Public IT Procurement: Monopoly or Innovation?

The first draft and source organization of this article were produced through AI collaboration; the research question, line of argument, stylistic requirements, and final proofreading were supplied by the author. Higher-risk inferences and citations were subjected to additional review.

§ 1. Introduction: From Process Digitization to Market Structure

Discussions of digital transformation in the public sector tend to begin with surface questions: whether procedures have been digitized, whether tenders have become more transparent, whether documents are easier to retrieve, whether procurement workflows have become more efficient. These questions are important in their own right. Yet for what concerns IT build contracts, systems integration, cloud platforms, multi-year operations and maintenance, and other categories of information-service procurement, the core problem does not reside at the surface of process design. It lies in market structure. Put more directly, the question worth pursuing is whether public-sector IT procurement regimes drive the market toward persistent concentration among a small number of large suppliers, or whether they instead enable new entrants and startups to accumulate sustainable delivery capacity under conditions of controllable risk.

A decade of research has repeatedly clarified one point. The digitization of procurement processes can, in itself, improve transparency, shorten delays, and broaden cross-regional supplier participation; under certain conditions it also contributes to quality improvement. These effects, however, do not automatically translate into a more open market, nor do they guarantee a reduction in the public sector’s dependence on incumbent large suppliers. What electronic tools improve is procedural friction. What actually governs the direction of the market remains how contracts are partitioned, how entry mechanisms are designed, how specifications are drafted, whether the buyer possesses adequate governance capacity, and whether data and systems are substitutable.

The argument therefore proceeds as follows. The question of IT procurement should not be pursued at the level of “whether the system is on the cloud” or “whether tenders are electronic.” A more precise formulation is the following: which institutional designs continue to amplify the structural advantage of incumbent large integrators, and which designs allow new entrants to genuinely enter the market without sacrificing information security, regulatory compliance, or operational resilience. This formulation provides the entry point for analyzing public-sector digital markets.

§ 2. The Problem Is Lodged in Market Structure

Information systems procured by the public sector typically exhibit several inconvenient features. They tend to involve cross-agency coordination, integration with legacy systems, responsibilities for data governance, long-term operations and maintenance, information-security requirements, and regulatory-compliance pressure. Once these conditions are layered together, what the government has in fact acquired exceeds any single software product or one-off build service; it is a sustained set of dependency relationships extending into the future.

For this reason, any discussion of whether the market is open must distinguish at least two questions. The first concerns expenditure concentration: whether high-value contracts and the bulk of the procurement budget are persistently directed to a small set of large suppliers. The second concerns dependency concentration: whether, even with multiple suppliers nominally present, a small set of firms still exclusively holds the critical data, interfaces, operational knowledge, and substitution capacity. The former reflects where money flows; the latter reflects whether the government retains substantive substitution capacity. For IT procurement, the second question is frequently the more consequential.

A failure to disentangle these two layers produces a recognizable illusion. The surface may show many small and medium-sized enterprises winning contracts and many suppliers listed on official rosters, and the overall picture may appear relatively open. In substance, however, large suppliers continue to hold the core data, the principal integration responsibility, and the capacity for subsequent revision, with the result that each round of operations, upgrade, or transition further inflates switching costs. Under these conditions, the market appears fragmented at the surface while underlying dependency becomes increasingly concentrated.

§ 3. How Institutions Push the Market Toward Concentration

A first common mechanism is excessive contract scope and over-concentration of integration responsibility. When a single tender simultaneously requires cross-system integration, long-term operations, information-security commitments, data conversion, multi-agency coordination, and real-time service-level guarantees, the set of suppliers capable of credibly responding narrows rapidly. No explicit exclusion of new entrants is needed; the market converges naturally toward a small set of incumbent large contractors. International research on public procurement and small and medium-sized enterprise (SME) participation likewise indicates that contract size and procedural design directly affect the probability of SME contract awards, and that smaller work packages translate into more durable competitive opportunities only where governance capacity is sufficient.¹

