NAO flags shortcomings in government preferential pricing deals with big tech suppliers

The government’s multi-year, volume pricing discount deals with the likes of Microsoft and Amazon Web Services (AWS) are under scrutiny by the National Audit Office (NAO), which claims the arrangements do not take full advantage of the public sector’s collective buying power.

The spending watchdog outlined its misgivings about the arrangements, which typically offer public sector IT buyers discounts on goods and services from a select group of suppliers, in a 55-page report into the UK government’s approach to technology procurement.

These arrangements are overseen by the government’s procurement arm, the Crown Commercial Service (CCS), and there are currently 11 technology-focused memorandums of understanding (MoUs) listed on its website.

The creation of these MoUs involves CCS using its “national buying power to agree preferential pricing and discounts on products and services across the technology landscape”, according to the CCS website.

The agreements are also described on the CCS website as being “an important part of the work we do with our suppliers to make sure [public sector buyers] get the very best prices”.

However, in the NAO’s view, there is “insufficient information” available about the benefits generated by these MoUs, which puts the government at a disadvantage when negotiating terms with big tech suppliers.

“Government has negotiated memoranda of understanding with individual suppliers to be treated as a single customer for the purposes of volume discounts, which it regards as a strategic approach to relationship management,” said the NAO in the Government’s approach to technology suppliers: Addressing the challenges report.

“But there is insufficient information about the pipeline of demand from departments for digital services; no evaluation to compare it against suppliers’ appetite; and, under the current system, very little information on supplier performance is available to inform decisions about future sourcing and contract awards.”

As a result, the NAO said the UK government lacks the data needed to properly gauge “future demand” for the services these suppliers provide.

“[This data] is needed to credibly inform decisions to take full advantage of government’s buying power when negotiating with large technology suppliers,” the report stated.

The NAO said there are also broader issues with regard to how government spending with tech suppliers is recorded, with the organisation raising concerns about knowledge gaps and inconsistencies in how spending data is tracked.

Government does not know … how much is spent on digital change programmes or with major digital suppliers [which] makes it difficult for government to make informed decisions and fully use its buying power

Specifically, it said there are issues with how government organisations “capture, hold and provide” tech spending data.

“Government does not know the overall picture for how much is spent on digital change programmes, or with major digital suppliers … this makes it difficult for government to make informed decisions and fully use its buying power,” the report continued.

“Available estimates from third parties suggest that government spends at least £14bn annually on digital procurement, but this is likely to be incomplete, and government has not provided a more reliable figure.”

The report also flagged an instance where CCS appeared to have lost track of when its MoU with major government supplier Microsoft was due to expire, which required it to call in reinforcements from elsewhere in government to help it negotiate terms.

Specifically, the report stated that the now defunct Central Digital and Data Office (CDDO) was brought in to assist with renegotiating a renewal of CCS’s three-year, cloud-focused Digital Transformation Agreement 2021 (DTA21).

“The three-year agreement which the Crown Commercial Service negotiated was largely a pricing agreement for aggregated demand discounts [but] CCS and Microsoft had not agreed renewal terms by the time of its original expiry at the end of April 2024,” the report stated.

“The Government Commercial Function and CCS agreed to involve CDDO in a reset of the negotiations, [and a] short extension was agreed on current terms.”

Computer Weekly contacted CCS for a response to the NAO’s findings, but no response was forthcoming by the time of publication.

Shortcomings in the public sector’s ability to harness its buying power have also been flagged in recent days within the pages of the State of digital government review, published by the Department for Science, Innovation and Technology on 21 January 2025.

The document stated that the public sector does not “realise the value of its buying power” because it has no “cohesive digital sourcing strategy” and a “fragmented” approach to tech purchases because it lacks a “collective buying drive”.

To reinforce this point, the report cited the fact that each of the NHS’s 209 secondary care entities buy their own infrastructure, and more than 320 local councils also negotiate their own purchasing agreements.

“Commercial teams often have insufficient category expertise to drive optimal terms, and digital teams commonly lack the capability to properly manage vendors,” the review added.

“Work by the Crown Commercial Service, the Government Commercial Function and Central Digital and Data Office has created common frameworks and constructs which consolidate the buying power of central government, but these are not mandatory or universally adopted.”