What has been announced?
UK Government departments have set individual targets for direct spend with small and medium-sized enterprises (“SMEs”), with an ambition to deliver over £7.4 billion of public money a year to small businesses by 2028. While public sector supply chains will continue to channel significant spend indirectly to SMEs, the focus on direct spend is notable because it is a metric which departments can track, report and manage.
Targets are intended to come with stronger accountability and departments are expected to publish yearly progress updates, and where performance falls behind, to set out the actions they will take to improve. For suppliers, the combination of targets plus reporting typically translates into more active market engagement, greater scrutiny of procurement pipelines, and sharper attention to how contract design affects SME participation.
Why it matters
The policy direction aligns with the wider push for a simpler and more transparent procurement regime under the Procurement Act 2023. In practical terms, transparency measures (including forward-looking pipelines and clearer publication of opportunities) are designed to give the market, particularly SMEs, more time to plan, partner and bid.
Contracting authorities seeking to meet targets may revisit how they package requirements (for example, lotting strategies, contract length, risk allocation and insurance levels) and how they run preliminary market engagement. This updated approach by the UK Government means that prime suppliers should also anticipate more frequent questions about their own supply-chain strategies, including how opportunities are advertised, how quickly invoices are paid, and whether SME subcontractors are being used meaningfully rather than nominally.
Part of a broader SME plan
The targets sit alongside other measures presented as part of the government’s Plan for Small Business. These include planned legislation to tackle late payments (see our article published in 2025 for more information), a new Business Growth Service intended to simplify access to advice and support, and a £4bn package aimed at improving access to finance. Taken together, these new measures could reduce structural barriers that make it harder for SMEs to bid for public sector contracts and deliver public services.
What are some considerations for suppliers?
This announcement signals potential for SMEs to occupy a larger space in public procurement. Suppliers should consider:
- Mapping the opportunity landscape: identify which departments are most aligned to their sector and monitor their published pipelines and opportunities;
- Getting bid-ready for transparency: ensure policies, accreditations and evidence (including social value, cyber and financial standing) are organised to respond quickly when competitions open;
- Stress-testing contract terms: prepare to challenge disproportionate insurance, onerous risk transfer, or unrealistic mobilisation timescales these are common pinch-points for SME participation;
- Building delivery partnerships early: SMEs could consider consortia and specialist subcontracting arrangements; Prime contractors could create a clear, auditable route for SMEs to engage; and
- Focusing on payment and cashflow: check payment terms, invoicing processes and dispute routes, and be ready to evidence fair payment practices within each supply chain.
Conclusion
With direct SME spend targets now set at departmental level, and annual reporting expected, SME access to public sector contracts is likely to become a standing commercial priority rather than a periodic initiative. Suppliers that can demonstrate capability, compliance and scalable delivery (and prime contractors that can evidence genuine SME inclusion) will be best placed to respond as departments translate targets into procurement strategies and competitions.
