From April 2027, central government organisations will have to consider whether some services could be delivered in-house before progressing with a new procurement or re-procurement.
For suppliers, this doesn’t mean that government outsourcing is coming to an end. It does mean, though, that, for many larger service contracts, the decision about whether to go to market will be tested earlier and more formally. Existing performance, market health, value for money and the buyer’s own ability to deliver the service will all play a part.
What is the Public Interest Test?
The Public Interest Test is an early assessment designed to identify whether a government service could be a good candidate for insourcing.
Under PPN 024, central government departments, executive agencies and non-departmental public bodies will need to apply the Test from 1 April 2027 before progressing relevant planned projects or re-procurements for services valued at more than £1 million including VAT. There are exemptions, including certain direct awards, some defence and security services, exempt contracts and regulated health procurement.
The Test is intended to happen very early in the planning process, before the Delivery Model Assessment or equivalent business-case stage. It therefore asks a more fundamental question than a tender evaluation: should this service be outsourced at all, or should an in-house model be explored further? For suppliers, that timing matters. If a buyer is considering whether the market should be used before a tender is even prepared, some of the evidence supporting external delivery needs to exist well before procurement documents appear.
How does the Public Interest Test work?
The official Public Interest Test guidance divides the assessment into two parts:
- Part One looks at the characteristics of the service. The authority considers whether there are reasons why insourcing could offer a better result across three broad areas: value for money and strategic alignment, social value, and economic growth and market impact.
- Part Two looks at the organisation’s capability and capacity. If the service appears to be a good candidate for insourcing, the authority then considers whether it can realistically recruit and retain the required workforce, provide the necessary assets and infrastructure, choose an appropriate delivery structure and manage the transition.
If Part One does not indicate that the service is a good candidate for insourcing, the Provisional Sourcing Decision is to outsource and Part Two does not need to be completed.
A provisional decision to insource is not the end of the process either. It means the in-house option should be carried forward for more detailed appraisal. The decision can later be overturned if further analysis shows that insourcing is impractical or another delivery model offers better value for money. As such, while the new policy creates a more structured test of insourcing, it does not establish a presumption that every service capable of being brought in-house should be.
What will make a service more likely to be considered for insourcing?
The published criteria provide suppliers with a useful indication of where outsourced services may face greater scrutiny. A service may be considered a stronger candidate for insourcing where government needs direct control, where in-house delivery could offer better whole-life value, or where the requirement is difficult to define and frequent changes create significant contractual costs or risk premiums. Previous problems with supplier performance can also influence the assessment.
Market conditions matter as well. The Test asks whether the service operates within a healthy competitive market or whether there are problems such as limited providers, excessive incumbency advantage, severe labour shortages or capacity constraints. Authorities also consider whether an insourced model could maintain service continuity and what the effect would be on SMEs and VCSEs.
This means the case for outsourcing is broader than simply demonstrating that an external supplier can provide the service more cheaply. Suppliers may need to show that competition is creating genuine value, that external delivery provides capability or resilience government would find difficult to recreate internally, and that the market remains healthy enough to support the service over the longer term.
What does this mean for existing suppliers?
For incumbent suppliers, contract performance may increasingly influence a decision that happens before the next tender is published. When assessing an existing service, authorities should look at recent KPI trends, significant issues and end-user feedback. Poor performance therefore risks affecting more than an individual contract renewal. It may contribute to a wider assessment of whether the outsourced delivery model remains appropriate.
This makes consistent evidence gathering more important. Suppliers should be able to demonstrate not only whether contractual KPIs have been achieved, but also where the service has improved, how problems have been resolved and what measurable value has been created for users and the contracting authority.
The same applies to value for money. A low headline contract price may tell only part of the story. External delivery might provide access to specialist systems, scalable staffing, technical expertise, established processes or resources that would otherwise need to be created internally. Suppliers should understand which of those benefits are important to the buyer and be able to evidence them.
There is also a potentially important issue around assets, software, data and knowledge. Where a provisional decision favours insourcing, authorities are advised to identify what they would need to operate the service themselves and whether those assets or capabilities currently sit with the incumbent.
For suppliers, this makes contractual exit arrangements, knowledge transfer and data management strategically important. Creating unnecessary dependency may provide short-term protection from competition, but it does not necessarily strengthen the long-term case for outsourced delivery.
Why market health matters
One of the more interesting features of the Public Interest Test is the explicit role given to market health. Government organisations are asked to consider whether a competitive market exists, whether SMEs and VCSEs can participate and whether there are signs of market failure, monopoly conditions or excessive incumbency advantage. The guidance expects this to be based largely on existing market intelligence rather than a completely new market engagement exercise.
A healthy supplier market can therefore be part of the evidence supporting continued outsourcing. For incumbent suppliers, this creates a reason to think carefully about how the market around a contract develops. A position in which one provider becomes effectively irreplaceable may not necessarily be viewed positively if government concludes that the outsourced model has weakened competition.
For SMEs and newer entrants, the policy creates a slightly different opportunity. Demonstrating credible capability, capacity and appetite can help buyers see that an effective external market exists, even where the largest historic contracts have been dominated by a small number of suppliers.
