Exempted contracts under the Procurement Act 2023: what the exemptions are for and how to use them safely

The key facts

• An exempted contract is a type of contract to which the rules on covered procurement in the Act do not apply.
• The exemptions exist so that contracting authorities have the freedom to carry out the most appropriate procurement where the rules in the Act would otherwise be inappropriate or unsuitable.
• The legal framework is section 3 of the Act and Schedule 2.
• The guidance on covered procurement is flagged as relevant reading alongside this document.
• Whether a contract is exempted by Schedule 2 is one of the tests that determines whether a contract is a public contract.
• The guidance is technical and is aimed at procurement practitioners and commercial policy leads in contracting authorities.
• The guidance should be read in conjunction with the Procurement Act 2023 and its associated regulations, and read in full.

What this guidance is and who it applies to

This document forms part of the technical guidance series published to support the Procurement Act 2023. It explains what an exempted contract is and why the exemptions exist. Like the other documents in the series it is aimed at procurement practitioners and commercial policy leads in contracting authorities, and it is intended to help with interpretation and understanding of the Act rather than to stand in for it.

The guidance should be read in conjunction with the Act and its associated regulations. For exemptions in particular that instruction matters, because the substance sits in section 3 and Schedule 2 and the categories themselves are defined there rather than in the guidance.

Everyone who selects a route to market needs this material, not only specialists. Exemption arguments tend to surface in exactly the situations where a team is under time pressure and wants a faster path, which is why the reasoning behind them needs to be understood in advance rather than improvised.

What an exempted contract is

The definition given in the guidance is short. An exempted contract is a type of contract to which the rules on covered procurement in the Procurement Act 2023 do not apply. The exemption disapplies the covered procurement rules for that contract.

This connects directly to the definition of a public contract. A public contract is one entered into by a contracting authority, above the relevant threshold, and not exempted by Schedule 2. If an exemption applies, the contract is not a public contract, so its award is not a covered procurement, so the main body of process obligations does not attach. That is why the guidance points readers to the covered procurement material as related reading.

It is important to be precise about the limit of that effect. The exemption is from the rules on covered procurement. The Act contains a wider definition of procurement that reaches exempted contracts for particular purposes, so being exempted is not the same as being wholly outside the legislation.

Why the exemptions exist

The guidance gives a clear rationale. The exemptions ensure that contracting authorities have the freedom to carry out the most appropriate procurement where the rules in the Act would otherwise be inappropriate or unsuitable. That framing is worth reading closely, because it explains both what exemptions are and what they are not.

They are a recognition that a single set of procedural rules cannot fit every kind of transaction a public body enters into. Some arrangements are not really market transactions at all, and applying competitive tendering machinery to them would generate process without producing better outcomes or better value.

What the rationale does not offer is a general escape from procedure. The freedom described is the freedom to carry out the most appropriate procurement, not the freedom to carry out no procurement. An authority relying on an exemption still has to make a defensible commercial decision, and still has to be able to explain how it reached it.

The categories themselves are set out in Schedule 2, with section 3 providing the framework. Any assessment has to be made against those provisions rather than against a general sense that the rules feel unsuitable in a particular case.

Applying it in practice

The discipline that protects an authority is documenting reliance on an exemption before the contract is entered into, not afterwards. The record should identify the specific Schedule 2 category relied on, set out the facts that bring the contract within it, and name the person who took the decision. A file that simply asserts a contract was exempt, without identifying which exemption and why, is very difficult to defend.

Scope is the second issue. Exemptions attach to contracts, and where a requirement bundles exempted and non exempted elements together the position needs to be worked through rather than assumed. Bundling non exempted work into an exempted arrangement to avoid competing it is the pattern most likely to attract challenge.

The third point is duration. An exemption assessed correctly at the outset can be undermined by later variations and extensions that change what the contract actually covers. Reviewing the position at each significant change keeps the original reasoning honest and gives contract managers a clear trigger to seek advice.

How eSourcing Data helps

Exemptions are a routing decision at the very start of a procurement, and eSourcing Data captures that decision where it happens. When a requirement is raised, the platform records the assessment of whether an exemption applies, the category relied on and the supporting reasoning, so the basis for the route to market exists in the record from day one rather than being reconstructed under pressure.

Because the platform holds all activity in one place, exempted contracts stay visible alongside competed ones. That is important for assurance: commercial leads and internal audit can see how often exemptions are relied on, by which teams and on what grounds, and can spot patterns that would otherwise be invisible because exempted work sits outside the normal tendering pipeline.

Through contract management, eSourcing Data keeps variations and extensions attached to the original record. If a change alters the nature or scope of an exempted contract, the original reasoning is right there to be tested against the new position rather than sitting in a file nobody revisits.

What to do about it

1. 1Assess Schedule 2 explicitly as part of every route to market decision, rather than assuming no exemption applies.
2. 2Record the specific exemption category relied on, the supporting facts and the decision maker before entering into the contract.
3. 3Read the covered procurement guidance alongside this document so the effect of an exemption is understood precisely.
4. 4Work through scope carefully where a requirement mixes exempted and non exempted elements.
5. 5Avoid bundling non exempted work into an exempted arrangement without a documented justification.
6. 6Review the exemption position at each significant variation or extension.
7. 7Report on exemption use across the organisation so reliance can be monitored rather than discovered.