Revised Cost Model with Benchmarks
Evidence-based cost estimates benchmarked against actual UK government IT programmes including NHS NPfIT, Universal Credit, and IPA Major Projects data.
Treasury Challenge: Cost Estimates
"Your revised figures are still 2x too low. Government IT programmes routinely
exceed estimates by 3-5x. Why should this massive multinational coordination be any different?"
This document addresses this challenge with evidence-based estimates and explicit
contingency allowances benchmarked against historic overruns.
Historical Benchmarks: UK Government IT Programmes
Before estimating sovereign cloud costs, we must understand the performance of comparable UK government programmes.
| Programme | Initial Estimate | Final/Current Cost | Overrun | Status |
|---|---|---|---|---|
| NHS NPfIT | £6.2B (2002) | £12.7B (actual spend) | +105% | Dismantled 2011 |
| Universal Credit | £12.85B (2012) | £15.8B+ (revised) | +23% (ongoing) | Deployed with issues |
| UK Borders e-Borders | £750M | ~£1.1B | +47% | Partial deployment |
| Police National Computer Replacement | Baseline TBC | +£400M overrun | 5+ years delayed | Ongoing issues |
Source: NAO Report
Source: State of Digital Government Review
Derived Planning Assumptions
| Metric | Value | Source |
|---|---|---|
| Average ICT cost overrun | 27% | IPA Major Projects Portfolio |
| Large programme overrun | 50-100% | NPfIT, Borders |
| Projects at high risk (Red/Amber-Red) | 25% | IPA Annual Report |
| Digital projects at high risk | 60% more likely than baseline | State of Digital Government |
Infrastructure Costs: Datacenter Build and Hardware
Industry benchmarks for datacenter construction (2024-2025 data):
| Component | Cost Metric | Range | Source |
|---|---|---|---|
| Greenfield datacenter (Tier III) | Per MW | $8M - $12M | Cushman & Wakefield 2025 |
| Government/secure facility | Per MW | $12M - $15M (premium) | Estimate (security overhead) |
| Per rack (Tier III) | Build cost | $40K - $60K | Dgtl Infra |
| Per rack (Tier IV/Secure) | Build cost | $60K - $100K+ | Industry benchmark |
| Construction per sq ft | Standard market | $600 - $1,100 | Turner & Townsend |
| Construction per sq ft | Prime markets | ~$2,200 | Major city premium |
UK Sovereign Cloud Infrastructure Estimate
Assuming 40MW initial capacity across 3-4 sites (Canberra model scaled):
| Item | Quantity | Unit Cost | Total (GBP) |
|---|---|---|---|
| Datacenter capacity (40MW @ secure rate) | 40 MW | £10M/MW | £400M |
| Compute hardware (2,000 racks) | 2,000 racks | £150K/rack avg | £300M |
| Storage infrastructure (100PB) | 100 PB | £2M/PB | £200M |
| Networking (spine/leaf, WAN) | Lump sum | - | £100M |
| Security infrastructure (HSM, firewalls, SIEM) | Lump sum | - | £75M |
| Site preparation, power, cooling | Lump sum | - | £125M |
| Infrastructure Subtotal (UK only) | £1.2B | ||
| Contingency (50% - per benchmark) | - | - | £600M |
| UK Infrastructure Total (with contingency) | £1.8B | ||
Migration and Application Refactoring Costs
Migration costs vary dramatically by strategy. Industry benchmarks:
| Strategy | Cost Per Workload | Complexity | Risk |
|---|---|---|---|
| Rehosting (lift-and-shift) | $200 - $500 per VM | Low | High post-migration costs |
| Replatforming | $500 - $1,500 per workload | Medium | Moderate |
| Refactoring | $10,000+ per complex app | High | Highest upfront cost |
| Enterprise refactoring | $200,000 - $500,000+ per app | Very High | Requires skilled teams |
Critical Correction
Previous estimates of €500M-2B for application refactoring were severely understated. Based on NHS NPfIT experience (£12.7B for a smaller scope) and enterprise refactoring benchmarks, a more realistic range is:
- Simple rehosting (20% of apps): £500M - £1B
- Replatforming (50% of apps): £2B - £4B
- Full refactoring (30% of apps): £3B - £8B
- Total application work: £5.5B - £13B (UK only)
UK Migration Cost Estimate
| Category | Estimate Range | Midpoint |
|---|---|---|
| Application discovery and assessment | £50M - £100M | £75M |
| Migration tooling and automation | £100M - £200M | £150M |
| Application refactoring (estimated 5,000+ apps) | £5B - £12B | £8B |
| Data migration and validation | £200M - £500M | £350M |
| Testing and certification | £300M - £600M | £450M |
| Rollback and contingency systems | £150M - £300M | £225M |
| Migration Subtotal (UK) | £5.8B - £13.7B | £9.25B |
| Contingency (40% - per previous estimate) | - | £3.7B |
| UK Migration Total | £8B - £19B | £13B |
Staffing and Training Costs
Previous Estimate Correction
Training estimate of €100-300M for "tens of thousands of staff" implied €2-10K per person. Government IT transformation training typically costs £40,000-£60,000 per person for full reskilling (certifications, hands-on, mentoring over 12-24 months).
