Designing Procurement to Promote Healthy Markets: Practical Levers for Buyers

Purpose: What to do when market analysis reveals concentration, barriers to entry, weak contestability or excessive incumbent advantage.

What to do when market analysis reveals concentration, barriers to entry, weak contestability or excessive incumbent advantage. This matters because public procurement decisions are rarely isolated events. A choice made during planning can affect competition, affordability, service quality, supplier behaviour and the ability to manage the contract later. The strongest approach is therefore to use the source guidance as part of an end-to-end commercial process, with clear ownership and evidence rather than as a document that is completed after the key decisions have already been taken.

Quick summary

• The Market Management guidance warns that fewer, larger contracts can create false economies if they weaken future competition.
• Promoting market health should be considered early in commercial strategy development.
• The guidance recommends keeping barriers to entry low and maintaining a level playing field.
• Contract design should consider future step-in, switching and incumbency effects.
• Market engagement is a tool for understanding and addressing participation barriers.

What the guidance means in practice

The source material gives several anchors for that process. The Market Management guidance warns that fewer, larger contracts can create false economies if they weaken future competition. Promoting market health should be considered early in commercial strategy development. The guidance recommends keeping barriers to entry low and maintaining a level playing field. These are not interchangeable statements: some describe statutory or policy requirements and others describe recommended commercial practice. Teams should identify which category each requirement falls into, apply it to the organisation and procurement in scope, and keep a record of the judgement. Where guidance from 2021 or 2023 predates the Procurement Act 2023, its commercial principles can remain useful, but current legislation, regulations and current statutory guidance take precedence on legal process.

The practical value becomes clearer when the remaining guidance is read alongside the project lifecycle. Contract design should consider future step-in, switching and incumbency effects. Market engagement is a tool for understanding and addressing participation barriers. The guidance emphasises medium and long-term market health rather than a narrow short-term view. In day-to-day terms, this means the buyer should be able to answer three questions at any approval point: what outcome are we trying to achieve, what evidence supports the proposed commercial approach, and what will need to be managed after the decision is made? If those answers are weak, more analysis is normally more useful than adding another layer of narrative to an approval paper.

A practical process to follow

A proportionate process can be built into existing governance. The steps below are deliberately practical. They are not a substitute for the detailed source guidance, legal advice or local standing orders, but they provide a useful structure for a procurement or commercial team.

1. Step 1. Identify the specific weakness the proposed procurement could worsen. Record any assumption that could change the conclusion and when it will be reviewed.
2. Step 2. Test whether contract size and lot structure allow capable suppliers to participate. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
3. Step 3. Simplify burdensome bidding requirements that are not justified by risk. Capture the source evidence and name the person accountable for the next decision.
4. Step 4. Design data, assets, transition and exit arrangements so future switching is realistic. Record any assumption that could change the conclusion and when it will be reviewed.
5. Step 5. Align incentives and performance information with the outcomes buyers need. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
6. Step 6. Monitor award patterns and market development after contract award. Capture the source evidence and name the person accountable for the next decision.

What good looks like

Good practice is visible in the decision trail, not only in the final document. A reviewer should be able to follow the line from the service need, through market and cost evidence, to the route, evaluation, contract terms and management arrangements. Where several functions contribute, the file should show who owns each decision and where challenge occurred. The same principle applies to handover: useful assumptions, models, KPI definitions, risks, supplier information and approval conditions should move into mobilisation and contract management instead of being left in the sourcing archive. This continuity is particularly important for long-running public services, where staff can change but the organisation remains accountable for the outcome.

Recommendations for procurement teams

The following recommendations are suitable for teams that want to embed the topic into normal ways of working rather than create a parallel compliance process:

• Ask suppliers about barriers before fixing the procurement design.
• Consider disaggregation where it improves contestability without undermining service integration.
• Avoid requirements that only an incumbent can meet unless they are genuinely necessary.
• Build useful benchmarking and performance data into the contract where appropriate.
• Plan future re-procurement from the start.
• Use cross-authority intelligence when several public bodies depend on the same market.

Common pitfalls to avoid

The most common problems are usually process failures rather than a lack of templates. Watch particularly for the following:

• Confusing fewer procurements with better value for money.
• Running an efficient competition that leaves only one viable supplier next time.
• Using disproportionate qualification requirements.
• Ignoring buyer behaviour as a cause of market weakness.

Easy-to-read takeaway

For designing procurement to promote healthy markets: practical levers for buyers, the core discipline is to start early, connect the analysis to a real decision and preserve enough evidence for the next stage of the lifecycle. The source material should help teams make better decisions, not merely produce more paperwork. Before acting on a live procurement, confirm the current version of the Procurement Act 2023, regulations, Procurement Policy Notes and any organisation-specific approvals or delegations. This is especially important for thresholds, notice duties, exemptions and policy requirements that can change over time.

Source basis

Primary source used: Market Management Guidance Note, May 2021. Related articles in this collection also draw on the other supplied Cabinet Office, HM Treasury and Procurement Act materials where the topics overlap.

This article is general procurement support content. It should be read alongside current legislation, statutory guidance and your organisation’s own governance and legal advice.