Below-Threshold Contracts for Local Suppliers: Opportunities and Risks for SMEs

From early 2026, local authorities in England are expected to gain a new power. Under the Local Government (Exclusion of Non-commercial Considerations) (England) Order 2026, they will be allowed to reserve competitions for some lower value, below-threshold contracts to suppliers based either in the UK or in a defined local area.

This change creates new opportunities for genuinely local suppliers, including SMEs and VCSEs, while increasing the risk that some bids will be closed off if you are not seen as “local” to the authority. It also sits alongside wider Procurement Act 2023 reforms that are already intended to create more space for smaller suppliers and social enterprises.

This article looks at what is changing, how “local area” will work in practice and what suppliers can do now.

What is actually changing?

Historically, section 17(5)(e) of the Local Government Act 1988 stopped many local authorities from reserving contracts based on the location of suppliers. Treating a supplier’s location as a “non-commercial consideration” meant authorities could not legally say “local firms only” for most procurements covered by section 17.

The new 2026 Order will, in specific circumstances, lift that restriction for below-threshold contracts. In plain English:

• It applies to best value authorities and parish councils in England currently impacted by section 17.
• It only applies to “relevant contracts” that are below UK procurement thresholds under section 5(5) and Schedule 1 of the Procurement Act 2023, including goods, services, works, frameworks and concessions.
• It is voluntary, not mandatory. Authorities can choose whether they use the reservations on a case-by-case basis.

The Government has also published official guidance on reserving competitions for below-threshold contracts, which explains how the 2026 Order should be used and how it sits with the Procurement Regulations 2024 and the wider Procurement Act regime.

Opportunities and risks for SMEs at a glance

Opportunities

• More chances for truly local SMEs to compete on a level footing for everyday local government contracts.
• Lower-value contracts that are more likely to be reserved for UK-based or local suppliers instead of drawing in national or international competition.
• Clearer use of SME and VCSE reservations alongside location-based criteria.

Risks

• Some below-threshold opportunities may be completely closed to you if you are not based in the defined local area.
• Regional or national suppliers may find it harder to “test” new markets with small contracts before committing to a local presence.
• A need for closer monitoring and filtering of opportunities so you do not waste time on tenders you cannot win because of reservation rules.

How can authorities reserve competitions?

When the 2026 Order is in force, in-scope authorities will be able to consider three main levers for below-threshold competitions.

1. Reserve to suppliers based in the UK

Authorities can decide that only suppliers “based within the United Kingdom” may participate in the competition. “Based within” is not about corporate ownership; it is about where the contractor is based or has established substantive business operations.

That means overseas-owned companies can still take part if they have genuine UK operations, but suppliers with no UK footprint could be excluded for those reserved competitions.

2. Reserve to suppliers in a defined "local area"

Authorities can also reserve competitions so that only suppliers based in a defined “local area” can bid. The guidance defines local area in a structured way:

• For a single authority:
  • either the area of that authority, or
  • the area of that authority plus any of the bordering counties or London boroughs.
• For joint procurements:
  • either the combined area of those authorities, or
  • that combined area plus bordering counties or London boroughs.

Authorities must state clearly in the advertisement or below-threshold tender notice which areas make up the “local area” for that contract, so suppliers can see if they are eligible before investing time in a bid.

There is one important safeguard: no in-scope authority covers the whole of England, so “local area” cannot be used as a backdoor way of reserving work to England-only.

3. Reserve to SMEs and/or VCSEs

Authorities already had the option to reserve below-threshold competitions to SMEs and VCSEs. The 2026 Order does not create that power, but the guidance confirms they can now combine SME/VCSE reservations with the new location-based reservations.

So, in practice, a below-threshold tender might be:

• Reserved to UK-based suppliers only
• Reserved to suppliers in a set of local authorities and bordering counties
• Reserved to SMEs only, VCSEs only or SMEs and VCSEs, with or without a location reservation

For suppliers, the key point is that reservation choices must be signposted clearly in notices on the Central Digital Platform and in any other adverts. The guidance tells authorities to include wording about the reservation in the “Conditions of participation” field for notifiable below-threshold contracts.

What does this mean for suppliers in practice?

More genuinely local competitions

If you are already active in one or two local authority areas, this change should mean more opportunities that are realistically within your reach:

• Daily-life contracts such as cleaning, grounds maintenance, small works, local transport, community services and smaller consultancy pieces are strong candidates for reservation.
• Buyers can shape local area boundaries to match how services are delivered on the ground, not just strict district lines.

For smaller firms, that could mean fewer national players crowding out opportunities at the lower end of the value scale.

A tighter market for non-local suppliers

For many SMEs, local council tenders and frameworks remain one of the most accessible routes into public sector work. However, under the new rules, if you are not based in the defined local area, you may be ineligible for some below-threshold opportunities you would previously have chased.

