UK public sector cloud strategy: Can procurement reform keep pace with AI and digital transformation?

The United Kingdom government’s £14 billion annual spend on digital technology suppliers is under sharp scrutiny as new parliamentary oversight reveals systemic weaknesses in procurement capacity, cloud sourcing, and vendor strategy. A recent report from the Public Accounts Committee (HC 640), tabled in Parliament on 6 June 2025, exposes how procurement bottlenecks, skills gaps, and data deficiencies are undermining efforts to modernise digital public services.

As artificial intelligence, cybersecurity, and cloud computing reshape global public sector technology, the UK’s position remains fragmented. While the Cabinet Office and the Department for Science, Innovation and Technology (DSIT) have launched a Digital Commercial Centre of Excellence to reform how departments engage cloud vendors, analysts say the real test will be whether institutional inertia and siloed operations can be overcome before billions more are committed to suboptimal contracts.

Why UK cloud procurement is becoming a strategic imperative

Cloud technology is now foundational to everything from NHS digital records to HMRC’s real-time tax processing. Since the launch of the “Cloud First” policy in 2013, the UK public sector has steadily migrated critical services to platforms such as Amazon Web Services, Microsoft Azure, and Google Cloud. However, recent developments—including the acceleration of generative AI and rising operational cloud costs—have made strategic sourcing a national priority.

The shift toward subscription-based, multi-region cloud architectures requires agile procurement frameworks, multi-year planning, and centralised supplier coordination. Yet, the UK government lacks real-time visibility into departmental cloud expenditure or projected demand. The current system also offers limited commercial leverage over hyperscale providers, a concern heightened by post-Brexit data sovereignty issues and global pricing volatility.

What the Public Accounts Committee revealed about digital supplier oversight

The June 2025 PAC report lays bare the scale of the structural problem. Just 15 digital procurement specialists within the Government Commercial Function (GCF) are tasked with managing 19 of the government’s largest technology suppliers—collectively responsible for handling contracts worth over £14 billion a year. The report warns this model is “not tenable” as AI, cloud, and digital infrastructure increasingly underpin the UK’s social and economic systems.

In contrast, 6,000 generalist commercial officers across Whitehall handle a wide array of public contracts, yet many lack specific expertise in digital commercial negotiations. As a result, departments often engage hyperscalers independently, fragmenting national buying power and preventing the realisation of volume discounts or coordinated risk-sharing.

The Government Digital Service (GDS), although responsible for the digital and data function across government, has no formal authority in procurement decisions. DSIT, despite overseeing digital transformation strategy, is also restricted by limited mandate in supplier contracting.

What is the Digital Commercial Centre of Excellence and can it deliver?

Launched in January 2025 under the “Blueprint for Modern Digital Government,” the Digital Commercial Centre of Excellence is jointly operated by DSIT and the Cabinet Office. Its mission is to align procurement policy with digital delivery needs, build digital-commercial skills, streamline sourcing processes, and promote SME access to public contracts.

However, its operational footprint is modest. Just 24 digital experts serve over 300 public bodies and executive agencies. According to the PAC report, the centre’s advisory remit is “ambitious but under-resourced.” It lacks enforcement capabilities and relies on departmental collaboration rather than formal compliance mechanisms.

Despite this, both DSIT and the Cabinet Office maintain that the centre is essential for aggregating forecast data, designing next-generation cloud sourcing strategies, and facilitating central deals with strategic vendors. The government has committed to ramping up the centre’s capacity and updating procurement playbooks in collaboration with GDS.

Is the UK government prepared to negotiate effectively with hyperscale cloud vendors?

One of the starkest institutional challenges is the government’s inability to commit aggregated cloud demand to a single supplier or unified contract. Although the GCF has negotiated agreements that allow departments to be treated as one customer by major cloud vendors, execution remains fragmented.

The £1 billion contract awarded earlier this year to support cloud migration across departments has not yet been accompanied by clear governance or risk controls. DSIT admits that many departments still overprovision or over-spec cloud services, incurring unnecessary costs and missing out on flexible pricing models.

In a bid to modernise strategy, new DSIT guidance now permits the use of non-UK hosted cloud services, so long as deployments follow a “considered and controlled” approach under UK legal frameworks. This gives departments access to global infrastructure, but also introduces risks tied to jurisdiction, data localisation, and exit costs.

Institutional sentiment: Can central reform overcome departmental silos?

Procurement analysts and civil service reform advocates have flagged the UK’s slow pace of centralisation as a major risk. While DSIT and GCF have acknowledged that procurement and digital teams must co-lead, evidence shows that digital specialists are often brought in late in the contract lifecycle.

Larger departments like the Home Office and Ministry of Defence typically maintain internal digital-commercial capabilities, but smaller agencies lack the scale or funding to attract such talent. This has led to uneven digital transformation progress across departments and a growing digital inequality within the state.

The recently appointed Government Chief Commercial Officer has committed to delivering a digital upskilling roadmap for all 6,000 GCF personnel by Q3 2025. This will include capability benchmarks, training interventions, and potentially revised recruitment standards that require digital fluency as a core competency.

Financial detail: What the £1 billion cloud contract means for taxpayers

Awarded in early 2025, the UK’s £1 billion public cloud enablement framework is one of the largest single digital transformation contracts in recent history. It is intended to provide departments with tools, consultancy, migration support, and managed services to accelerate legacy system decommissioning and enable scalable, secure digital service delivery.

Yet financial watchdogs have raised concerns about opaque benchmarks and limited public disclosure on milestone tracking. The lack of centralised forecasting models—especially regarding AI-driven workloads and multi-region data flows—makes long-term budgeting difficult.

If implemented effectively, this contract could offer savings through standardisation and shared infrastructure. But if departmental fragmentation continues, the risk is that individual cloud projects will replicate mistakes of the past, such as cost overruns, technical debt, and missed service delivery goals.

Future outlook: Will the Procurement Act 2023 reset the rules?

With the Procurement Act 2023 now in force, central government has new tools to demand transparency, embed innovation criteria, and open up digital contracting to SMEs and startups. The Act’s provisions around central data collection, contract publishing, and lifecycle oversight are designed to correct the fragmented visibility that has plagued cloud and tech deals.

By Autumn 2025, the Cabinet Office and DSIT are expected to publish an integrated action plan outlining how the government will centralise digital supplier relationship management, the rollout of digital-commercial skills benchmarks and training, improvements to the Digital, Data and Technology Playbook, and a cross-departmental forecast of cloud and AI-related procurement needs.

Some analysts believe that, if enforced rigorously, the Procurement Act could empower central government to negotiate national-scale cloud deals, avoid redundant spend, and create a more resilient and transparent digital delivery system.

Expert outlook: What’s at stake if procurement isn’t fixed?

Failure to resolve the UK’s procurement challenges could directly affect flagship government priorities—from NHS digitisation and AI in policing to post-Brexit border control tech and cybersecurity resilience. The stakes go beyond operational efficiency—they touch core democratic and service delivery mandates.

Market analysts expect increased pressure from Parliament, civil society, and the tech sector for stronger digital leadership, particularly as generative AI and sovereign cloud issues reshape Europe’s public digital landscape. The UK, once seen as a pioneer in e-government, risks falling behind if procurement reform does not keep pace.

If the Digital Commercial Centre of Excellence evolves into a true digital procurement engine—staffed, resourced, and empowered—it could be the lever that turns today’s weaknesses into tomorrow’s transformation.