NAO highlights critical gaps in Government digital procurement

A report published today by the National Audit Office (NAO)  has shed light on significant challenges and inefficiencies in the UK government’s approach to digital procurement and programme delivery.

Government's approach to technology suppliers: addressing the challenges finds an urgent need for reform to address rising costs, strategic supplier dependency, and the persistent skills gap in digital and data procurement:

"Government has not aligned responsibilities, skills, and resources to lead digital procurement activities effectively. Departments are heavily reliant on a small number of suppliers, and there is a persistent lack of skilled professionals equipped to manage the complexities of digital contracts, resulting in inefficiencies and escalating costs."​

The report reveals that the UK public sector spends at least £14 billion annually on digital programmes and technology procurement. Despite this substantial investment, inefficiencies and cost overruns plague major programmes.

Over five critical digital change initiatives, the total costs increased by £3 billion, representing a 26% rise above initial forecasts. Notable examples include Universal Credit where costs escalated by 45% (£912 million), and the Emergency Services Mobile Communications Programme where costs rose by 19% (£1.79 billion).

Such increases stem from poor early-stage planning, insufficient market engagement, and limited in-house expertise.

Challenges in supplier relationships

The government relies heavily on a small group of strategic suppliers. The Government Commercial Function (GCF), tasked with managing relationships with 19 of the largest digital suppliers, operates with only 15 dedicated personnel.

Similarly, the Crown Commercial Service (CCS) has 120 staff focused on digital procurement. In stark contrast, the Central Digital and Data Office (CDDO), responsible for central oversight of digital commercial activity, employs just 4 specialists in this area.

This imbalance reflects a systemic issue in managing supplier relationships effectively, leading to over-reliance on legacy system providers. Many legacy systems, crucial to government operations, are still maintained by their original suppliers, with limited competition in the market for upgrades or replacements.

Market concentration and risk

Another concern raised in the report is the concentration of the global cloud market, with three major providers controlling over 60% of the market share. This dominance limits competitive opportunities and poses risks to the government’s ability to secure cost-effective and resilient services.

The NAO warns that this over-reliance on "big tech" suppliers could undermine efforts to diversify and innovate within digital procurement.

The report also highlights a critical skills gap in digital procurement. Despite the high stakes of digital programme delivery, expertise within the public sector remains insufficient. While CCS employs 120 individuals for digital procurement, the stark contrast with the limited resources at the CDDO underscores the need for targeted investment in skills development.

Legacy systems

Legacy systems remain a major barrier to effective digital transformation. These systems, often decades old, are costly to maintain and resistant to modernisation. The NAO emphasises that government departments must adopt a more strategic approach to replace outdated systems and leverage emerging technologies.

To address these issues, the NAO recommends:

1. Strategic Planning: Departments must improve early-stage planning and adopt comprehensive business cases for digital programmes.

2. Investment in Skills: Greater focus is needed on building in-house expertise within CDDO and other critical departments to reduce reliance on external contractors.

3. Diversification of Suppliers: Encouraging greater market competition to reduce dependency on a small group of suppliers and mitigate risks associated with market concentration.

4. Focus on Legacy Systems: Prioritising the replacement of outdated systems with scalable and interoperable digital solutions.

With rising costs, an over-reliance on legacy systems, and insufficient expertise, the NAO report urges coordinated action across government.