Procurement Policy Note (PPN) 024 has been issued, together with accompanying guidance on "Insourcing and the Public Interest Test", both of which introduce a new framework requiring central government bodies to systematically consider delivering services in-house before going out to the market. The changes could have significant implications for both contracting authorities and government suppliers, influencing future procurement decisions and potentially affecting the volume of opportunities available to the market. This article explains what the new requirements involve, when they will apply and the practical steps organisations and suppliers should take to prepare.

What problem is PPN 024 trying to solve?

The policy starts from the premise that sourcing decisions have a significant effect on the quality of public services and on the delivery of government objectives, and that insourcing can enhance value, control and resilience.

Historically, decisions on whether to outsource or deliver a service in-house have been taken on a contract-by-contract basis, without a longer-term view of the capability an organisation would need to deliver services itself. The guidance also notes that value-for-money assessments have tended to focus too narrowly on cost, rather than taking a holistic view that includes whole-life costs, resilience and social and economic impacts. PPN 024 is intended to correct both of these tendencies.

Why PPN 024 matters for contracting authorities and suppliers

Taken together, PPN 024 and its guidance represent a deliberate policy shift towards a more interventionist, "market-shaping" approach to public procurement, designed to give government the lead time needed to build in-house capability where that is likely to deliver better long-term value, resilience or social outcomes than the market.

Any actual insourcing or outsourcing decision that follows must still comply with the Procurement Act 2023 and government organisations are expected to make case-by-case judgments rather than applying a blanket preference.

For government suppliers, while the policy does not preclude outsourcing, it does mean that Contracting Authorities will now systematically evaluate insourcing as a first step, potentially reducing the volume of opportunities reaching the market.

Who does it apply to?

The PPN applies to central government departments, their executive agencies and non-departmental public bodies, referred to as "in-scope organisations". NHS trusts and foundation trusts, devolved Welsh and Northern Ireland authorities, devolved Scottish authorities and private utilities are excluded, though NHS bodies and other public sector authorities are encouraged to treat the guidance as good practice. Wider dissemination is recommended to commercial, procurement, contract management, security, finance, operational and sustainability teams.

The two new requirements under PPN 024

PPN 024 introduces two related obligations.

First, the Public Interest Test. This is a quick, early-stage assessment — expected to take at most two days for most requirements — to decide whether a service might be better delivered in-house. It applies before any planned project or re-procurement with an estimated value over £1 million (including VAT) that could result in a public contract under the Procurement Act 2023. There are a number of exceptions, including:

  • Certain direct awards under sections 41 and 42 of the Act (Section 41 itself being subject to an exclusion where the justification for the direct award is the absence of competition for technical reasons under paragraph 6 of Schedule 5).
  • Exempted contracts under Schedule 2.
  • Defence and security contracts delivered by original equipment manufacturers.
  • Services delivered outside the UK.
  • Certain exempted health procurements.
  • One-off research or evaluation work meeting specific criteria.

Contracts solely to set up a framework or dynamic market are also excluded, though a Test is needed before any individual call-off exceeding the £1 million threshold, unless that call-off is for a service that was the subject of an earlier Test whose outcome was a decision to proceed via that framework or dynamic market, in which case, no further Test is required.

Second, the Insourcing Strategy. Central government departments spending £100 million (including VAT) or more a year on contracts must produce a five-year Insourcing Strategy, published within 30 days of completion and treated as a living document reviewed at least every five years. The Strategy should cover:

  • Service profiling.
  • Identification of services with high insourcing potential (for example those that are complex, government-created markets, subject to market failure, or have a history of poor performance or poor value for money).
  • The competencies needed to insource.
  • A target delivery model.
  • Implementation challenges such as funding, capability building and exit from existing contracts.

It should be developed cross-functionally, involving trade unions and staff and approved by senior leadership, including ministers, before publication on GOV.UK.

How the Public Interest Test works

The Test has two sequential parts.

Part One looks at whether the service itself is a good candidate for insourcing, considering value for money and strategic alignment, social value and economic growth and market impact — for example, whether the market is uncompetitive, whether suppliers have struggled to deliver quality, or whether insourcing could generate additional social value.

