Compliance
SME Spend Target
A government commitment to direct a stated proportion of public sector procurement spend to small and medium enterprises.
Definition
An SME spend target is a government commitment to direct a defined proportion of public procurement spend to small and medium enterprises, counted both directly and through supply chains. Successive UK administrations have set such targets as a policy lever to widen the supplier base, and departments report against them. For a supplier, the target matters less as a number and more for what it causes buyers to do differently in how contracts are packaged and advertised.
How it works in practice
Targets are expressed as a percentage of total departmental procurement spend reaching SMEs, and reporting distinguishes direct spend, where the SME holds the contract, from indirect spend reaching SMEs through a prime contractor's supply chain. Because indirect spend is self reported by primes, the figures depend heavily on the quality of supply chain data, which is one reason payment and supply chain reporting obligations have tightened alongside the targets.
The practical consequences show up in procurement design. Buyers are encouraged to break requirements into lots rather than awarding single large contracts, an approach known as unbundling, to keep selection requirements proportionate so that turnover and insurance thresholds do not exclude capable smaller firms, to advertise below threshold opportunities openly, and to reduce the administrative burden of bidding. The Procurement Act 2023 reinforces this direction, including a duty to have regard to the barriers small firms face and a central platform intended to make opportunities easier to find.
For SME bidders the useful reading is diagnostic. If a requirement is packaged as a single very large contract with high turnover thresholds and no lots, the practical route in is usually as a subcontractor to a prime rather than as a bidder. If it is lotted with proportionate selection criteria, direct bidding is realistic. Where selection requirements look disproportionate to the actual risk, that is a legitimate subject for a clarification question during the tender period.
Common questions
Is the SME spend target legally binding on buyers?
No. It is a policy commitment reported against rather than a statutory duty to award a given share of contracts to SMEs. It cannot be used to require that a particular contract goes to a small firm, and awards must still be made on the published criteria.
Does subcontracting count towards the target?
Yes. Reporting covers both direct awards to SMEs and indirect spend reaching SMEs through supply chains. This is why prime contractors are asked to report supply chain composition and payment performance, and why bids often ask how much of the contract value will flow to smaller firms.
How is an SME defined for this purpose?
The standard definition is a business with fewer than 250 employees and turnover below a stated threshold. The definition used in a particular procurement should be checked in the tender documents, since related concepts such as VCSE status are counted separately.
Does the target mean an SME bid gets extra marks?
No. Evaluation is on the published award criteria, and being an SME is not itself a scored advantage. The target influences how opportunities are structured and advertised, not how individual bids are scored.
