Reserving below threshold work is allowed, but the conditions are where teams slip
Reserving a competition to local suppliers, or to SMEs and voluntary, community and social enterprises, is one of the few genuinely direct levers a public buyer has over who wins their work. PPN 005 makes it available for regulated below threshold contracts, and the political appeal is obvious. The difficulty is that the flexibility comes wrapped in conditions that are easy to breach without noticing: you cannot reserve for SMEs without also reserving by location, you cannot reserve by nation of the UK, you cannot reserve to more than one county, and you should not direct award at all.
The pairing rule catches people out
The single most misunderstood line in PPN 005 is that the reservation for SMEs and VCSEs cannot be applied independently of the location reservation, which must always apply when reserving under this policy. An SME only reservation, with no geographic element, is not what the note permits.
This is not merely technical. It changes how you design the competition, because you have to decide whether the geography is UK wide, supporting domestic supply chains and resilience, or a single county or London borough, aimed at tackling economic inequality and supporting local recruitment, training, skills and investment.
The permitted geographies are equally specific. No nations of the UK, and only a single county or borough where a local reservation is used. Teams accustomed to loose phrases like the north west or the south east need to translate that into something the policy actually allows.
Location means substance, not a registered address
PPN 005 defines supplier location by reference to where the supplier is based or established and has substantive business operations, and expressly not by the location of corporate ownership. That distinction is what stops a reservation being satisfied by a nameplate office.
It also creates a verification job. If local presence is a condition of participation, someone has to check it, using the standardised definitions in the associated guidance and recording the conclusion. A reservation you do not verify is a reservation you cannot defend.
The same discipline applies to SME and VCSE status. Using the standardised definitions in procurement documentation is what makes the boundary objective, and it protects the buyer as much as the bidders.
A lighter process still has legal duties attached
The purpose of the note is to streamline and simplify below threshold procurement, and it is easy to read simplification as informality. It is not. In-scope organisations must comply with Part 6 of the Procurement Act 2023 for regulated below threshold contracts, including publishing notices on the central digital platform and the rules on assessing suitability.
On top of that, the note sets out a substantial list of expectations for anyone reserving: assess the market, have regard to SMEs under section 86, manage fraud and corruption risk, secure approved budget, use suitable model contracts, run proportionate KPI and data reporting, do supplier due diligence, and keep suitable records of commercial decisions.
There is also a live exception that gets forgotten. Where goods are to be provided into Northern Ireland and there is cross-border interest, the policy should not be applied, because EU Treaty rights on free movement of goods continue to apply there under the Northern Ireland Protocol. Check that before designing a reserved competition involving goods.
The takeaways
- Reservation applies to regulated below threshold contracts, defined by section 84 and Schedule 1 of the Procurement Act 2023.
- An SME and VCSE reservation must always be paired with a location reservation.
- Permitted geographies are UK wide or a single county or London borough, never a nation of the UK.
- Location means substantive business operations, not corporate ownership, and it needs verifying.
- Do not direct award when reserving, and keep meeting Part 6 notice and suitability duties.
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