Britain’s grid operator gave Palantir contract without inviting rival bids

Britain’s state-owned electricity system operator has awarded Palantir a £21mn contract without inviting rival bids, arguing critical grid processes are too reliant on its technology to run a competitive procurement process.

The National Energy System Operator (Neso) agreed the new contract with the US tech giant last month, extending a previous agreement with the company that started in March 2023 but had not been previously formally disclosed.

One of the areas covered by the contract is getting users connected to the electricity grid, where Neso’s performance was described as “materially below expectations” in a report from a panel of independent experts published last week.

Neso said it could not invite rival bids for “technical reasons”, citing a legal exemption that removes the requirement to consider other suppliers if existing dependencies leave no reasonable alternative to using a particular company.

The agency said it would open up the areas covered by the contract to competition at a later point. The new contract between Neso and Palantir will last for between 10 and 22 months, depending on how long it takes to run a competitive procurement process and transition to another supplier if one is selected.

The announcement is likely to fuel concerns about the British state’s reliance on Palantir after the Ministry of Defence also awarded the company a follow-on three-year contract worth £240.6mn without a competitive tender process.

The FT revealed on Sunday that more than a quarter of police forces in England and Wales are involved in pilot programmes with Palantir of the same type that resulted in the London mayor blocking the Metropolitan Police from proceeding with a long-term contract.

Palantir, whose software is widely used by US defence and intelligence agencies, is facing growing scrutiny as the UK government re-evaluates its dependence on US technology.

As well as sovereignty concerns and unease over Palantir’s political ties, MPs have warned about the structural risk of dependence on a single supplier.

“Having critical national infrastructure like our electricity grid dependent on just one US-based supplier raises major concerns about our national security and our resilience,” said Labour MP Chi Onwurah.

“The government should be able to diversify its suppliers and safeguard against debilitating dependencies on a small number of companies like Palantir,” she added.

The Science, Innovation and Technology Committee, which is chaired by Onwurah, has called Palantir’s presence in the UK public sector an “unacceptable point of weakness” and urged ministers to exercise the 2027 break clause in its contentious £330mn NHS contract.

Neso used to be part of FTSE 100 group National Grid but was nationalised and given a wider role in October 2024, shortly after Labour won the general election, under a process put in train while the Conservatives were in power.

Neso is currently under investigation over its management of the electricity grid during a heatwave in late June.

The announcement by Neso of the new contract reveals its reliance on Palantir’s technology for two critical processes — connections to the electricity grid and “skip rates”, which refer to how often it picks a more expensive power station to run when a less expensive option is available.

Neso has faced criticism in recent years from battery developers who said it was underusing their technology because of its ageing computer systems and outdated electricity network.

The situation has improved since the FT reported these concerns in 2024, but in its report last week Neso’s performance panel recommended it “dedicate additional resources” to make further improvements.

Neso said it was “engaging constructively” with the regulator and performance panel on areas for improvement, noting that the performance panel said Neso had met expectations overall.

Connections reform was one of the “largest and most complex” changes facing the energy sector and Neso had reduced the size of the queue, it added. Skip rates were a “complex operational issue” where it had made progress but was going further, it continued.

Neso said the original Palantir contract was not formally disclosed because it was not a public body at the time the deal was agreed.

Palantir said: “We’re proud to be supporting Neso’s efforts to improve energy efficiency, drive down costs and transition to net zero.”