PPN 001: VCSE & SME procurement spending targets, explained

In February 2025, the Cabinet Office published Procurement Policy Note (PPN) 001: 'SME and VCSE procurement spend targets'.

This article summarises what this PPN says, and what it means for procurement teams and private sector suppliers.

Skip ahead to read about:

• Context: what is PPN 001?
• Who does PPN 001 apply to?
• What metrics do contracting authorities need to publish?
• How can contracting authorities measure their SME and VCSE spending?
• How can contracting authorities increase their SME and VCSE spending?
• What does this mean for suppliers?
• Conclusion

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📖  Context: what is PPN 001?

Just one week before the Procurement Act's go-live date on February 24th 2025, the Cabinet Office published two new PPNs and a new National Procurement Policy Statement (NPPS).

One of these PPNs, 001, requires contracting authorities to set out three-year targets for direct procurement spending with SMEs, and two-year targets for direct spending with VCSEs.

SMEs are defined as suppliers that have fewer than 250 staff and have an annual turnover of less than or equal to £44 million, or a balance sheet total of an amount less than or equal to £38 million

VCSEs are value-driven, non-governmental organisations that principally reinvest surpluses to further social, environmental or cultural objectives.

✋  Who does PPN 001 apply to?

The PPN applies to all Central Government bodies (including their Executive Agencies and Non-Departmental public bodies), and is optional for all other contracting authorities.

The PPN does not apply to NHS Trusts and foundation trusts or contracting authorities serving primarily Scotland, Wales, or Northern Ireland.

In-scope authorities should set an SME direct spending target by April 1st 2025, and a VCSE direct spending target by April 1st 2026.

Both targets should be achieved in the financial year ending March 2028, and results should be published annually.

📜  What metrics should contracting authorities publish?

PPN 001 sets out a list of 4 core and 3 additional metrics on SME spending which should be published annually by in-scope contracting authorities.

These are:

• Department Target for Direct Spend with SMEs [%]

• Total Procurement Spend for the Department [£]

• Total Direct Spend with SMEs [£]

• Percentage of Direct Spend with SMEs [%] (Total Direct Spend with SMEs ÷ Total Procurement Spend x 100)

If any executive agencies (EAs) and non-departmental public bodies (NDPBs) have a total procurement spend greater than £100m per annum, the following should also be provided for each EA / NDPB for transparency purposes:

• Total Procurement Spend [£]

• Total Direct Spend with SMEs [£]

• Percentage of Direct Spend with SMEs [%]

Spend by executive agencies and non-departmental public bodies should be included in the parent Department’s target, but these bodies are not required to set individual targets.

The PPN does not yet provide guidance on VCSE metrics.

📐  How can contracting authorities measure their SME and VCSE spending?

Measuring direct spending with SMEs and VCSEs can be expensive and labour-intensive.

That's why many Central and Local Government procurement teams use Tussell's market intelligence platform to calculate their SME and VCSE spending.

Tussell allows you to benchmark your SME and VCSE spending in minutes so that you can spend your time where it really matters.

Tussell enables you to compare direct SME and VCSE procurement spending across different categories and years, and with neighbouring contracting authorities.

Book a Tussell demo to learn how you can start saving time and money today.

📈  How can contracting authorities increase their SME and VCSE spending?

PPN 001 instructs in-scope contracting authorities to update their SME Action Plans annually.

"Departmental SME action plans should set out the rationale for any increases or decreases in spend with SMEs and actions underway to open up their contracts to SMEs."

If you're worried about how to increase your SME procurement spend, the best place to start is in pre-procurement.

Under the 2023 Procurement Act, procurement teams now have the power to limit Preliminary Market Engagements to SMEs only.

Learn about the Procurement Act with Tussell's Procurement Act Hub

By doing so, contracting authorities open a direct line of communication with small and medium-sized businesses, allowing them to influence the upcoming tender notice.

Contracting authorities may also consider conducting procurements through Open Frameworks which tend to be more SME-friendly than traditional closed framework agreements.

💼  What does this mean for suppliers?

Tussell and the British Chambers of Commerce's 2024 SME Procurement Tracker shows that the proportion of direct Central Government spending with SMEs has remained stagnant since 2018.

This is because, despite efforts to increase SME spending, Central Government procurements are often larger and more complex than other areas of government.

Source: Tussell & The British Chamber of Commerce

However, the new targets on Central Government SME and VCSE spending should incentivise public sector buyers to reverse this trend.

Tussell often suggests SMEs and VCSEs begin by targeting Local Government and NHS accounts as localised public authorities are more likely to spend with smaller firms.

However, in due course this advice may change.

If you want to find out which contracting authorities are actually investing in SMEs and VCSEs in your sector, you need to start using Tussell.

Tussell’s market intelligence platform is trusted by hundreds of public sector suppliers to build a data-driven strategy, grounded in hard facts rather than anecdotal information.

🌅  Conclusion

PPN 001 holds contracting authorities accountable for applying the National Procurement Policy Statement's goal of promoting social value through investing in SMEs and VCSEs.

Tussell will be closely monitoring whether Central Government bodies are meeting their refreshed SME and VCSE procurement targets in the months and years to come.

For more details about PPN 001, refer to the PPN's full guide document.

Tussell is already helping Central, Local and NHS procurement teams to find new SMEs, VCSEs and local businesses they could work with - and to benchmark their social value offering against their neighbours.

See how it works by booking in time with our team.