Britain's National Energy System Operator awarded US tech firm Palantir a £21 million contract without competitive bidding, citing critical dependencies that leave no alternative supplier.
The agreement, finalized last month, extends an arrangement that began in March 2023. NESO invoked a legal exemption allowing direct awards when vendors become operationally essential, sidestepping procurement rules for two business processes.
The problem: one of those processes handles grid connections, an area where NESO has struggled. An independent expert panel last week found NESO's performance in connections "materially below expectations." Energy regulator Ofgem's recent assessment reached the same conclusion, designating Connections Reform a "critical objective" and flagging it as a key area of underperformance.
Ofgem reviewed eight business plan aims for NESO's 2025/26 year. NESO delivered full outcomes on three and made sufficient progress on four. On connections, it met neither threshold.
NESO was established in October 2024 when the UK government acquired the Electricity System Operator from National Grid plc, which retains ownership of transmission and distribution networks.
This pattern extends beyond energy. The Ministry of Defence signed a £240 million contract with Palantir in December 2025 using the same direct award procedure without tender.
These deals illustrate a classic vendor moat: once critical infrastructure depends on proprietary software, competitive pressure evaporates. NESO's reliance on Palantir's technology means the operator cannot credibly threaten to switch providers, even as performance questions mount. The direct awards lock in pricing power and eliminate the cost discipline that competitive bids impose.
For infrastructure operators, the trade-off is stark. Specialized software solves genuine problems—energy markets are complex—but deep integration creates switching costs that insulate vendors from performance accountability. NESO is paying £21 million for a solution it cannot easily replace, regardless of whether competitors might deliver better results.
