NHS stalling puts Microsoft licence savings under threat

A government deal with Microsoft to save taxpayers £100m on software licences could miss its target because major departments such as the NHS and Inland Revenue are delaying signing up to the new terms.

Government buying arm the Office of Government Commerce (OGC) negotiated the Memorandum of Understanding (MOU) with Microsoft in 2002 to 'pool' public sector volume licensing purchases and trigger bigger levels of discount.

The deal was done in response to Microsoft licence changes in 2001 that the OGC estimated would cost the public sector an extra £40m to £60m a year.

Many of the big departments, including the Ministry of Defence – which bought 150,000 licences – negotiated better agreements separately with Microsoft, although the software company was persuaded by the OGC to allow those to count towards the overall public sector volumes.

At a grilling before parliamentary watchdog, the Public Accounts Committee, last week Peter Gershon, CEO of the OGC said £49m of savings have been achieved to date but admitted that delays in a major upgrade deal for the NHS could meant the overall savings are not achieved.

"We will not get within sight of the next volume threshold until we have done the NHS deal," he said.

Gershon said some departments are delaying commitments to Microsoft software upgrades because of the associated hardware and installation costs

In terms of direct price reductions, Gershon told the Committee there is potentially another £20m to £30m to come, but he revealed that the OGC has already started negotiating with Microsoft to try to get a better deal.

"Clearly this is a very fast moving market and we think now that there is a basis for looking again with Microsoft at the agreement in the light of changes in technology, changes in market conditions and we are about to re-open discussions with Microsoft to see whether we can obtain further improvements in the MOU," he said.

A similar framework agreement with Oracle saved the government £2.7m on £25m of Oracle database products by the end of September, the Committee was told.

Gershon was also pressed on the government's progress in adopting open source software and said nine trials announced recently would report on the viability and cost of the software for wide-scale use in the public sector.