GovTech Procurement: Will the UK Shift to More Startup Partnerships?

In 2024, an unprecedented 35% of UK government tech contracts went to SMEs, a record high in public sector procurement. This milestone signals a shift away from traditional, monolithic contracts with large systems integrators and towards a more dynamic, innovation-driven marketplace. But will 2025 see even greater disruption and a surge in startup partnerships?

Despite this positive trend, traditional procurement remains slow and complex, often deterring agile, innovative startups from engaging with the public sector. The challenge is clear: how can the UK harness the energy and creativity of startups while maintaining the rigorous compliance and security standards required by government buyers?

This blog explores how GovTech procurement is evolving, highlights key trends and case studies, and offers some predictions along with practical advice for both public sector buyers and ambitious startups aiming to break into this lucrative market.

1. The State of UK GovTech Procurement in 2025
2. Key Stats and Trends
3. How Startups are Winning Government Contracts
4. Challenges for Startups
5. Predictions
6. How Public Sector Buyers Can Adapt

The State of UK GovTech Procurement in 2025

The UK public sector spends at least £14 billion annually on digital programmes and technology procurement. However, inefficiencies, cost overruns, and a persistent skills gap continue to challenge digital transformation efforts. Over five critical digital change initiatives, costs increased by £3 billion, a 26% rise above initial forecasts, with projects like Universal Credit and the Emergency Services Mobile Communications Programme seeing significant budget escalations.

Key Stats and Trends

• SME Spending Growth: SMEs now account for a record share of government tech contracts, driven by initiatives to diversify supply chains and foster innovation.

• Top-Bought Tech: Cloud services, cybersecurity solutions, and low-code development platforms are leading the charge as public sector organisations modernise legacy systems and improve service delivery.

• Procurement Flexibility: Post-Brexit, the UK has greater flexibility to design its own procurement rules, enabling more agile and outcome-focused contracting.

• Cost Pressures: There is mounting pressure to reduce costs by replacing outdated systems and embracing digital transformation.

• GDS ‘Buying Better’ Initiative: The Government Digital Service (GDS) is pushing for more agile, user-centred procurement processes, encouraging public sector buyers to adopt iterative, collaborative approaches.

How Startups Are Winning Gov Contracts

Startups and SMEs are increasingly securing government contracts, thanks to targeted initiatives and evolving procurement frameworks. Here’s how they’re making their mark:

SME and Startup Success Stories

• AI-Driven Analytics in NHS and Local Government: HealthTech startups like Shift Partner, developed in collaboration with UCL AI researchers, are helping the NHS tackle staffing crises through smarter workforce management. This platform enables health organisations to deliver on the NHS Long Term Workforce Plan by optimising staff deployment and retention.

• SBRI Competitions: The Small Business Research Initiative (SBRI) has awarded over £1 billion in funding since 2001, supporting startups and SMEs to develop innovative solutions for public sector challenges. SBRI competitions are open to a wide range of organisations and have helped scale up many UK businesses.

• Regional Pilot Programmes: Initiatives like the STAR Procurement pilot in Greater Manchester and Liverpool City Region are streamlining the process for local SMEs to secure lower-value council contracts. Using digital platforms such as Nomia, these pilots reduce bureaucratic hurdles and prioritise local businesses, fostering economic growth and job creation.

Challenges for Startups

• Lengthy Tender Processes: Traditional procurement can be slow and complex, discouraging startups from bidding. However, some councils are now streamlining processes and using digital platforms to make it easier for SMEs to participate.

• Security Compliance: Startups must meet stringent security standards, such as Cyber Essentials+ and ISO 27001, to qualify for government contracts. This can be a barrier for early-stage companies but is essential for maintaining trust and safeguarding public data.

Predictions...

Several trends are set to reshape GovTech procurement:

• More ‘Innovation Sandboxes’: The Crown Commercial Service (CCS) is expected to expand its Dynamic Purchasing System, creating more opportunities for startups to test and scale their solutions in a controlled, supportive environment.

• Rise of Consortium Bidding: Startups are increasingly teaming up with other SMEs or larger systems integrators to meet the scale and compliance requirements of major government contracts.

• Impact of New Regulations: The Procurement Act 2023 is now fully in force, introducing new rules to make procurement more transparent, flexible, and accessible to smaller suppliers. This is expected to further boost SME participation in the public sector market.

• Devolution and Localisation: With English devolution accelerating, more procurement responsibilities are shifting to regional mayors and combined authorities. This means fewer, but larger, contracts that could be more challenging for SMEs to win, unless they adapt by forming partnerships or focusing on niche solutions.

For more on the impact of the Procurement Act, visit the Crown Commercial Service website.

How Public Sector Buyers Can Adapt

Public sector procurement teams face increasing pressure to deliver value, drive innovation, and support local economies. Here are practical tips to help them adapt:

Tips for Procurement Teams

• Use G-Cloud 13 for Faster Buying: The G-Cloud framework is designed for rapid, low-risk procurement of cloud-based services, making it ideal for engaging with innovative startups.

• Pilot Outcome-Based Contracts: Consider pay-for-results models, where suppliers are rewarded for delivering measurable outcomes rather than just outputs.

• Engage with Startups Early: Involve innovative suppliers in the early stages of project planning to ensure solutions are tailored to real user needs.

• Maintain Local Knowledge: As procurement consolidates at the regional level, ensure that service delivery remains tailored to local needs by working closely with district councils and community organisations.

Tips for Startups

• Partner with Larger SIs: Collaborate with established systems integrators (e.g., Capita, Sopra Steria) to gain credibility and access to larger contracts.

• Focus on Interoperability: Ensure your solutions can integrate with legacy systems, making it easier for public sector buyers to adopt new technology.

• Exhibit in the Emerging Tech Zone at DigiGov: This dedicated area at the UKs largest public sector tech event is a prime opportunity to showcase innovation and connect with key decision-makers.

Conclusion

2025 will be a tipping point for GovTech procurement in the UK. Agile, innovation-driven approaches are no longer optional, they are essential for delivering digital transformation and meeting the evolving needs of citizens. With new regulations in force, increased focus on localisation, and growing opportunities for startups, the public sector is poised to become a more dynamic and inclusive marketplace.

As Cllr Tom Ross of Trafford Council recently noted, “It is brilliant to see STAR Procurement leading the way in piloting a new way to target our local and SME businesses in our Greater Manchester region to increase their success in winning public sector contracts”.

If you’re looking to navigate the changing landscape of GovTech procurement, don’t miss the DigiGov Expo on 24th & 25th September. Meet with over 150 suppliers to the public sector, including innovative startups in the Emerging Tech Zone.