MPs reveal how to save £100m on Microsoft licences

In their report into government procurement, a cross-party committee of MPs reveals how they are smashing targets for savings on software procurement. And, they say, Linux is almost ripe for the desktop

Government departments are on track to save £100m over three years through a combination of market intelligence and a more coordinated approach to licensing, according to a cross-party group of MPs. Key to this has been hard bargaining with a reluctant Microsoft and a willingness to consider open-source alternatives, says the group.

In its report, titled Purchasing and Managing Software Licences, the Public Accounts Committee (PAC) said that although government departments had expected to save £36m on licences for the three years ending March 2005, they had shattered this target by September 2003 with savings of £49m.

This achievement was driven by the Office of Government Commerce (OGC), which led the effort with a memorandum of understanding that it foisted first upon Microsoft and later on its other major software suppliers -- including Sun, IBM, Oracle and Corel. Some 95 percent of government departments have Microsoft licences.

The memorandum was produced in response to the new licensing arrangements that Microsoft rolled out in August 2002 and which, said the PAC, would have cost government departments as much as £60m a year extra. "Initially the company was unwilling to negotiate with OGC and it took five months to conclude the memorandum," said the MPs, who cited the importance of bulk-negotiating. "Fundamental to achieving the deal was the willingness of the wider public sector, including local authorities and the devolved administrations, to co-operate with OGC during negotiations."

Although take-up of the memorandum among departments has been less than anticipated, the OGC plans to focus an awareness campaign on those still not opting in, in advance of renegotiating it in future.

Negotiation was made difficult, said the MPs, because "Microsoft requires its customers not to reveal to third parties the level of discount they receive. Purchasers are therefore unable to determine whether the price being offered is better then those for other customers. OGC obtains market intelligence from a number of sources to assess the worth of the memoranda, but considered it difficult to compare them with other agreements offered to large corporations who could commit upfront to the purchase of large volumes of software."

Although the OGC clearly said it receives discounts from Microsoft, and indeed expects the next "discount threshold" to be reached this year, Microsoft itself appears reluctant to admit that it hands them out.

Mark Buckley, licensing marketing manager for Microsoft UK, said the company has always stood behind the value it gives its customers, but that it is always open to discussing contracts. While he stopped short of saying that Microsoft will negotiate on price, in an interview with ZDNet UK prior to publication of the report, Buckley did say that Microsoft can look at the type of licence an organisation has. "Sometimes customers buy what they perceive to be the best licence," he said. "Licensing is how you get a fair price for service. We are open to discuss any licensing contract with the customer. We can look at the licence types and suggest a more appropriate one."

In some case, this "looking" has been helped by organisations considering a move to open-source alternatives, such as the recent case of Newham Council, which decided to stay with Microsoft products after threatening to switch to open source.

In December 2003, the OGC announced a trial with Sun Microsystems of open-source software on the desktop, saying that the agreement now provides a competitive alternative to proprietary software from Microsoft.

In its report, the PAC said that open-source software such as Linux, which is already in widespread use on servers among government departments, may soon be a viable alternative to existing software suppliers for the desktop.

But, warned Buckley, organisations looking to lower their licensing costs should not automatically issue the threat of moving to open source. "Don't lead a negotiation with a threat you have no intention of carrying out," he said.