Cabinet Office minister Francis Maude has promised to end the era of huge public sector IT deals.
"The days of the mega IT contracts are over, we will need you to rethink the way you approach projects, making them smaller, off the shelf and open source where possible," he said in a meeting with 31 of the government's key suppliers this week.
Suppliers will need to be transparent in all their dealings with the government and be aware that the terms of the contracts are to be published online, added Maude.
The minister has also outlined plans to make it easier for businesses to trade with the government. He will issue guidelines for large suppliers dealing with SMEs and intends to open the market to smaller companies.
Many suppliers have welcomed the government's commitment to change IT contract structures. Mark Dale, director at global outsourcing company MphasiS, said. "In the past procurement has been too prescriptive with very little focus on the end goal. Greater dialogue and openness with suppliers will ensure that the services procured are the right ones."
Bindi Bhullar, director of IT services company HCL, agreed, "This is the clearest indication yet that the era of bloated IT contracts is coming to an end, and not before time," he said.
"The pressure is now on smaller IT providers to bring greater transparency to contract negotiations if they are to prove their worth to the public sector," added Judith Niederschlep, manager at management company PrintSoft.
The announcement follows the contract renegotiations programme which started earlier in the year with the government's largest 19 suppliers and is expected to deliver £800m in savings this year.