Market engagement will continue to matter, but suppliers should not assume there will always be a new consultation immediately before the Test. The guidance describes the majority of assessments as quick, desk-based exercises using information that is already available. That makes ongoing visibility and evidence-led account development more valuable than waiting for an invitation to comment on a future tender.
What do five-year Insourcing Strategies mean for suppliers?
The Public Interest Test deals with individual services, but PPN 024 also introduces a longer-term requirement. In-scope organisations with annual contract spend of £100 million including VAT or more are expected to develop a five-year Insourcing Strategy. These strategies must be completed by 1 April 2027 and published within 30 days.
The aim is to help government organisations identify service categories where insourcing may be worth exploring before individual contracts reach the procurement stage. That gives departments more time to build internal capability where they believe a change in delivery model could be beneficial.
For suppliers, the published strategies could provide useful intelligence. A business with important central government contracts should monitor whether the services it provides are being discussed as potential candidates for insourcing. That information can then feed into account planning, investment decisions and preparation for future contract renewals.
It should be considered alongside contract expiry dates, departmental pipelines and other procurement intelligence. Thornton & Lowe’s Tender Pipeline can help suppliers monitor live and awarded contracts, including information that can support longer-term planning around future opportunities.
A reference to possible insourcing does not mean a supplier should immediately write off the account. It does, however, give the business a reason to examine the evidence supporting external delivery and understand what concerns may be driving the review.
What should suppliers do before April 2027?
Suppliers do not need to approach the policy defensively. The objective should be to make the benefits and performance of external delivery easier for buyers to understand. A useful preparation exercise would include:
- Review contracts likely to fall within scope. Look particularly at central government service contracts approaching re-procurement where the expected value exceeds £1 million including VAT.
- Strengthen performance evidence. Make sure KPI results, user feedback, service improvements and corrective action are documented consistently throughout delivery.
- Explain whole-life value. Identify the systems, expertise, workforce flexibility, infrastructure and risk management included within the outsourced model rather than focusing only on price.
- Demonstrate specialist capability. Be clear about which skills or resources would take time, investment or additional risk for the authority to recreate internally.
- Measure social and economic value. The Test explicitly considers wider impacts, so evidence of jobs, skills, SME participation and community benefit should be linked to outcomes rather than broad commitments.
- Understand the health of your market. Consider competition, barriers to entry and whether buyers are likely to see sufficient credible alternatives to maintain an effective external market.
- Review transition arrangements. Understand what happens to data, assets, systems and knowledge at contract end and make sure your approach demonstrates responsible contract management rather than avoidable dependency.
- Monitor Insourcing Strategies. Once departments begin publishing them, use the information alongside opportunity and account intelligence to identify services that may receive greater scrutiny.
This is also an area where good bid strategy and pre-tender preparation can make a difference. By the time an ITT is published, the fundamental sourcing decision may already have been taken.
For incumbents in particular, the work starts during contract delivery rather than six weeks before a renewal. The strongest argument for continuing external delivery is usually a credible record of outcomes, performance and value that the buyer already understands.
Common supplier questions
Does a provisional decision to insource mean the service will definitely be brought in-house?
No. The Public Interest Test produces a provisional sourcing decision. If insourcing appears to be the stronger option, it is then considered through the Delivery Model Assessment or equivalent business-case process. A later assessment can still conclude that outsourcing or another delivery model offers better value or is more practical.
Which contracts will the Public Interest Test apply to?
From 1 April 2027, the Test applies to relevant planned projects and re-procurements for central government services valued at more than £1 million including VAT, subject to specified exemptions. It applies to central government departments, executive agencies and non-departmental public bodies rather than automatically covering every public sector organisation.
Does this make early market engagement more important?
Yes, but not necessarily because buyers will run a new engagement exercise specifically for the Public Interest Test. Most assessments are expected to use information that is already available. Suppliers therefore need to build visibility, evidence and buyer understanding throughout the contract and wider account relationship, rather than waiting for a formal consultation immediately before procurement.
What should incumbent suppliers do now?
Incumbents should strengthen the evidence behind their current delivery model. That includes KPI performance, service improvements, end-user outcomes, value for money, resilience and the expertise or infrastructure the supplier provides. Contract exit arrangements, data, knowledge transfer and dependency should also be reviewed because these can affect how practical an insourcing option appears.
Can the Public Interest Test create opportunities for new suppliers?
Potentially. Market health is one of the factors government organisations must consider. Evidence that there are credible SMEs, VCSEs and other suppliers capable of competing can support the case that an effective external market exists. For new entrants, building visibility and demonstrating credible capability may therefore matter even before a specific tender is published.
How Thornton & Lowe can help
The Public Interest Test does not remove the opportunity for suppliers to win central government contracts. It makes the evidence supporting external delivery more important and brings some of that consideration earlier in the commercial process.
Thornton & Lowe helps suppliers build that evidence into their wider approach to public sector growth, from opportunity monitoring and market research through to bid strategy, evidence development and live tender support. Our bid writing services can support businesses that need to turn delivery experience, technical capability and commercial strengths into clear responses against buyer requirements.
We also work with public and third sector organisations through our buyer-side procurement services, giving our team experience of procurement planning, value for money and supplier assessment from both sides of the process.
For suppliers affected by the new policy, the priority should be understanding where exposure exists, strengthening the evidence behind your delivery model and preparing early enough to influence future commercial decisions.