A second mechanism is the lock-in effect of closed framework agreements, panel rosters, and pre-existing supplier lists. Within public-procurement systems, framework agreements and dynamic purchasing systems may appear similar—both establish a supplier pool first and procure from it afterward—but their underlying logic differs substantially. Once a framework agreement is established, participants are generally fixed during its validity period, and new suppliers find it difficult to join mid-cycle. Dynamic purchasing systems, by contrast, remain continuously open during the validity period, allowing eligible suppliers to enter at different points in time. This distinction may sound technical, but it directly determines whether the market is incrementally closed or retains the capacity for expansion.²

A third mechanism is the information asymmetry built into specification drafting and pre-tender interaction. IT-procurement requirements often take shape under high uncertainty; suppliers familiar with the legacy architecture typically know which constraints will be written into the specification, which interfaces are most difficult to handle, and which acceptance criteria are most favorable to the solutions they already command. The resulting advantage need not present itself as explicit exclusion; more often, the specification naturally leans toward a particular legacy system logic, leaving external entrants without a genuinely competitive proposal. This is why the relevant inspection points are not whether the tender is nominally open, but whether the specification requires reproducible build documentation, open interfaces, data-export capability, and a migration plan.

A fourth mechanism is inadequate buyer-side capacity coupled with risk-averse preferences. Decomposition of tenders, modularization, and multi-supplier governance can, in principle, open space for new entrants. The preconditions, however, are substantial. The buyer must be able to specify requirements clearly, coordinate the responsibility boundaries between modules, perform acceptance review on the integrated service, and continuously manage dependencies across multiple suppliers. Where these capacities are absent, the lowest-friction institutional choice is to consolidate integration responsibility within a single large vendor. The short-term reduction in management friction tends to deepen, over the long term, the government’s dependence on large integrators.

A fifth mechanism is the lock-in risk produced by non-portable data, closed interfaces, and the sedimentation of operational knowledge. Here lies the greatest divergence between IT procurement and ordinary procurement. Many dependency relationships do not arise from legal monopoly, and they do not necessarily appear at the first tender; they more typically take shape after the system goes live. When data export is difficult, interfaces fail to interoperate, migration costs are high, and critical knowledge resides only within the vendor’s team, even a government that wishes to switch suppliers finds the cost increasingly prohibitive. The EU Data Act (Regulation (EU) 2023/2854) addresses cloud switching, interoperability, and exit rights precisely because this category of lock-in has come to be treated as a problem of market competition and public governance.³

§ 4. Opening the Market Requires a Mutually Supporting Institutional Package

If institutional design can push the market toward concentration, institutional design can equally pull the market toward openness. This kind of openness, however, cannot be sustained by abstract slogans, nor by exhortations to “support startups.” It requires a mutually supporting set of designs.

A first effective instrument is the dynamic-entry mechanism. So long as the supplier set can continue to expand during the validity period, the market is less likely to be locked at a particular point in time by an early roster. This design is particularly useful for services with higher degrees of standardization and commoditization—certain modular information services, standardized platform services, and digital-function procurement with high repetition. Its value lies in enabling additional entrants and in making the timing of entry itself an adjustable parameter.

A second effective instrument is decomposable and governable work packages. Tender decomposition is not a panacea, and subdividing tenders does not guarantee that the market will become more open. Recent European empirical research is clear: smaller work packages may indeed increase the probability of SME contract awards, but the effect is conditional and tends to appear at procurement objects with clearer boundaries and moderate scale.⁴ What matters most is that the work packages must be governable, capable of independent acceptance, and able to interoperate with other modules; the buyer must possess the capacity to integrate the results. Without these conditions, decomposition merely shifts complexity back onto the government.