| Category | FTE Count | Cost/FTE (over 3 years) | Total |
|---|---|---|---|
| Core platform team (permanent) | 500 | £350K (salary + benefits) | £175M |
| Migration specialists (contract) | 2,000 | £450K (contractor rate) | £900M |
| Security specialists | 200 | £400K | £80M |
| Programme management | 150 | £400K | £60M |
| Training and reskilling (10,000 civil servants) | 10,000 | £50K | £500M |
| Staffing Subtotal (UK, 3 years) | £1.715B | ||
| Premium for skills shortage (25%) | £429M | ||
| UK Staffing Total (3 years) | £2.1B | ||
Total Programme Cost Summary (UK)
| Category | Low Estimate | Mid Estimate | High Estimate |
|---|---|---|---|
| Infrastructure (with 50% contingency) | £1.4B | £1.8B | £2.4B |
| Migration and Refactoring (with 40% contingency) | £8B | £13B | £19B |
| Staffing (3 years with premium) | £1.6B | £2.1B | £2.8B |
| Platform development (36 capabilities) | £0.8B | £1.2B | £1.8B |
| Programme management and governance | £0.3B | £0.5B | £0.8B |
| International coordination (SCCA contribution) | £0.1B | £0.15B | £0.2B |
| UK Total (Initial 3-5 Years) | £12.2B | £18.75B | £27B |
Scenario Analysis
Best Case
£12.2BAssumes: successful reuse of existing assets, minimal refactoring needed, no major delays, full staff retention, no vendor disputes.
Probability: 10%
Most Likely
£18.75BAssumes: typical government IT overruns (27% avg), moderate refactoring, some delays, contractor premium during skills shortage.
Probability: 60%
Worst Case
£27B+Assumes: NPfIT-style overruns (100%+), extensive refactoring, major delays, vendor disputes, scope creep, political interference.
Probability: 30%
Four-Nation Total Estimate
Applying proportional scaling based on GDP and cloud spending:
| Jurisdiction | Scaling Factor | Low | Mid | High |
|---|---|---|---|---|
| United Kingdom | 1.0x (base) | £12.2B | £18.75B | £27B |
| European Union (aggregate) | 4.5x | €65B | €100B | €145B |
| Canada | 0.6x | €8.5B (CAD 12.5B) | €13B (CAD 19B) | €18.5B (CAD 27B) |
| Australia | 0.4x | €5.7B (AUD 9.5B) | €9B (AUD 15B) | €12.5B (AUD 21B) |
| Four-Nation Total | - | €94B | €145B | €210B |
Cost Reality Check
The "most likely" four-nation estimate of €145B (~$165B USD) represents a significant undertaking. For context:
- NHS NPfIT: £12.7B for one healthcare system
- EU IPCEI-CIS: €2.6B (much smaller scope)
- This programme: entire government IT estate for 4 jurisdictions
This is 2-3x previous estimates but reflects realistic benchmarks. Previous estimates were dangerously optimistic and would have failed Treasury scrutiny.
10-Year TCO Comparison: Status Quo vs Sovereign
To justify the investment, compare against continued US cloud spending:
| Scenario | UK 10-Year Cost | 4-Nation 10-Year Cost |
|---|---|---|
| Status Quo (AWS/Azure/GCP/OCI) | ||
| - Continued cloud spending (3% annual growth) | £12B - £15B | £85B - £110B |
| - Egress/lock-in penalties (exit later) | £2B - £5B | £15B - £35B |
| - Sovereignty risk exposure (unquantified) | Unknown | Unknown |
| Status Quo Total | £14B - £20B | £100B - £145B |
| Sovereign Cloud | ||
| - Initial investment (3-5 years) | £18.75B | £122B |
| - Ongoing operations (years 4-10) | £4B - £6B | £30B - £45B |
| Sovereign Total | £23B - £25B | £152B - £167B |
| Premium for Sovereignty | £5B - £9B (30-50%) | £20B - £50B (15-35%) |
VERSION 3.0: Phased Approach (Recommended)
Following stakeholder feedback, the recommended approach is now a dual-track phased model rather than full upfront commitment. This addresses the key criticism that committing £12-27B without proven UK-scale success is unacceptable risk.
