For smaller businesses selling to government, knowing that the public sector wants to increase SME participation is useful. However, knowing where an individual department is falling short, what it plans to change and which routes to market it wants SMEs to use is considerably more valuable.
Departmental SME Action Plans bring much of that information together. With departments now reporting their latest performance and refreshing their plans for 2026/27, suppliers can use them as a source of commercial intelligence rather than simply treating them as policy documents.
What are Departmental SME Action Plans?
Departmental SME Action Plans explain how central government organisations intend to increase opportunities and procurement spend with small and medium-sized businesses.
Under PPN 001, central government departments, including their executive agencies and non-departmental public bodies, were required to set three-year targets for direct spend with SMEs from April 2025. The headline target is what each department aims to achieve in the 2027/28 financial year.
Departments must publish progress annually by 30 September, covering the previous financial year. Their Action Plans should be updated at the same time to include their latest approved SME spend and any new measures needed over the following 12 months. The guidance also asks departments to explain increases or decreases in SME spend and the actions they are taking to open contracts to smaller suppliers. That makes the plans useful for suppliers because they combine a longer-term target with evidence of how the department is actually performing and what it intends to do next.
Why the 2026/27 plans matter
The latest reporting point covers SME spend during 2025/26, the first full financial year under the three-year target period. Suppliers can therefore start comparing the ambition announced by each department with its actual progress.
The figures on their own won't tell you where the next contract is coming from. What they can do is identify departments where SME participation is already strong, organisations that need to make greater progress and practical changes that could affect how future procurements are designed.
That information can add useful context when you're planning how to sell into the public sector. If a department says it needs to improve SME access in a particular area, simplify its procurement approach or engage suppliers earlier, that should influence how you monitor and develop the account. The timing also matters because Action Plans aren't static three-year strategies. PPN 001 guidance expects them to be refreshed annually according to the progress departments have made and what they still need to achieve.
Look beyond the headline target
There are substantial differences between the direct SME spend targets set by departments. For example:
- The Department for Science, Innovation and Technology has a 40% target for 2027/28
- The Department for Culture, Media and Sport is targeting 33%
- The Cabinet Office's target is 30%
- The Department for Energy Security and Net Zero has a 29% target
- At the other end of the published table, HMRC and the Department for Work and Pensions each have targets of 8%
It would be tempting to read those percentages as a ranking of the best departments for SMEs. In practice, the picture is more complicated. Departments buy very different things and have different procurement profiles. A department responsible for a small number of very large contracts will not necessarily have the same direct SME spend profile as one purchasing specialist professional, technical or digital services from a much broader market.
There can also be substantial SME participation below the prime contractor. Cabinet Office guidance distinguishes direct spend with SMEs from indirect spend flowing through other suppliers, and departments can set and report indirect targets voluntarily. The headline percentage is therefore a starting point. Suppliers should also ask how the department expects SMEs to participate and whether their own market is one in which direct contracts, frameworks, Dynamic Markets or subcontracting are more likely.
Compare targets with actual spend
The next step is to look at progress rather than the final target in isolation. Defra's 2026/27 SME Action Plan, published on 30 September, provides a useful example. Defra reported that 17.5% of its procurement spend went directly to SMEs in 2025/26, slightly ahead of its 17.3% target for that year. Its planned trajectory then rises to 18.7% in 2026/27 and 20% in 2027/28. That tells suppliers more than the 20% final target alone. It shows both the current position and the amount of additional progress required over the next two years.
The same principle applies elsewhere. If a department has a sizeable gap between current SME spend and its 2027/28 target, look at what it intends to change to close that gap. If performance is already strong, look at what the organisation says it will do to maintain or build on it.
Spend can also move for reasons that don't directly reflect procurement policy. Defra, for example, says a review of supplier classifications reduced its reported SME percentage for 2024/25 because some businesses had previously been incorrectly categorised as SMEs. This is why the commentary around the figures is worth reading rather than treating every increase or decrease as evidence that a department has become more or less SME-friendly.
Which barriers are departments removing?
Smaller businesses often face practical barriers long before the evaluation stage. Contract sizes can be too large, financial requirements disproportionate, procurement timescales difficult to accommodate or tender documents unnecessarily complex.
Some departments are explicitly using their Action Plans to address these issues. The UK Health Security Agency's SME Action Plan, for example, identifies overly complex requirements, disproportionate financial thresholds, unrealistic timescales and inappropriate allocation of contractual risk as potential barriers for SMEs. It says it intends to review its practices and share information earlier with smaller suppliers.
