Boosting Localised Procurement - Reform to Section 17 LGA 1988

Local government procurement and commercial professionals across England can rejoice because there is finally draft law to change section 17 of the Local Government Act 1988.

Back in March 2024 we reflected on proposals for reform in this area (see Procurement Act 2023 Relaxation of section 17 Local Government Act 1988 | Trowers & Hamlins law firm). However, on 3 December 2025 the Ministry of Housing, Communities and Local Government officially announced[1] that through the Local Government (Exclusion of Non-commercial Considerations) (England) Order 2026[2], section 17(5)(e) of the Local Government Act 1988 will be amended to allow reservation of below-threshold contracts by reference to the location of contractors in specified circumstances.

Background to Section 17(5)(e)

Section 17 of the LGA[3] is generally concerned with preventing non-commercial considerations from being taken into account when local government bodies procure public supplies or works contracts. The provision has been controversial since its inception, and has historically limited local government's flexibility in procurements, but also prohibited them from achieving the same or similar outcomes as central government.

Section 17(5)(e) of the LGA has caused challenges because it provides that the country or territory of origin of supplies to, or the location in any country or territory of the business activities or interests of, contractors is a non-commercial factor which cannot be considered for the purposes of contract awards. Therefore, some authorities, for example, faced challenges following the commencement of the war in Ukraine (and new sanctions on Russia) to exit contracts with Russian suppliers (encouraged by PPN 01/22[4] and now PPN 007[5]). Many have also felt aggrieved by the flexibility afforded to central government under PPN 11/20[6] and now PPN 005[7] to reserve below-threshold contracts by geographical area, certainly given that local authorities tend to have a more direct relationship with a specific geography and local suppliers within it.

Reserving below-threshold contracts under the Act

Under the Procurement Act 2023 (Act), regulation of below-threshold contracts is limited. Part 6 of the Act covers all rules applicable to below-threshold contracts (which are not public contracts for the purposes of the Act), and essentially allows for any procedure to be taken, so long as:

• No selection stage is applied;[8]
• Regard is had to barriers faced by SMEs and VCSEs and potential ways to mitigate this;[9]
• If the opportunity is advertised and the contract is over the value of, for non-central government, £30,000, and for central government, £12,000 (Notifiable Below Threshold Contracts) a below-threshold tender notice is published;[10]

• A below-threshold contract details notice is published (after award) for Notifiable Below-threshold Contracts[11]; and
• Prompt payment provisions are implied into the contract.[12]

Such a light touch approach is possible because below-threshold contracts are outside the scope of the WTO Agreement on Government Procurement (GPA) and its restrictions on discrimination to other GPA suppliers.

Given the limited regulation, the Government introduced via PPN 005 a voluntary policy (a similar policy was available under the old Public Contracts Regulations 2015 regime) which allows for reservation of below-threshold contracts by location: suppliers run a competition and specify that only suppliers located in a certain geographical area can bid. In the PPN provision is made for both reservation to UK suppliers or to suppliers in a specified county (metropolitan or non-metropolitan, or by borough for London). The supposed purpose of the policy was to tackle economic inequality and support local recruitment and training.

What does the Order do?

The Local Government (Exclusion of Non-commercial Considerations) (England) Order 2026 (Order) is a direct response to a statement of intention by Government to address the peculiarity of section 17 of the LGA preventing geographical reservations which are otherwise possible under the Act.

Speaking on 28 November 2022 in the House of Lords during the bill stage, Baroness Neville-Rolfe in explaining the inability to introduce quotas for sourcing local UK food and drink due to international treaty obligations of the UK, noted that:

"There is, however, the potential for contracting authorities to develop local purchasing strategies. First, authorities may take advantage of the policy of December 2020, that below-threshold procurements may be reserved to UK suppliers only, or to UK SMEs, or VCSEs, in a particular region or county of the UK. While the Local Government Act 1988, Section 17, currently precludes local authorities from awarding public supply or works contracts by supplier location, we intend to use Clause 107 of this Bill, once enacted, to make secondary legislation to disapply that legislation in respect of this policy, so that local authorities, as well as government departments, can take advantage of this flexibility under the Bill for lower-value contracts; I hope this will be welcome."[13]

The Order (when passed) will take this intention forward by providing for limited circumstances when below-threshold contracts can be reserved and the restriction in section 17(5)(e) lifted. It notes that section 17(5)(e) ceases to be a limit on local government authorities where:

1. Before inviting tenders, the authority determines that non-UK based suppliers cannot bid; or
2. Before inviting tenders, the authority determines that suppliers outside the local area (the area of the authority or that area and any of the areas of the counties or London boroughs that border that area)[14] cannot bid.[15]

The Order goes on to say that if an authority is within a single county or London borough, the area of that authority may be either the area of the authority or the area of the single county or London borough that the authority is located within.[16] An authority's area is where it primarily exercises its functions, disregarding any areas outside of the United Kingdom.[17]

Where a reservation is to be used, but the opportunity is to be advertised, the advertisement of a Notifiable Below Threshold Contract (the below-threshold tender notice) must explain the ground relied on in the Order and the relevant area of reservation.[18]

Therefore, the Order in effect puts authorities subject to section 17 of the LGA on an equal footing with central government.

How will the changes impact local authorities?

Practically, the change when introduced (expected early 2026) could have a significant impact on local government authorities and their means of increasing SME and VCSE spend. It is recognised that smaller value contracts tend to be more accessible for SMEs and VCSEs, whether this be a result of lower interest from leading market players in those contracts, or the lack of selection criteria focused on financial thresholds and past experience. The ability to now concentrate on the specific area in which the authority finds itself will further target these contracts to SMEs and VCSEs as larger organisations are likely to be based elsewhere.

The change will also be welcomed in terms of achieving growth in the authority's direct area. Local governments are under pressure to revitalise economic growth and opportunity for their residents, and with local government reorganisation on everyone's minds, there will be a greater political incentive within authorities to show how procurement is being used to tackle economic and social inequality.

The change is welcomed and we hope that the Order can finalise its passage through Parliament as soon as possible in 2026.