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  1. Government Computing
October 17, 2023

Concern as Palantir bags £10m ‘Homes for Ukraine’ IT contracts without competition

A new report shows that the controversial software vendor's tactic of offering public sector clients a free trial is paying dividends.

By Matthew Gooding

Controversial US software vendor Palantir’s practice of providing services to the UK public sector free of charge to “gain commercial advantage” has raised eyebrows in Whitehall, a new report has revealed. The government’s chief commercial officer wrote to the company earlier this year to express his concern after Palantir secured two contracts worth £10m to supply IT systems for the government’s Homes for Ukraine scheme unchallenged.

Palantir scooped two IT contracts worth £10m to build a data system for the Homes for Ukraine scheme. (Photo by IgorGolovniov/Shutterstock)

The National Audit Office probe into the Homes for Ukraine programme, which has so far helped find UK accommodation for over 130,000 refugees fleeing the war in the Ukraine, says the company built a data platform for the scheme for free, and then went to be handed two contract extensions to help manage it, despite officials fearing the company’s system did not offer best value for money.

Published today, the report says that though more economical solutions may be available elsewhere, the Department for Levelling Up, Housing and Communities (DLUHC) continues to use the Palantir system because it fears switching providers may be even more costly and complex.

Palantir, which has close ties to the US security services, is currently the favourite to land a £480m deal to build an information repository, known as the Federated Data Platform (FDP), for NHS England after, providing the health service with services for free during the Covid-19 pandemic. Privacy campaigners have voiced concerns about the vendor’s growing role in the UK public sector and the seemingly opaque way it wins contracts.

Palantir’s role in the Homes for Ukraine scheme

The NAO report says that when the government launched Homes for Ukraine, in March 2022, it took up an offer from Palantir to provide its services free of charge for six months to help “create its main data system to manage and monitor scheme data”. The report says this meant Palantir waiving fees worth £3.5m, and the platform was up and running within nine days.

Following the end of this initial period, in September 2022, Palantir was handed a 12-month contract extension worth £4.5m. “DLUHC justified this as in the first six months of the scheme it did not have sufficient time and resources to develop a new data system while implementing Palantir’s system,” the report says. “It said it had invested time training local authorities in how to use it and in meeting changing user requirements at local level. DLUHC stated that if it removed Palantir’s system at that point, it would create safeguarding risks and significant disruption for DLUHC and local authorities as they had no alternative, secure system which could replace it.”

DLUHC obtained ministerial approval for this approach, but officials in the department acknowledged at the time that the government should look at alternative vendors “given the cost of the contract, which was perceived to be higher than other possible solutions”.

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Despite this, Palantir was awarded another contract extension, worth £5.5m, last month. “In early 2023, DLUHC investigated the feasibility of migrating away from
Palantir’s system prior to the end of the 12-month contract, which expired in September 2023,” the report says. “It found that migrating to a new system would be challenging as it would either require a long-term commitment from DLUHC to create and maintain its own system or it would have to incur new costs as a consequence of migrating data
to a new commercial off-the-shelf system, which may not be able to be implemented in time and may have unknown quality issues.”

It seems likely the vendor will be in a position to land a further extension in 12 months’ time. “DLUHC will need to decide how it proceeds after that point as the scheme will still be ongoing in September 2024,” the report says.

Concerns over Palantir’s ‘free gifts’ to public sector

The report also says that Gareth Rhys Williams, the government’s chief commercial officer, wrote to Palantir in February “noting his concern about the practice of offering services to public sector customers for a zero or nominal cost to gain a commercial foothold, contrary to the principles of public procurement which usually require open competition”.

It says this advice was “copied to senior digital and procurement officials in government alongside confirmation that free trial contracts should be avoided by government
customers and only used in exceptional circumstances”. DLUHC said the move was justified on this occasion because it needed the platform up and running quickly.

Despite DLUHC’s hefty outlay, the report says some local authorities found the system “confusing to use”. Though these problems have now been resolved, councils have not been mandated to use it, and as a result, the government “does not have complete data on some aspects of the scheme”.

Palantir has benefited from these kinds of procurement arrangements before. During the Covid-19 pandemic, it built a data store, which allowed the government to track the spread of the virus, for just £1. Since then it has been awarded further contracts worth £1m and £23m relating to the project.

The company sees the UK public sector as a lucrative source of income, and last year reportedly hired former NHS executives to help with bidding on tenders. It is hoping to land the biggest ever NHS digital contract, building and running the £480m FDP, having already helped lay the groundwork for the system. But as reported by Tech Monitor, critics – including NHS doctors – say the health service should look at other options because of concerns over data security.

A government spokesperson said: “Palantir was on a government approved list of providers and rapidly set up the digital system needed to run the scheme for free. The contract was then extended to prevent a gap in services and ensure the safety of guests and unaccompanied minors. We are grateful to Palantir for their vital work on Homes for Ukraine.”

A spokesperson for Palantir said the company was “proud” of its work on the Homes for Ukraine scheme. They said: “Clearly, the urgency of the situation meant that time was of the essence and moving fast helped deliver Ukrainians to safety more quickly. As the report itself notes, when alternatives were subsequently looked at, they were viewed as likely to ‘cost more’, as well as carrying ‘risks to implementing on time’ and ‘potential quality issues’.”

On the comments of the government chief commercial officer, the spokesperson added: “There is nothing unusual in a business offering a prospective customer the opportunity to trial before purchase. Indeed the government’s own guidance states that ‘where a service is being outsourced for the first time, a pilot should be run’ and that ‘if you’re buying a product, consider asking for a demonstration or trial on a smaller scale’.”

Read more: NHS England agrees £11.5m Palantir extension as costs soar

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