Feather Brooksbank previously held the business but the account is moving following a review by the executive of its advertising, media and marketing agencies.
Its media account, which covers five departments of the Scottish Executive, has been consolidated into a single contract. Feather Brooksbank had previously had separate contracts with each of the five departments.
The Scottish Executive is also expected to appoint a new creative agency roster. Barkers, The Union and the now defunct Faulds Advertising made up the previous roster.
Feather Brooksbank had held the media account since the Scottish Executive was founded in 1999.
Stuart Feather, the joint managing director of Feather Brooksbank, said: "This was a big pitch and we're very proud of the pitch we've done. We thought we put together a good tender but the procurement people felt otherwise."
Feather added that reports of cutbacks at the agency following the loss were wide of the mark.