HMRC’s hunt for hyperscaler to lead £500m datacentre exit project deemed ‘anti-competitive’

What HMRC needs

As detailed in a planning notice, HMRC needs a hyperscale provider to manage the migration of the agency’s on-premise servers from three Fujitsu datacentres to the cloud, as part of its Data Centre Exit (DCE) programme of work.

The expected go-live date for the contract is 1 April 2026, and it is due to expire on 31 March 2036.

“The Authority is seeking to appoint a hyperscaler to manage the migration of servers from the current on-premise solution to the hyperscaler’s cloud environment,” the planning notice said.

“It is anticipated the appointment will be limited to a single hyperscaler, but this will be validated during the procurement.”

Speaking to Computer Weekly on condition of anonymity, a former government IT advisor said the notice’s wording is problematic from a competition point of view.

“HMRC is leaving itself wide open to legal challenge given that the term ‘hyperscaler’ is widely associated with the US global cloud players,” they said. “This could delay or halt the procurement, wasting taxpayers’ money in the process.”

Server inventory

The contract notice also confirmed that HMRC’s on-premise server inventory features technologies from a wide variety of manufacturers, including HP, IBM, Red Hat, SUSE, VMware, Oracle, Microsoft and NetApp.

“Participation in this tender will be restricted to those providers who are capable of migrating the in-scope servers and associated applications within the proposed timelines and able to provide UK-based hosting services for the duration of the proposed contract,” the notice added.

“Due to the sensitivity of the data being migrated and subsequently hosted, offshore hosting and access to that data is not permissible.”

Stipulating that a hyperscaler must be used to deliver this project, while also stating that the chosen supplier must keep HMRC’s data in-country, is contradictory, said Civo’s Boost.

“The HMRC tender rightly prohibits offshore data hosting or access – an important step towards securing sensitive public sector workloads,” he said. “By structuring the process to favour foreign hyperscalers, many of which operate under geopolitical and legislative conditions far beyond the UK’s control, it risks completely undermining that very principle.”

As an example, Boost pointed to the news that Microsoft has, in response to US sanctions, blocked email access to the International Criminal Court’s chief prosecutor, Karim Khan.

“[This has] shown how quickly political decisions made abroad can affect critical institutions,” he said. “It’s a reminder that when infrastructure is governed elsewhere, so is control. In that context, the UK government’s actions are increasingly difficult to justify.”

An anti-competitive tender?

Nicky Stewart, senior advisor to pro-cloud market competition lobbying body the Open Cloud Coalition, told Computer Weekly the planning notice’s wording risks limiting the pool of suppliers who might consider vying for the deal.

“Government tenders should be open to every capable cloud provider, including innovative challenger companies,” she said. “Excluding these challengers narrows choice, drives up prices and concentrates risk. An inclusive, multi-cloud approach ensures better value, resilience and innovation for public services.”

HMRC’s list of requirements will be far too high for UK companies to meet, but finding a hyperscaler that can guarantee the agency’s data will never leave the UK will also be nigh on impossible, added Sayers.

“Demanding that the successful bidder must be both a hyperscaler (and thus global in scope), and yet at the same time able to deliver 100% of the services locally is going to be a tall order,” he said. “No major hyperscaler commits to doing all support or processing in-country, unless [the customer is based in] the US.”

Expanding on this point, Sayers flagged Microsoft, whose cloud technologies are a mainstay of Whitehall, as being a hyperscaler who would not be able to meet the terms of the contract notice.

This is based on the software giant’s previous admission that it cannot guarantee the UK sovereignty of data stored with its Azure public cloud.

“If ‘must be in the UK’ is the rule HMRC seek to apply, then logically, they would have to disqualify Microsoft [from bidding] up front, even though, inconveniently, they’re also the UK government’s preferred hyperscaler,” he said. “If they don’t, then they’ll create a pretty solid basis for someone to cry foul and challenge the competition.”

And challenge it they should, said Boost. “Handing a £500m contract to US hyperscalers on a silver platter doesn’t just undermine the UK’s digital sovereignty; it raises serious questions about compliance with procurement regulations designed to ensure fair and open competition,” he said.

“This is a test of the UK’s digital backbone,” added Boost. “If the government is serious about supporting homegrown tech and ensuring long-term control over critical infrastructure, its procurement policies must do more than nod to sovereignty; they must actively deliver on it.”

Computer Weekly asked HMRC whether it would entertain a bid from Microsoft for this contract, but the organisation did not directly answer the question.

In response to the rest of the points raised in the article, a spokesperson for HMRC said: “We follow government procurement rules when awarding contracts. This includes ensuring bidders meet any pre-qualification criteria set and carrying out appropriate due diligence.”