PPN 005 Reserving Below Threshold Procurements: the official action note, explained

The key facts

• PPN 005 is an action note previously issued in December 2020 and updated in February 2025.
• It applies to central government departments, their executive agencies and non-departmental public bodies when awarding regulated below threshold contracts for goods, services or works, other than special regime contracts.
• Below threshold values are provided for in Schedule 1 of the Procurement Act 2023 and derive from the WTO Agreement on Government Procurement.
• Organisations may reserve a below threshold procurement by supplier location: UK wide, or by a single county, metropolitan or non-metropolitan, or by borough for London.
• Reservation must not be defined by nations of the UK, and supplier location is judged by where the supplier is based or established with substantive business operations, not by corporate ownership.
• Organisations may additionally reserve for SMEs and VCSEs, but that reservation cannot be applied independently of the location reservation, which must always apply.
• Organisations should not direct award when reserving procurements under this policy, and may still compete below threshold contracts openly with no reservation.
• There are exceptions for certain procurements involving the provision of goods into Northern Ireland, where a cross-border interest test continues to apply under the Northern Ireland Protocol, and the policy should not be applied where there is cross-border interest.
• 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 rules on assessing suitability.
• For procurements commenced and contracts awarded before 24 February 2025, readers are directed to PPN 11/20.

What PPN 005 is and who it applies to

PPN 005 sets out information and guidance on the options available to contracting authorities to streamline and simplify procurement for goods, services and works contracts with a value below the applicable thresholds. It was previously issued in December 2020 and updated in February 2025.

It applies to central government departments, their executive agencies and non-departmental public bodies when awarding regulated below threshold contracts for goods, services or works, other than special regime contracts. A regulated below threshold contract is defined by reference to section 84 of the Procurement Act 2023: a contract below the values in Schedule 1 which is not exempt, a concession contract, a utilities contract, or awarded by a school, a transferred Northern Ireland authority or under a transferred Northern Ireland procurement arrangement.

Other public sector contracting authorities may wish to apply the approach, although the note asks them to consider it in light of their own relevant legal obligations. There is also a specific carve out: because EU Treaty rights on free movement of goods continue to apply in Northern Ireland under the Northern Ireland Protocol, below threshold procurements involving the provision of goods into Northern Ireland remain subject to a cross-border interest test, and where there is cross-border interest this policy should not be applied.

The two reservation options

The first option is to reserve the procurement by supplier location. This means running a competition and specifying that only suppliers located in a geographical area can bid. The note gives two rationales: a UK wide reservation to support domestic supply chains and promote resilience and capacity, or, where appropriate, a reservation by county, metropolitan or non-metropolitan, or by borough for London, to tackle economic inequality and support local recruitment, training, skills and investment.

Two constraints apply to location reservations. In-scope organisations should not define by nations of the UK, so England, Scotland, Wales and Northern Ireland are not valid units. And where a county reservation is applied, only a single county, or borough for London, may be reserved. Supplier location is described by reference to where the supplier is based or established and has substantive business operations, not by the location of corporate ownership.

The second option, available in addition, is to reserve the procurement for small and medium sized enterprises and voluntary, community and social enterprises. This means running a competition open only to SMEs and VCSEs. Critically, the note states that the reservation for SMEs and VCSEs cannot be applied independently of the location reservation, which must always apply when reserving under this policy. In practice that means an SME reservation is always paired with a geographic one, even if that geography is the whole UK.

The conditions attached to using the flexibility

These options should be considered case by case. The note gives the example of reserving one procurement to suppliers in a particular location, and another to SMEs and VCSEs in a particular location. Organisations should be clear in their procurement documentation about any intention to reserve, for example by including the standardised definitions of SMEs, VCSEs and supplier location set out in the associated guidance.

Value for money and good commercial judgement remain the overriding requirement. Organisations may still choose to compete below threshold contracts openly with no reservation at all. And to ensure value for money, organisations should not direct award when reserving procurements under this policy. Reservation narrows the field of competition, it does not replace competition.

The note lists what organisations should do when reserving: ensure value for money, assess the sector and market, have regard to SMEs in accordance with section 86 of the Procurement Act, identify and manage associated risks including fraud and corruption, ensure a budget is available and approved at appropriate levels, use suitable model contracts, develop simple and proportionate KPI and data reporting mechanisms, undertake supplier due diligence checks, obtain final approval at appropriate levels, keep suitable records of commercial decisions, and publish transparency notices on the central digital platform as appropriate in a timely manner.

Internal governance also has to keep up. Organisations must still comply with their own internal guidance, governance and procedures, and those will need updating as appropriate to capture the new flexibilities and reflect the policy measures in the PPN. Underlying all of it, in-scope organisations must comply with the legal requirements in Part 6 of the Procurement Act 2023 applicable to regulated below threshold contracts, including obligations to publish notices on the central digital platform and rules on assessing suitability.

Why this matters for local supply chains

Below threshold spend is where most public buyers have the greatest practical freedom and, in aggregate, considerable economic influence. PPN 005 turns that freedom into a defined policy tool rather than an informal preference, with published definitions and stated conditions.

For suppliers, particularly smaller ones, the effect is that being genuinely established in an area with substantive business operations carries weight. The deliberate exclusion of corporate ownership as the test prevents a reservation being satisfied through a nominal local presence, which is what makes the policy meaningful for local firms.

The February 2025 update reflects the terminology of the Procurement Act 2023 and the Procurement Regulations 2024, which apply to procurements commenced on or after 24 February 2025. The note states this is not a change in policy or a new call for action, that organisations do not need to repeat actions required when it was first published, and that for procurements commenced and contracts awarded before that date, readers should refer to PPN 11/20.

How eSourcing Data helps

Reserved below threshold competitions still have to be run properly, and the note's list of expectations reads like a specification for a structured workflow: recorded commercial decisions, supplier due diligence, budget approval, proportionate KPI and data reporting, and timely notice publication. eSourcing Data supports that by keeping the competition, the supplier responses and the approvals in one place, so a lighter process does not mean a thinner record.

Supplier data is what makes reservation workable. Holding information on where suppliers are established and whether they meet SME or VCSE definitions, using the standardised definitions in the guidance, lets buyers see whether a reserved competition will attract a viable field before they commit to it. That directly supports the requirement to assess the sector and market.

Because Part 6 of the Procurement Act 2023 requires notices to be published on the central digital platform and sets rules on assessing suitability, keeping below threshold activity inside a managed process rather than in email reduces the risk of missed notices. It also gives reporting on how much below threshold spend is reaching SMEs and local suppliers, which is usually the question leadership asks next.

What to do about it

1. 1Confirm which of your contracts are regulated below threshold contracts under section 84 and Schedule 1 of the Procurement Act 2023.
2. 2Decide case by case whether reservation supports value for money, rather than applying it as a default.
3. 3Apply a location reservation whenever reserving, since the SME and VCSE reservation cannot stand alone.
4. 4Use only permitted geographies: UK wide, or a single county, metropolitan or non-metropolitan, or a London borough. Do not reserve by nation of the UK.
5. 5Test supplier location by where the supplier is established with substantive business operations, not corporate ownership.
6. 6Use the standardised SME, VCSE and location definitions from the guidance in your procurement documentation.
7. 7Do not direct award when reserving under this policy, and update internal governance to reflect the flexibility.
8. 8Check the Northern Ireland goods exception and the cross-border interest test before applying the policy.
9. 9Meet Part 6 duties, including publishing notices on the central digital platform in a timely manner.