A procurement route can be wrong before the tender is published if the contract has been valued on the wrong basis. Section 4 and Schedule 3 of the Procurement Act 2023 require an estimate that reflects the maximum value payable under the contract, including relevant options and VAT. The calculation affects whether the contract is above the applicable threshold and which rules follow.
The estimate is a planning judgement, not a prediction of the winning bid. It should be reasonable, documented and made using the information available before the procurement begins. The Cabinet Office valuation guidance is the starting point.
Include the full possible term
A two-year base term with two optional one-year extensions should be valued with the options included. The buyer should consider the maximum quantities, possible additional services and any other variable that could increase the amount payable. Recording only the initial budget can understate the legal estimate even if the extension is not guaranteed.
Write down the term, volume assumptions, pricing basis, inflation or indexation assumptions and any option the authority may exercise. If the scope is uncertain, explain the range and why the chosen maximum is supportable. A business case that uses a lower “likely spend” figure can sit alongside the statutory estimate, but should not be mistaken for it.
Treat VAT consistently
The threshold comparison uses an estimate **including VAT**. That is not the same as using the authority's net budget line or treating recoverable VAT as zero. The applicable 2026–2027 threshold guidance gives the relevant threshold by contract type. Select the correct category and value the requirement on the required basis before deciding that a procurement is below threshold.
Mixed requirements need particular care. An apparently small service element may sit within a larger contract or programme. The record should show why a particular threshold and valuation method were selected.
Ask what should be aggregated
Schedule 3 requires requirements that can reasonably be aggregated to be considered together unless there are good reasons not to do so. Separate cost centres, service teams or annual purchase orders do not necessarily make a set of recurring requirements independent procurements. Equally, the Act does not require unrelated needs to be combined simply because they use the same supplier market.
Test the commercial reality: Are the needs similar? Are they planned at the same time? Would suppliers see them as one opportunity? Could a single competition, perhaps divided into lots, meet the authority's needs? Record the reasons for combining or separating the work. The Act prohibits exercising valuation discretion with a view to avoiding its requirements.
Frameworks and concessions need their own method
For a framework, estimate the value of **all contracts that could be awarded under it**, not the administration cost of establishing it. An open framework requires the value of the frameworks that could be awarded across the scheme. A concession may require an estimate of what the supplier could receive from exploiting the works or services, not merely the authority's payment. These distinctions are explained in the official valuation guidance.
Before using another body's framework, confirm that the proposed call-off sits within its advertised scope and maximum value. A route-selection decision made on the basis of an exhausted or narrowly described framework creates avoidable risk.
What if the value cannot be estimated?
Do not assign a token value to make the form complete. The Act provides that a contract whose value cannot be estimated is treated as above threshold. Explain the source of uncertainty, the attempts made to estimate and the procurement approach chosen. That is a more credible record than a number without a method.
Keep a valuation note that can be challenged
A useful note states the requirement, contract type, dates, maximum term, options, quantities, VAT treatment, aggregation analysis, information sources, approver and date of review. Revisit it if the scope or market changes materially before publication. It should connect the commercial plan to the route, notice and approval file.
Contract valuation is not simply a threshold calculation. It is the first test of whether the authority understands the commitment it may make and can explain its procurement strategy to suppliers, auditors and decision-makers.
**Primary sources:** Cabinet Office guidance on valuation and thresholds.
This article is general procurement guidance, not legal advice. Check the legislation and threshold applicable when the specific procurement begins.