Purpose: A plain-English guide to the indicators in the Market Management guidance and why they are prompts for investigation rather than standalone verdicts.
A plain-English guide to the indicators in the Market Management guidance and why they are prompts for investigation rather than standalone verdicts. 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
- Headline indicators include failed bidding rounds and trends in the number of bids received.
- Market-share trends and the combined share of the three largest suppliers can indicate concentration.
- Win ratios can show whether awards are repeatedly captured by a small group.
- Switching costs help the buyer understand how difficult or expensive it would be to move from an incumbent.
- The Herfindahl-Hirschman Index is listed as an additional concentration measure for deeper assessment.
What the guidance means in practice
The source material gives several anchors for that process. Headline indicators include failed bidding rounds and trends in the number of bids received. Market-share trends and the combined share of the three largest suppliers can indicate concentration. Win ratios can show whether awards are repeatedly captured by a small group. 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. Switching costs help the buyer understand how difficult or expensive it would be to move from an incumbent. The Herfindahl-Hirschman Index is listed as an additional concentration measure for deeper assessment. The guidance explicitly says market health cannot be concluded from one indicator alone. 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.
- Step 1. Collect comparable procurement and contract data for a sensible period. Record any assumption that could change the conclusion and when it will be reviewed.
- Step 2. Plot trends in bidding activity rather than relying on one competition. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
- Step 3. Calculate supplier shares and win patterns against a clearly defined market. Capture the source evidence and name the person accountable for the next decision.
- Step 4. Estimate real switching costs, including transition, data, assets and service disruption where relevant. Record any assumption that could change the conclusion and when it will be reviewed.
- Step 5. Compare structural indicators with outcome evidence on cost, quality and innovation. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
- Step 6. Use the analysis to decide what further engagement or investigation is needed. 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:
- Keep methods consistent over time.
- Document data gaps and avoid false precision.
- Include relevant awards by other public bodies where they are part of the same market.
- Investigate why unsuccessful bidders lose, not only how many bid.
- Treat concentration measures as prompts for questions.
- Pair metrics with knowledge of entry barriers and incumbent advantage.
Common pitfalls to avoid
The most common problems are usually process failures rather than a lack of templates. Watch particularly for the following:
- Calculating market shares against an incorrect market definition.
- Counting bids without checking whether they were credible.
- Ignoring switching costs because a contract is formally re-competed.
- Assuming a small supplier count always means competition is weak.
Easy-to-read takeaway
For how to measure supplier market health: bids, market share, switching costs and hhi explained, 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.