Defra has also highlighted practical measures including lotting strategies that enable SME participation, the use of routes to market suited to smaller businesses and work to improve visibility of opportunities. Its latest plan points to a previous framework where supplier feedback led to smaller, more specific sub-lots being introduced for specialist SMEs.
For suppliers, statements like these are more actionable than a general commitment to supporting small businesses. They indicate where procurement practices may change and where previous barriers could become less significant. They can also shape market engagement. If a department has already recognised that a particular requirement or contracting model makes SME participation difficult, suppliers have a stronger basis for explaining how an alternative structure could create more effective competition.
Follow pipelines and market engagement
After reading an Action Plan, the next step is to connect its commitments with actual procurement activity. Departments increasingly point suppliers towards forward pipelines, Find a Tender notices and early market engagement. Under the Procurement Act regime, pipeline notices also provide advance visibility of qualifying future requirements, giving businesses more time to assess opportunities before formal competitions begin.
Defra's latest plan places particular emphasis on forward visibility and says its commercial teams will review upcoming procurement needs to identify opportunities for SMEs. It also highlights market engagement and published pipelines as ways to give smaller businesses more time to prepare.
This is where the information becomes commercially useful. If an Action Plan says a department wants more SME participation in a market and its pipeline then shows several relevant contracts approaching procurement, those two pieces of information together are far more valuable than either one independently.
Thornton & Lowe's Tender Pipeline can help suppliers monitor relevant contracts and opportunities. Beyond live tenders, Preliminary Market Engagement Notices, UK1 pipeline notices, departmental procurement pipelines and supplier events can all provide opportunities to understand requirements before the final specification is fixed.
Don't ignore indirect opportunities
Not every SME needs to become the prime contractor on a major government programme. Where departments buy through very large contracts, smaller businesses may play an important role within the supply chain instead. PPN 001 allows departments to set and publish separate targets for indirect SME spend, while the Cabinet Office continues to collect SME supply chain spending information from strategic suppliers.
Defra's Action Plan explicitly acknowledges this route. Its category strategies include considering SME and VCSE participation through lotting and tier-one supply chains, and the department says it will work with major suppliers to promote subcontracting opportunities.
For some businesses, supplying through an established prime can provide relevant public sector experience and evidence before they are ready to compete directly for larger contracts. Consortium arrangements and partnerships can offer another route where no single SME has all the necessary capacity or capability.
As such, it's important to understand what the individual department means when it talks about increasing SME participation. If much of its spend is concentrated in major programmes, indirect routes may be an important part of its strategy.
What should SMEs look for?
You don't need to analyse every line of every departmental plan. The aim is to extract information that can influence your sales and bidding decisions. When reviewing a department, focus on:
- its 2027/28 direct SME spend target and any annual milestones before then;
- the latest actual SME spend and whether it is ahead of or behind the planned trajectory;
- explanations for significant changes in performance;
- specific procurement barriers the department says it wants to address;
- categories, programmes or markets where more SME participation is being encouraged;
- commitments around lotting, financial thresholds, tender documentation or contract terms;
- forward pipelines, supplier events and other market engagement activity;
- routes through frameworks, Dynamic Markets and larger suppliers' supply chains.
A high target isn't, by itself, a reason to pursue a department. Equally, a lower target doesn't mean there are no worthwhile opportunities. Defra itself makes clear that its SME commitments aren't a guarantee that SME spend will increase or that a particular number of contracts will be awarded to smaller businesses. The commercial value comes from matching the plan with your market, capabilities and the actual procurement pipeline.
That should feed into a disciplined bid/no-bid decision when a suitable opportunity appears. An SME-friendly policy environment can improve access, but suppliers still need to demonstrate that they can meet the requirement and compete effectively.
How Thornton & Lowe can help
Departmental SME Action Plans give suppliers another source of intelligence about how buyers are approaching smaller businesses. The next step is turning that intelligence into a realistic public sector sales and bidding plan.
Thornton & Lowe works with SMEs and larger suppliers to identify suitable opportunities, assess routes to market and prepare stronger tender submissions. Our bid writing services can support businesses from early opportunity qualification and planning through to drafting, evidence development, review and submission.
For SMEs in particular, preparation matters. Understanding which departments want to broaden their supplier base is useful, but success still depends on targeting opportunities that match your capacity, building relevant evidence and giving evaluators confidence that you can deliver.
As departments continue to update their SME Action Plans, suppliers that combine that information with procurement pipelines and early market engagement should be better placed to spot where policy commitments are beginning to translate into genuine commercial opportunities.
