Central government bodies will have to consider whether technology and business process services could be delivered internally before awarding major outsourcing contracts, although specialist skills exemptions mean much of government IT may remain with external suppliers.

The UK government has published new guidelines intended to end an era of “outsourcing by default”, requiring central government organisations to assess whether services should instead be delivered in-house.

From 1 April 2027, planned central government service contracts worth more than £1 million, including VAT, will be subject to a Public Interest Test before procurement begins.

The rules will cover IT and business process outsourcing (BPO) contracts, alongside services such as cleaning, security and government training.

According to the Cabinet Office, its Public Interest Test and Insourcing Strategy mean that “before any IT or BPO service is outsourced, departments will evaluate individual contracts on a case-by-case basis – holistically assessing value for money, economic and market impact, and social value goals”.

It added: “Departments will make the final decision for each contract.”

The policy does not require departments to automatically bring services in-house. Instead, the test is designed to identify whether insourcing should be considered as a viable option before more detailed analysis is carried out.

What the Rules Mean for Government IT

IT and BPO contracts are explicitly included within the scope of the Public Interest Test.

Before outsourcing these services, departments will need to consider whether internal delivery could provide better long-term value, improve resilience or reduce dependency on external suppliers.

However, the guidance acknowledges that public bodies may not possess the specialist technical expertise, leadership or infrastructure required to deliver some services internally.

The Public Interest Test therefore contains an exemption where a contract is for “technical data/analysis development and the work will be once-off or highly infrequent (thus making it unviable to build the requisite specialist technical expertise or recruit permanent in-house staff)”.

This could allow departments to continue outsourcing highly specialised or infrequent technology projects where developing a permanent internal team would not be practical.

Research, policy evaluation and work requiring an independent external perspective may also be exempt, as can projects that depend on established external infrastructure or specialist delivery networks.

Certain directly awarded contracts and procurements covered by exemptions under the Procurement Act will also fall outside the requirement.

Assessing Internal Capabilities

Where insourcing is considered, departments will need to establish whether they possess the skills, capacity, infrastructure and leadership required to take responsibility for the service.

“The contracting authority should map the specific competencies required to insource services, spanning key factors such as skills, technology and infrastructure. Where gaps are identified, the strategy should assess the feasibility and suitability of developing these capabilities in-house to enable direct delivery,” the guidance states.

Public bodies will also be expected to consider whether they could recruit and retain the required technical leadership.

“Does the contracting authority possess the senior operational leadership required to run these services? If not, is it a viable option to recruit and retain leadership? Does the contracting authority currently own, or could it acquire, the physical and digital assets needed to operate these service lines?” the guidance asks.

The Public Interest Test will be conducted in two stages.

The first will consider whether the characteristics of a service make it a suitable candidate for insourcing. This will include factors such as value for money, strategic control, social value, supplier performance and the health of the external market.

If a service appears suitable, the second stage will examine whether the department has the workforce, budget, infrastructure and governance arrangements needed to deliver it.

The process is expected to take no more than two days for most contracts and will result in a Provisional Sourcing Decision rather than a final determination.

An initial decision in favour of insourcing could therefore be overturned if a subsequent Delivery Model Assessment or business case finds that internal delivery is impractical, unaffordable or would provide poorer value.

Mixed Models Remain Possible

The framework does not require departments to choose between completely insourced or completely outsourced delivery.

For larger projects containing several distinct services, different elements may be assessed separately.

The guidance gives the example of a digital project that can be divided between system development and ongoing IT helpdesk support. One part could potentially be delivered internally while the other remains with an external supplier.

Central government departments spending at least £100m a year on contracts will also be expected to produce five-year Insourcing Strategies.

These strategies must identify services with strong potential for internal delivery and set out how departments could develop the skills, infrastructure and operational capacity required.

They must also consider barriers such as transition costs, contractual exit fees, intellectual property ownership and the need to operate old and new delivery arrangements simultaneously.

Trade unions have welcomed the new policy while calling for it to be extended across a broader range of outsourced services.

Fran Heathcote, general secretary of the Public and Commercial Services Union (PCS), said: “For too long, outsourced workers have faced lower pay, poorer conditions and been treated as second-class citizens. This is a huge victory for members and a clear vindication of our campaign for insourcing. This achievement demonstrates what can be won through collective action.”

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Heathcote called on the government to apply the approach to other outsourced operations, including IT-enabled BPO services such as pension administration.

The PCS said insourcing should be considered for the Civil Service Pension Scheme following what it described as “Capita’s shambolic handling” of pension payments.

Capita took responsibility for administering the scheme on 1 December 2025 after securing a £239m contract in 2023.

The transition has since been affected by a series of problems, with scheme members experiencing delays and financial hardship.

Under the new framework, evidence of poor supplier performance, weak competition, excessive profits or repeated failures to provide value for money could strengthen the case for bringing a service in-house.

The policy does not signal an immediate end to government technology outsourcing.

However, it will require departments to demonstrate that they have considered direct delivery, assessed their ability to build internal technical capacity and examined whether outsourcing offers better long-term public value.