If Part One suggests insourcing is worth pursuing, the organisation moves to Part Two, which assesses its own readiness: whether it has or can realistically obtain the staff, infrastructure, budget and governance needed to deliver the service directly. The result is a "Provisional Sourcing Decision" which is not final — it is a starting point for further, more rigorous analysis such as a Delivery Model Assessment and may be overturned if that analysis shows insourcing is not feasible or does not offer value for money. The guidance stresses that engagement with other functions (legal, finance, policy, HR) and external stakeholders (trade unions, the supply market, other public bodies) should be proportionate to the value and complexity of the service, rather than being a heavy exercise for every contract.

When do organisations need to comply with PPN 024?

Public Interest Tests must be applied to new planned projects and re-procurements from 1 April 2027.

Projects that have already reached a Strategic Outline Case, Delivery Model Assessment or equivalent stage by 1 April 2027 are not caught.

Insourcing Strategies should also be completed by 1 April 2027 and published within 30 days.

Organisations must record the outcome of every Test once the final delivery model decision for that service has been confirmed, using a standardised quarterly reporting template and submit it to the Government Commercial Agency within 30 days of each quarter's end, with the first return (covering April to June 2027) due by 30 July 2027.

Results, including the Part One and, where applicable, Part Two answers, the Provisional Sourcing Decision, the final decision and any explanation for divergence between the two, will be consolidated and published centrally, subject to limited redactions for national security or genuinely sensitive commercial information.

How can contracting authorities implement insourcing?

So how would a Contracting Authority implement a decision to insource? A range of insourcing structural models are available, for example:

  • A Direct Labour Organisation (DLO), also known as a Direct Service Organisation (DSO). This is an in-house team directly employed by a public sector body, responsible for delivering services. However, whilst DLOs are common in local authorities and most prominent in the social housing sector, they are less common in central government.
  • A GovCo - a separate legal entity established by a government. Whilst it has its own board and governance structure, it remains accountable to its government shareholder. Its primary mandate can include (i) performing specific public functions, (ii) managing public infrastructure, (iii) investing state assets (like a sovereign wealth fund rather than strictly maximising private shareholder wealth), or (iv) operating commercial services on the government's behalf.

Contracting authorities will need to consider the following key legal issues when assessing viable structures:

  • How best to drive and manage optimal operational performance.
  • What employment and pensions issues may arise on establishment of the insourced model and for new recruits during its life.
  • Appetite for the transfer of risk and liability.
  • If there are any procurement law, subsidy control and tax implications.
  • How to create a delivery vehicle that is flexible enough to achieve policy objectives now, as well as for the future.

Legal advice should be sought on assessing which is the most appropriate model to achieve the contracting authority's objectives.

What should government suppliers do now?

To prepare, government suppliers should:

  • Familiarise yourself with the Public Interest Test criteria — particularly the factors in Part One around value for money, quality of delivery, market competitiveness and social value — to understand how their services may be assessed. Where a supplier has a strong track record of delivering quality outcomes, demonstrable social value, competitive pricing and flexibility, these attributes become increasingly important to evidence in preliminary market engagement.
  • Be aware that in-scope government organisations will be developing and publishing Insourcing Strategies, which may signal which service categories are likely to continue to be outsourced or brought in-house over the coming years. Proactive and positive engagement with contracting authorities, including responding to consultations and participating in supplier preliminary market engagement events, will be valuable in understanding the direction of travel for specific sectors.
  • If you're a supplier currently delivering services under existing contracts, you should monitor contract renewal timelines and be prepared for the possibility that an insourcing decision may result in a TUPE transfer of staff rather than re-procurement.

PPN 024 does not create a presumption in favour of insourcing, but it does require central government organisations to consider it more systematically and at an earlier stage in the procurement process. For contracting authorities, this means preparing for new planning, assessment and reporting requirements. For suppliers, it reinforces the importance of demonstrating value for money, service quality, resilience and social value when engaging with the public sector.

With Public Interest Tests and Insourcing Strategies due to be in place by 1 April 2027, both contracting authorities and suppliers should now be considering how the new requirements may affect future sourcing decisions, procurement activity and existing service delivery arrangements.

For further information or to discuss what this means for you as a government organisation or a supplier to government, please contact Christopher Brennan, Alexi Markham, Sarah Higgins or Robert Breedon.