The government will be able to set aside work for employee spin-offs under changes to European law announced today.
The European Parliament agreed a revised package of procurement directives that will need to be written into UK law within two years.
One change - lobbied for by the UK government - will allow public bodies to insert clauses into procurement notices requiring bidders to be, for example, employee-owned.
This will ensure social enterprises can win work and is aimed at encouraging more to start up. Contracts will have to go to full competition in the traditional way after three years.
“Traditionally new mutuals are exposed to full competition, which may stunt their growth or even put them off starting up,” said a Cabinet Office statement.
“Now Government will be able to reserve contracts for services provided by mutuals before fully exposing them to EU competition.”
More than 80 such mutual are already delivering more than £1bn of public services in the UK.
Cabinet office minister Francis Maude said: “The changes will help encourage more public sector mutuals to spin out by protecting the newest from full EU competition rules.
“There are already 10 times more public sector mutuals than there were at the time of the 2010 general election but, because we know they can help drive up productivity, we want to see even more.”
Other changes to EU procurement law include a boost for small firms, reduced red tape and easier management of poor performers.
The new regulations will encourage buyers to break contracts into smaller chunks, and cap turnover requirements.
Bureaucracy will be slashed with only winning tenders required to provide supporting paperwork.
The government will also be allowed to exclude suppliers from a procurement procedure for significant or persistent poor performance.
Maude said: “We will seek to transpose these rules into UK law quickly as the regulations will help British companies win business in other European countries”.