What are minimum turnover requirements?
When a public sector buyer publishes a tender, they set selection criteria that suppliers must meet before their bid is evaluated on quality or price. One of the most common financial criteria is a minimum annual turnover requirement. Buyers use this as a proxy for financial stability: if a supplier can demonstrate healthy revenue, the logic goes, they are less likely to fail partway through contract delivery.
In practice, buyers routinely set the requirement at roughly twice the annual contract value. So if a contract is worth £500,000 per year, the buyer may require demonstrated annual turnover of £1 million. For SMEs bidding on contracts at the top end of their usual deal size, this threshold is a genuine blocker. A company with £800,000 in annual turnover can deliver a £500,000 contract comfortably, but the 2x rule knocks them out before evaluation begins.
This problem concentrates public contracts in larger incumbents, which is precisely the outcome the Procurement Act 2023 is designed to reduce.
When are turnover requirements legal under the Procurement Act 2023?
The Procurement Act 2023 (PA23), in force from February 2025, places explicit limits on financial selection criteria. Under PA23, contracting authorities cannot require suppliers to demonstrate annual turnover exceeding twice the estimated annual contract value. This is a hard legal ceiling in most circumstances, not a guideline.
There is an exception. Buyers can require turnover above 2x if they can justify the higher requirement by reference to the specific risks and nature of the contract. That justification must be documented and proportionate. A nuclear decommissioning contract may warrant higher financial thresholds. A one-year landscaping contract almost certainly does not.
If you encounter a disproportionate turnover requirement, raise a clarification question during the tender period. Ask the contracting authority to explain the justification for the threshold set. A well-reasoned question can prompt them to lower it or clarify that it is indicative rather than absolute. If the issue is not resolved, you can refer it to the Procurement Review Unit (PRU), which can investigate complaints about procurement practices including disproportionate financial selection criteria.
How to respond when you do not meet the turnover threshold
Consortium bidding is the most widely used route around a turnover gap. Two or more businesses can form a legal consortium and bid jointly, with the combined turnover assessed against the threshold. Two businesses each turning over £600,000 can together satisfy a £1 million requirement for a £500,000 contract. Consortium arrangements must be disclosed in the bid, and the contracting authority will want to understand how responsibilities and liabilities are shared.
Subcontracting to a financially stronger prime contractor is an alternative for SMEs that want to participate without leading the bid. The prime meets the financial thresholds, holds the contract, and subcontracts a defined scope to you. You receive less commercial autonomy but build a track record with the buyer that strengthens future bids.
If the requirement looks genuinely disproportionate, a clarification question is worth sending even if you are marginally below threshold. Frame it constructively: cite the PA23 proportionality provisions, ask whether the threshold has been reviewed against the estimated annual contract value, and note your capacity to deliver. Buyers sometimes reconsider.
Insurance and bonding requirements
Turnover requirements are rarely the only financial barrier. Buyers frequently require professional indemnity (PI) and public liability (PL) insurance at levels that can be hard for smaller businesses to justify commercially. PI insurance at £5 million is standard on many technology and professional services contracts; PL at £10 million is common in facilities management and construction.
The same proportionality principle applies. If an insurance requirement looks disproportionate to the actual risk profile of the contract, raise it in clarification. Ask whether the level reflects a documented risk assessment and whether a lower level supported by a project-specific top-up arrangement would be acceptable. Some buyers have flexibility; many do.
How TenderSignal's value filter helps
The simplest way to avoid wasting time on contracts where financial thresholds will disqualify you is to focus on contracts sized for your business. If your annual turnover is £750,000, contracts with an annual value up to £375,000 are the range where the standard 2x threshold should not be a barrier.
TenderSignal's value filter lets you set a maximum contract value so your personalised feed surfaces only tenders in that range. Combined with CPV category, region, and buyer type filters, you can build a feed where the vast majority of opportunities published are ones you can legitimately pursue. As your business grows, adjusting the filter upward takes seconds. Create your free account and set your value filter today.