Procurement Act 2023 guidance documents - Define phase · first published 23 May 2024
This is official technical guidance on how contracting authorities (public buyers) must calculate the estimated value of a contract under the Procurement Act 2023. The valuation methodology is largely unchanged from previous rules, but one important practical difference is that contract values are now calculated inclusive of VAT (a change that has been in place since 1 January 2021, following the UK's post-Brexit membership of the World Trade Organization's Government Procurement Agreement). Buyers must include the maximum possible value of a contract — including any extension or renewal options — when working out which threshold applies. They are also legally banned from splitting contracts artificially to keep them below threshold and avoid the Act's requirements. For small businesses, the most important implication is understanding how buyers decide which procurement route and rules apply, since thresholds determine the competition process you will face or benefit from.
WHO THIS APPLIES TO
THE ENKII VIEW
For SMEs, this guidance matters primarily as context: it explains how buyers determine which procurement rules apply to a contract, which in turn shapes the competition process you enter. The anti-avoidance rules cutting off artificial contract-splitting are a double-edged sword — they prevent buyers from quietly awarding large contracts in small chunks outside full competition, which can open doors for SMEs who benefit from transparent, open processes. However, the same rules mean buyers must aggregate related requirements, potentially bundling work into larger lots that are harder for smaller firms to compete for — so it is worth monitoring whether lots are genuinely separated by operational logic or artificially combined.
1. When reviewing a contract notice, check that the advertised value includes VAT and covers the full term including any extension options — if it looks suspiciously low, the buyer may have made a valuation error or the scope may be narrower than you expect.
SMEs bidding for or researching public contracts — The Act requires buyers to estimate the maximum value inclusive of VAT and including all extension/renewal options; a value that appears low relative to scope may indicate an incomplete estimate.
2. If you suspect a buyer is splitting a contract artificially to keep it below threshold and avoid open competition, you can raise a formal challenge — artificial subdivision is explicitly unlawful under Section 4 and Schedule 3.
SMEs who spot a large requirement being advertised in unusually small lots — The Act makes it unlawful to subdivide contracts to evade its requirements; 'disaggregating for the purposes of reaching a below-threshold value would not be a good reason'.
3. Treat the stated framework value as the ceiling of all work that could be called off — use it to gauge realistic order volumes rather than expecting to win the full amount, since the value represents all contracts that could be awarded across all suppliers.
SMEs bidding on framework agreements — Framework values must be estimated as 'the value of all contracts that could be awarded under the framework', meaning the headline figure is shared across all framework suppliers.
4. When assessing whether a concession opportunity is above or below threshold, factor in all revenue you expect to receive from third-party users — not just any payment from the buyer — since the valuation method includes exploitation income.
SMEs bidding on concession contracts (e.g. operating a leisure centre, toll facility, or regeneration site) — Concession contract valuation must include 'amounts a supplier expects to receive in the exploitation of the works or services', such as user fees, which affects which threshold and rules apply.
5. Note that buyer-supplied items (e.g. equipment or materials provided to you free of charge to deliver the contract) are included in the estimated contract value — this can push a contract above threshold and into a more competitive, but also more transparent, procurement process.
SMEs supplying to contracts where the buyer provides materials or equipment — The Act requires buyers to include the value of goods, services or works 'provided by the contracting authority under the contract other than for payment' in the estimated contract value.
Every rule below quotes the official document verbatim.
Contract values must be estimated inclusive of VAT under the Procurement Act 2023, a change that has applied since 1 January 2021 following UK independent membership of the WTO Government Procurement Agreement (GPA). (All contracting authorities, all contract types, all values.)
“When calculating the estimated value of the contract, the contract value estimation should be inclusive of VAT. This change in practice has been in place since 1 January 2021 and is a result of the UK's independent membership of the WTO Government Procurement Agreement (GPA).”
The general valuation rule requires buyers to estimate the maximum value payable under the contract, including potential variables such as options to supply additional goods/services/works and options to extend or renew. (All contracting authorities, standard public contracts.)
“The 'general rule' requires contracting authorities to estimate the maximum value payable under the contract, taking account of any potential variables such as options to supply additional goods/services/works or options to extend or renew the contract.”
It is unlawful for a contracting authority to exercise any discretion in valuing a contract with a view to avoiding the requirements of the Act. (All contracting authorities, all contract types.)
“Section 4 also includes an anti-avoidance mechanism that makes it unlawful to exercise any discretion in valuing a contract with a view to avoiding the requirements of the Act.”
Contracting authorities must not artificially subdivide procurements in order to evade the rules; they must aggregate requirements that can reasonably be aggregated unless there are good reasons not to. (All contracting authorities, all contract types.)
“The provision also prevents contracting authorities from artificially subdividing contracts for the purposes of evading any of the requirements of the Act.”
Disaggregating a contract specifically to reach a below-threshold value is explicitly not a 'good reason' for not aggregating. (All contracting authorities.)
“Clearly, disaggregating for the purposes of reaching a below-threshold value would not be a good reason, but otherwise the rules are flexible in this respect.”
Contracts whose value cannot be estimated are automatically deemed to be above-threshold. (All contracting authorities, all contract types.)
“Schedule 3, paragraph 5, which provides that contracts whose value cannot be estimated are deemed above-threshold.”
Framework values must be estimated as the total value of all contracts that could be awarded under the framework; open frameworks must include the value of all frameworks in the successive scheme. (All contracting authorities procuring via frameworks or open frameworks.)
“Frameworks must follow the general rule in Schedule 3 in terms of how to estimate the value of the contract, but must also follow the particular valuation method set out for frameworks, which requires that the estimate of the framework is the value of all contracts that could be awarded under the framework.”
Concession contracts are valued by estimating the maximum amount the supplier could expect to receive, including income from exploitation of works or services (e.g. toll revenue), not just payments from the buyer. (All contracting authorities procuring concession contracts.)
“in addition to any amounts received as payment from the contracting authority, the contract valuation should include amounts a supplier expects to receive in the exploitation of the works or services. This might include, for example, anticipated revenue from users of a toll bridge.”
The estimated contract value must include the value of any goods, services or works provided by the contracting authority to the supplier under the contract without payment (e.g. equipment supplied by the buyer for the contractor to use). (All contracting authorities, all contract types.)
“The estimated value of the contract must include the value of any goods, services or works 'provided by the contracting authority under the contract other than for payment' (Schedule 3, paragraph 1(2)(a)).”
This briefing is enkii's interpretation of the official document — the official text always governs.
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