Government seeks savings through licence shuffle

Against a background of massive cuts to public spending, Value Licensing believes it has spotted an opportunity to broker Microsoft licences between public-sector organisations
Written by Tom Espiner on

In a climate of cuts, the government says it wants to encourage the re-use and reallocation of software licences, while repeated culls of civil-servant positions mean a number of licences are no longer being used by government staff.

The UK taxpayer funds over a billion pounds a year on government software licences. In 2009, the government spent £17.9bn on ICT, of which eight percent, £1.4bn, was on software. Licence reallocation as a cost-saving exercise featured in a Government ICT Strategy document published in October 2011.

But as keen as the government is on the reallocation of software licences as part of efforts to cut public spending, companies with large government software contracts, such as Microsoft, are just as loath to discuss the subject of public-sector licensing.

However, the combination of fiscal pressures and new access to government IT for SMEs is pushing developments in this area. The Cabinet Office is currently renegotiating its contracts with Microsoft, and expects that prices may go up in April, giving extra impetus to cost saving measures.

Licence broker

One small UK business — Value Licensing — believes it has spotted an opportunity to act as a broker between public-sector organisations to recycle Microsoft volume licences.

The government has enterprise-wide agreements that were signed with Microsoft in 2009 to provide software across government bodies. Microsoft is one of the largest software suppliers to government, taking around £286.4m from the government for licences, or 1.6 percent of the total ICT spend.

With the axing of various government bodies, the public sector has a chance to reallocate licensing agreements worth hundreds of thousands of pounds per body, according to Value Licensing.

Reallocating licences

The terms of Microsoft public-sector enterprise agreements allow organisations to reallocate licences within the public sector, according to Microsoft licensing agreements seen by ZDNet UK.

In 2009 Microsoft signed a confidential three-year licensing agreement with Buying Solutions called the Microsoft UK Public Sector Business and Services Agreement (MBSA). Microsoft is currently negotiating a fresh deal with the public sector, due to be signed by the Cabinet Office in April.

Customers can transfer licences to other government customers.
– Framework document

A document that specifies enterprise terms of the 2009 agreement, seen by ZDNet UK, allows transfer of Microsoft volume licences between public-sector organisations.

"Customers can transfer licences to other government customers," says the UK Public Sector Enterprise Agreement Framework ID N39. "Enrolled affiliate may transfer licences acquired under a perpetual enrolment to another government customer."

An 'enrolled affiliate' is an organisation that has entered into a public-sector enterprise licensing agreement with Microsoft.

Legal basis

Law firm Pinsent Masons told ZDNet UK that brokering transfers of perpetual Microsoft enterprise public licences was not prohibited under Microsoft terms.

"There is nothing in the Public Sector Enterprise Agreement terms or under English law that would in theory prevent a third-party intermediary from 'brokering' or 'facilitating' permitted transfers between public-sector bodies, provided it is not 'reselling' the licences itself, outside of Microsoft's authorised reseller scheme," Pinsent Masons associate Joanna Alderson told ZDNet UK.

Whitehall departments

In a climate of cuts, Whitehall departments are seeking to encourage the re-use and reallocation of software licences.

Alderson said that a government licensee could transfer licences to another public-sector body provided that the licences are fully paid up perpetual licences, the transfer is permanent, the transferee accepts the terms and restrictions of the licence in writing, and Microsoft is notified.

Value Licensing wants to arrange the transfer of Microsoft from insolvent to solvent public-sector bodies. "We [want to] broker licences from insolvencies," Value Licensing director Jonathan Horley told ZDNet UK. The company would then negotiate a fee based on a percentage of the value of the transaction.

Bonfire of the quangos

Value Licensing is in the process of acting as a broker between the NHS and an unnamed quango that had its funding drastically reduced after public-sector cuts.

Chancellor George Osborne announced cuts to quangos in May 2010 as part of £6.2bn slashes to public spending. The government published a full list of quangos (PDF) to be axed in October 2010.

One quango that has had its budget slashed is Business Link, a government advisory service to business. Before November 2011, Business Link was an organisation with over 400 employees, under the auspices of Department for Business, Innovation and Skills (BIS), with a website administered by HMRC. In November, the service jettisoned most of its employees, retaining only the website part of the organisation, BIS told ZDNet UK.

BIS declined to say exactly how many people had lost their jobs due to the Business Link closure. "The regional Business Link services were delivered by different providers that were contracted out through the Regional Development Agencies (RDAs)," said the spokesman. "It was their responsibility to discuss with staff arrangements for future employment or redundancy."

In November 2011, Value Licensing was appointed by administrators to redistribute over 400 Microsoft licences from a quango that went into administration. Value Licensing declined to tell ZDNet UK whether that organisation was Business Link.

Value Licensing said it approached an NHS body to try to redistribute the licences. The NHS then approached Microsoft to enquire about...

...the legality of the proposed scheme.

Microsoft has not pursued the matter of legality with Value Licensing. Microsoft declined to comment on the legality of the scheme to ZDNet UK, and declined an interview about licensing.

Long-term prospects for licence brokering

The Cabinet Office oversees the implementation of the government's ICT strategy, and declined to comment on the legality of any company seeking to transfer licences.

"The re-use of licences within the UK public sector is a key part of our ICT strategy, although the re-sale of licences is not permitted," a Cabinet Office spokesman told ZDNet UK. "Any legal issues regarding brokering the reallocation of public-sector licences will depend on the exact details of the transfer."

As part of licence re-use efforts, the Cabinet Office is in the process of setting up a database called the Assets and Services Knowledgebase (ASK ICT) (PDF), for central government to track licence use. The database may cut down opportunities for central government licence brokering.

"The Assets and Services Knowledgebase which we are developing will record all products and services used in central government – including their use," said the spokesman. "The government also encourages contracts to be written suitable for re-use. This will allow for re-use of any product which is not being used for its original purpose."

The first phase of ASK ICT was delivered in October. The database was introduced to address "a lack of management information to support achievement of key efficiency aims for government ICT", according to a government procurement document.

The database will cover central government licences, and quangos, but not regional public-sector bodies.

Scale of Microsoft licensing spend

The UK government is a major customer of Microsoft products, spending millions of pounds with the company, but does not always know where potential for reallocation exists.

The re-use of licences within the UK public sector is a key part of our ICT strategy, although the re-sale of licences is not permitted.
– Cabinet Office

The Department of Health (DoH) is one major user of Microsoft software licences within government bodies. Connecting for Health (CfH), the DoH informatics arm, owns the perpetual licences from an enterprise-wide agreement (EWA) in 2009 with Microsoft for volume licensing.

The NHS centrally owns millions of Microsoft perpetual licences, but does not audit its assets to find redundant licences, CfH told ZDNet UK.

CfH said that as the NHS server estate is upgraded, older versions of licences become redundant. CfH holds more than a million Microsoft licences that are, or are becoming, redundant.

A blessing in disguise

Although proprietary software companies depend on licensing for their revenue and can use their clients' existing investment as a tool to set restrictive rules and higher fees, this only works for so long.

Open standards, and open software, make it easier for organisations to contemplate changing suppliers altogether: the more Draconian the deal struck by an existing supplier, the more interesting the alternatives become.

When Microsoft could set the rules for the industry, it was in its interests to lay down the law and discourage transferable licences: now, what looks like a threat — a third-party encouraging licence re-use — may be one way to preserve market share and user base.

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