

32. If authorities are choosing to reserve the competition to SMEs and/or VCSEs (either in conjunction with or isolation from the area reservation) it is recommended that they should also state this in the ‘Conditions of Participation’ free text box to enable suppliers to determine whether they are eligible to bid for the contract.

Other ‘Relevant Contracts’

33. Other below-threshold contracts which are not notifiable below-threshold contracts but are still relevant contracts for the purposes of the 2026 Order may include: contracts with an estimated value of less than £30,000, contracts that are concession contracts, utilities contracts and contracts awarded by a school.

34. If authorities are advertising these contracts and one of the location reservations apply, then this must be stated in the advertisement in accordance with article 3(8)(b) of the 2026 Order. Authorities relying on the SME/VCSE status reservation should also include this in the advertisement to ensure potential suppliers are aware of their eligibility to bid for such contracts.

35. Further information on below-threshold contracts and below-threshold notices is available in Guidance: below-threshold contracts on the 2023 Act.

Compliance

36. Authorities should keep appropriate records of all their commercial decisions, as required by section 98 of the 2023 Act. Potential instances of non-compliance may be investigated by the Procurement Review Unit that sits within Cabinet Office.

37. As set out in section 19(7) of the 1988 Act, if an authority fails to comply with the duty in section 17(1) of that Act and in consequence of that failure a potential contractor suffers loss or damage, then a claim for judicial review proceedings may be available to that contractor (or any body representing contractors). Authorities should also consider their duties under section 20 of the 1988 Act, which may require them to provide reasons for certain decisions taken under section 17 of that Act.

Contact

Enquiries regarding this guidance should be sent to: procurement.reform@cabinetoffice.gov.uk.