30/09/2026
In summer 2026, the Government published a procurement policy note (PPN) and associated guidance which aim to recalibrate the UK’s approach to procurement in relation to energy infrastructure, steel, AI and shipbuilding, four sectors which are considered critical to the UK’s national security interests. Requiring an increased focus on broader strategic and national security implications, rather than just the immediate commercial outcomes of a procurement, the PPN is designed to help protect the UK against global market disruption by safeguarding supply chain resilience and long-term national resilience. This is described as a ‘market shaping’ approach, i.e. making proactive, strategic interventions to manage supply risk and build resilience, incentivise innovation and investment through long-term pipelines and working with industry to build a diverse and effective supply base.
The PPN has implications for how public authorities, public undertakings and private utilities approach procurement in the four critical sectors. The most significant change is that those procurements within scope of the PPN will need to be designed with input from the relevant government department, known for these purposes as the Sector Lead.
Scope of PPN
The PPN applies only to central government departments, their executive agencies and non-departmental public bodies but other contracting authorities are encouraged to follow the PPN for relevant procurements which are high value, complex or related to national interests.
There is a list of ‘relevant procurements’ in each of the four critical sectors covered by the PPN, and the list will be updated from time to time. In the case of energy infrastructure, the following procurements are currently within scope:
Electrical equipment – including the procurement of cables, protection and control systems (including software), transformers, switchgear, and other substation components.
Other energy infrastructure such as generation assets. This includes offshore wind infrastructure, nuclear infrastructure, solar, carbon capture, utilisation and storage, hydrogen and heat pumps.
In relation to steel, the following procurements are currently within scope:
Procurements with a value of £10 million or more.
Procurements which are anticipated to require more than 500 tonnes of steel.
In relation to shipbuilding, the PPN currently covers procurements worth over £1 million relating to shipbuilding and maritime technology and, for AI, it currently covers procurements relating to AI hardware, AI related to Critical National Infrastructure and AI involving sensitive personal information where the AI element is worth £5 million or more, or forms a substantial part of a procurement which is worth £5 million or more.
What can we expect?
The PPN appoints a government department as the Sector Lead for each of the four critical sectors. Each Sector Lead is responsible for coordinating procurement strategy, setting the strategic context and providing expert guidance to support contracting authorities to understand and take account of market conditions, strategic dependencies, resilience considerations and wider government objectives.
DESNZ is the Sector Lead in relation to energy infrastructure procurements and the recently renamed Department for Business, Innovation, Science and Trade is the Sector Lead for steel procurements. For shipbuilding, it’s the National Shipbuilding Office and the Ministry of Defence and, for AI, it is likely the Sector Lead role will be reallocated to the Cabinet Office following the recent disbanding of the Department for Science, Innovation and Technology.
Rather than designing procurements based solely on their own operational priorities, in-scope organisations and other contracting authorities applying the PPN will be expected to take into account the long-term national security implications and other strategic considerations promoted by the relevant Sector Leads.
What do contracting authorities need to do?
When following the PPN, contracting authorities will need to take the following steps:
Action 1 - identify procurements in their pipeline which are relevant to protecting the UK’s national security
Authorities should regularly review their procurement pipeline to identify any relevant procurements within scope of the PPN (as listed in Annex A of the guidance and as listed above). These procurements should be assessed against the pipeline requirements set by the relevant Sector Lead from time to time.
Before commencing a relevant procurement, an authority must assess the national security implications and any national security risks in the supply chain, engage with commercial, legal, policy, and security stakeholders to ensure that the risks are identified and mitigated, and build appropriate governance and assurance requirements into the procurement. This will include considering the criticality of the goods, works or services being procured, relevant supply chain vulnerabilities, market concentration, dependency risks, and the potential implications of disruption or loss of supply.
The guidance outlines a range of commercial approaches that can help mitigate any risks, including the use of award criteria for social value, procuring from frameworks, and using direct award grounds or exemptions where available, including for example the national security exemption and the exemption for research and development services in Schedule 2 of the Procurement Act 2023 (PA23).
Action 2 - engage with the Sector Lead to ensure the procurement is approached in a way which protects the UK’s national security interests
Authorities are expected to engage with the Sector Lead and to follow its requirements on approaching procurement in a way which protects national security. As well as sharing strategy and expertise, the Sector Lead will facilitate opportunities for authorities to benefit from peer-led reviews of their procurement approach to test ideas and strategies and provide feedback and expert views on the procurement approach to be taken.
When evaluating value for money in a procurement, rather than focussing only on the short-term cost of whatever is being procured, the guidance encourages a broader and long-sighted evaluation of value for money which factors in the importance of protecting critical capability and resilience and avoiding long-term costs linked to strategic dependency or market failure. This more holistic approach aligns with the PA23 which expressly permits award criteria based on “price, other costs or value for money in all the circumstances”.
Action 3 – making appropriate use of the national security exemption in the PA23
The national security exemption can be relied on where the contracting authority determines that, in the interests of national security, all or part of the PA23 should not apply to the procurement. ‘National security’ is not defined in the PA23, or in the PPN and guidance. However, the guidance says that it is broader than just national defence, intelligence and counterintelligence, and can include maintenance of public order, economic security, foreign relations and environmental security. It can involve both short-term and long-term considerations, such as those arising in a crisis and/or continuous challenges which gradually erode national security.
Procurements in the four critical sectors are not automatically exempt and it is necessary to consider on a case-by-case basis whether the national security exemption applies. Where there is a clear and evidence-based national security rationale for using the exemption in a particular procurement, the guidance requires the authority to consider whether failing to use the exemption could create avoidable strategic, operational or supply chain risks.
There are two easily overlooked points relating to the national security exemption. The first is that the exemption ought not to be applied on an ‘all or nothing’ basis, it is worded to allow a procurement to be exempted from either some or all of the PA23 requirements, depending on what the interests of national security demand. The guidance refers to a ‘sliding scale’ of risk, giving an example of a procurement where national security concerns justify restricting the competition to UK-based suppliers, but do not justify dispensing with a competition altogether.
The second point is that those provisions in the PA23 which apply to ‘procurement’ (as opposed to ‘covered procurement’) will still apply even when the exemption is used. Most significantly, this includes the duty not to discriminate against suppliers in treaty states. In practice, this means that the national security exemption cannot be used in a way which breaches the UK’s obligations in its international trade agreements with other states, such as obligations to open procurement opportunities to suppliers in those states. This adds a layer of complexity, although international trade agreements often allow exceptions on national security grounds.
Key takeaways
Authorities who are within scope of the PPN or applying it on a voluntary basis should keep the following points in mind when planning relevant procurements:
The importance of staying up to date with further guidance from Sector Leads, especially when it relates to the definition of a relevant procurement for the purpose of the PPN or factors to consider when running the procurement.
For relevant procurements, the more strategic approach to assessing value for money and the national security considerations which can factor into it.
The importance of reaching out to, and collaborating with, Sector Leads at an early stage for relevant procurements.
The importance of accurate record-keeping throughout the process - including a written record of the rationale for using the national security exemption, and of the actions taken to ensure compliance with relevant international trade agreements where procurements are designed in a way which impacts on suppliers in treaty states.
If you would like assistance with applying the PPN to your procurement pipeline, please get in touch with Bethan Lloyd, Matthew Mo, or any other member of our team of procurement specialists.