Track A: Emergency Sovereign Capability (36 months)
Achieves basic sovereign infrastructure for critical government services, providing insurance against US cloud denial while validating the approach before full commitment.
| Category | Low | Mid | High |
|---|---|---|---|
| Core infrastructure (2 UK sovereign datacenters) | £400M | £600M | £800M |
| Platform development (essential services only) | £300M | £450M | £600M |
| Migration of Tier 1 workloads (critical services) | £800M | £1.2B | £1.6B |
| Staffing and training (36 months) | £500M | £700M | £900M |
| Programme management and governance | £100M | £150M | £200M |
| Contingency (25%) | £525M | £775M | £1.025B |
| Track A Total (UK, 36 months) | £2.6B | £3.9B | £5.1B |
30,000 employees migrating from Microsoft to LibreOffice/Linux. Investment: €9M. Projected savings: €15M/year. ROI achieved in 8 months.
Source: Schleswig-Holstein Government
Track B: Full Migration (Additional 4-5 years)
Only proceeds after Track A demonstrates success at Gate 3 review. Migrates remaining government workloads including complex Oracle systems.
| Category | Low | Mid | High |
|---|---|---|---|
| Additional infrastructure capacity | £800M | £1.2B | £1.6B |
| Tier 2-4 workload migration | £4B | £7B | £11B |
| Oracle/complex system migration | £2B | £4B | £7B |
| Extended staffing (5 years) | £1.5B | £2.5B | £3.5B |
| Contingency (40%) | £3.3B | £5.9B | £9.2B |
| Track B Total (UK, additional 5 years) | £11.6B | £20.6B | £32.3B |
Combined Phased Total
Track A Only
£2.6B - £5.1BEmergency capability achieved. Full migration deferred or cancelled based on results.
Duration: 36 months
Track A + Partial B
£8B - £15BEmergency capability plus migration of high-value workloads. Oracle systems remain hybrid.
Duration: 5-6 years
Full Migration
£14B - £37BComplete sovereign migration including all Oracle systems. Only if Track A proves successful.
Duration: 7-8 years
Key Advantage of Phased Approach
Maximum exposure at any decision point: £5.1B (Track A high estimate).
The phased approach means the government never commits more than £5B without demonstrated success.
This addresses the primary Treasury concern about NPfIT-style runaway costs.
Treasury Expected Value Framework
The investment case can be evaluated using expected value calculation, comparing the cost of mitigation against the probability-weighted cost of US cloud denial.
| Variable | Low Estimate | High Estimate |
|---|---|---|
| Probability of US service denial (5 years) | 1% | 10% |
| Impact of denial (UK GDP disruption) | £50B | £200B |
| Expected loss without mitigation | £0.5B | £20B |
| Cost of mitigation (Track A) | £2.6B | £5.1B |
| Break-even probability | 2-5% (if impact is £50-200B) | |
Comparable Government Insurance Decisions
| Programme | Annual Cost | Threat Probability | Rationale |
|---|---|---|---|
| UK nuclear deterrent | ~£6B/year | Very low | Existential threat insurance |
| Pandemic preparedness (pre-COVID) | ~£100M/year | Low (assessed) | Now seen as underinvestment |
| Cyber security (NCSC budget) | ~£200M/year | High | Active threat environment |
| Sovereign Cloud (Track A amortised) | ~£1.3B/year | 1-10% (assessed) | Digital infrastructure insurance |
Document Status
Version 3.0 incorporates stakeholder feedback recommending a phased approach with gate-controlled budgets. Previous estimates (£12-27B) assumed full upfront commitment; the revised model limits exposure to £5B before demonstrated success.
This cost model incorporates lessons from NHS NPfIT, Universal Credit, and IPA Major Projects data. All estimates include explicit contingency allowances based on historical performance.
Key sources:
- NAO - NHS NPfIT Report
- NAO - Universal Credit Progress
- State of Digital Government Review
- Cushman & Wakefield DC Cost Guide 2025
Version: 3.0 (Phased Approach) | Last updated: January 2026