This is especially relevant if:

• You are a regional or national supplier that has historically bid into many different local authority areas from a limited set of offices.
• You have been testing new regions by going after smaller “toe in the water” contracts.

You will need to track reservation status carefully and be realistic about where you are truly “based within” the local area as defined in the notice. If you are not, it is usually better to focus your time on open or more suitable opportunities rather than trying to challenge the reservation itself.

Location will sit alongside SME/VCSE status

Because authorities can use location reservations and SME/VCSE reservations together, some competitions may effectively be “double reserved”.

For example:

• A competition might be reserved to SMEs in the authority’s area plus bordering counties.
• A community-focused service might be reserved to VCSEs in a specific local area.

If your organisation falls outside either the location or SME/VCSE definition, you will not be able to participate, even though the contract value is below-threshold.

Not every below-threshold contract will be reserved

The policy is voluntary and the guidance explicitly tells authorities to consider value for money, competition and the risk of using reservations as a “de facto” direct award. It also reminds them that they can still run open competitions that include overseas suppliers where that makes sense for the market.

In other words, suppliers should expect a mixed picture, with some clearly reserved competitions and others left open.

Practical steps suppliers can take now

Taken together, these steps are about maximising your chances of being classed as a local supplier where it is accurate, and avoiding wasted bid effort where reservations mean the opportunity is not for you.

You do not have to wait for early 2026 to get ready. The groundwork you put in now will help you respond quickly when the 2026 Order comes into force.

Map where you are genuinely "based within" the UK and local areas

Using the definitions from the guidance, map where you have:

• Established offices or depots
• Substantive operations and staff
• Regular delivery for public sector clients

This gives you a clear view of:

• Which authorities are likely to see you as local
• Which surrounding counties or boroughs could fall inside a “local area” that includes you
• Where you are more realistically positioned as a regional or national provider

That map can then inform your opportunity pipeline and your decision-making when a reserved notice appears.

Tighten up how you monitor below-threshold opportunities

Because these rules apply only to below-threshold contracts, you need a deliberate approach to finding and filtering those opportunities. That means:

• Making full use of the Central Digital Platform, which local government is starting to use for below-threshold tender notices under the Procurement Act regime.
• Keeping an eye on Contracts Finder and relevant local portals where authorities publish sub-£30k opportunities or non-notifiable relevant contracts.
• Building search filters and saved searches around location, below-threshold status and reservation wording.

This sits neatly alongside the structured pipelines many SMEs are already building in response to the wider Procurement Act 2023 reforms and CCS changes.

Strengthen your "local impact" story

Even where competitions are reserved, suppliers will still be assessed on quality, price and social value. The guidance stresses that section 17 of the 1988 Act still aims to prevent authorities from using procurement to pursue wider agendas that are not linked to the contract.

You can prepare by:

• Updating case studies to highlight local employment, supply chains and community partnerships.
• Making sure you can evidence claimed local benefits with numbers, not just narrative.
• Aligning your social value approach with how local authorities describe their priorities in strategies and market engagement.

For suppliers that are not deeply local, this is also where you can show how you will work with local SMEs or VCSEs as partners.

Plan for partnerships and local presence

If you want to keep bidding into areas where you are currently not based, consider:

• Formal partnerships or consortia with genuinely local suppliers, where the local partner leads, or you provide specialist capacity as a subcontractor.
• Creating a real local presence where the business case stacks up, for example setting up a regional hub to serve a cluster of authorities.
• Having clear internal rules about when you will and will not pursue opportunities that are reserved to particular areas.

This kind of structured thinking is already becoming more important as the Procurement Act 2023 and CCS frameworks put more emphasis on SME participation and local growth.

Refresh your bid library around new rules

Finally, review your core tender content in light of the 2026 Order and below-threshold guidance:

• Add short, clear explanations of where you are based and where your substantive operations sit.
• Build template wording that explains your approach to local employment and supply chains in different regions.
• Update process diagrams or governance sections where you refer to Procurement Act procedures, below-threshold notices and the Central Digital Platform.

This will save time when you need to respond quickly to a reserved competition.

If you are still building confidence with public sector opportunities, our step-by-step guide to government contracts for SMEs sets out the basics of pipelines, bid/no bid decisions and core content.

How Thornton & Lowe can support suppliers

Thornton & Lowe already supports SMEs and VCSEs to understand and use the new Procurement Act landscape, including changes to below-threshold rules, transparency and procedures.

With the 2026 Order and the new guidance on reserving competitions, we can help you to:

• Identify where you are best placed to benefit from local or UK-only reservations.
• Build a realistic tender pipeline of below-threshold opportunities across your key regions.
• Strengthen your local impact story, social value offer and SME/VCSE positioning.
• Develop high quality bids for reserved and open competitions, using proven approaches that have delivered strong win rates for SME suppliers.

If you would like to talk through what these changes might mean for your business, or sense-check your strategy for local government tenders in 2026, our team is ready to help.