A third instrument is outcome-oriented specification combined with mature value-based evaluation. When procurement regimes use working hours, headcount, prior scale, and prior government performance records as the principal evaluation criteria over the long term, large vendors enjoy a natural advantage. Where the government instead emphasizes deliverable outcomes, maintainability, system quality, interface clarity, and migration capacity, new entrants gain a more meaningful opportunity to compete on professional capability. The difficulty here is that the buyer side must actually possess the capacity to define and verify outcomes; otherwise the regime drifts back into a scale-oriented conservative mode.

A fourth instrument is more reasonable qualification thresholds and evidentiary requirements for past performance. New entrants are most frequently excluded where the regime depends excessively on prior revenue, prior large-scale government contract experience, and historical track record; technical capability is often not the principal barrier. Such conditions easily form a self-reinforcing loop, allowing incumbent suppliers to remain on the field more readily. A preferable direction is to reduce administrative burdens disproportionate to actual risk, and to allow technical capability, verified outcomes, and deliverable-based evidence to partially substitute for large-scale historical-experience thresholds.

A fifth instrument—and the most consequential—is the inscription of portability, interoperability, substitutability, and exit rights into specifications, contracts, and acceptance criteria. Many markets that appear competitive in fact suffer from a more fundamental problem: exit costs are so high that, once a vendor is deployed, departure becomes infeasible. If the government wishes to retain bargaining power, migration, data export, interface openness, and substitution testing cannot be treated as accessory clauses; they must be treated as conditions of market competition in themselves. Where these requirements are not embedded in contracts and acceptance criteria, “openness” remains an openness only at the surface.

§ 5. Which Direction Will IT Procurement Take?

The answer is pragmatic. IT procurement may produce market concentration and may equally create space for new entrants; the difference depends less on whether digital tools are used than on how the institution allocates risk, responsibility, entry conditions, and exit capacity.

Where the government tends to compress large-scale integration responsibility into single tenders, depends over the long term on closed rosters, perpetuates legacy architectures in its specifications, and neglects data portability and migration requirements—while simultaneously lacking the capacity to govern a multi-supplier ecosystem—the market naturally converges on a small set of large suppliers. Under these conditions, even if procedures become more electronic and disclosure more extensive, the underlying dependency relationships of the market remain substantially unchanged.

Where the government is willing to treat market design as a problem of institutional engineering, and is willing to work simultaneously on entry mechanisms, decomposition logic, evaluation methods, qualification thresholds, substitutability clauses, and buyer-side capacity-building, the market becomes more likely to move from a relational market dominated by a few large vendors toward a more genuinely contestable public-technology market in which new entrants can accumulate delivery capacity.

The argument worth emphasizing is the following. What the public sector decides in IT procurement always exceeds the identity of today’s winning bidder for a particular system. What is in fact decided is whether substitutes remain available in this market over the coming years, whether the government retains bargaining power, and whether new entrants can move from a follower position to actually accumulated delivery capacity. Process digitization is important, but the contested terrain remains the institution itself.

References

Footnotes

1. OECD (2018). SMEs in Public Procurement: Practices and Strategies for Shared Benefits. OECD Publishing; Hoekman, B., & Taş, B. K. O. (2020). “Procurement Policy and SME Participation in Public Purchasing.” Small Business Economics; Flynn, A. (2025). “Research on SME Involvement in Public Procurement.” Working paper. Source level A. ↩

2. SIGMA (2016). Framework Agreements, Public Procurement Brief 19. OECD/SIGMA; European Commission (2021). Dynamic Purchasing Systems: Use Guidelines. Source level A. ↩

3. Regulation (EU) 2023/2854 of the European Parliament and of the Council of 13 December 2023 on harmonised rules on fair access to and use of data (Data Act); European Commission (2025). “Data Act Explained.” Source level A. ↩

4. Hoekman, B., & Taş, B. K. O. (2020). “Procurement Policy and SME Participation in Public Purchasing.” Small Business Economics; OECD (2018). SMEs in Public Procurement: Practices and Strategies for Shared Benefits. OECD Publishing. Source level A. ↩