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UK government to extend contract with Microsoft

Blow struck in public sector war with Linux

In a deal that appears to buck the growing trend among governments to adopt open-source alternatives, the U.K.'s Office of Government Commerce (OGC) is negotiating a renewal of a three-year agreement with Microsoft.

Both the software maker and the OGC confirmed this week that they have discussed extending an existing memorandum of understanding (MOU), which is set to expire next year, although terms of the new deal have yet to be revealed.

OGC spokesman Martin Day said that while the existing MOU primarily covers software licensing fees, the new three-year contract will focus on services and support.

"We wanted to put something in place to have a seamless transition between the two contracts," Day said.

He added the new MOU isn't expected to be signed until the end of next month. Microsoft released a statement saying that it is pleased to have reached an agreement with the OGC but is not in a position to give details while talks are still underway.

The OGC procurement office, which negotiates volume deals for the public sector, initially sewed up an agreement with Microsoft in 2002 to offer competitive licensing fees on desktop software for the country's nearly half a million public servants.

The agreement came after a tough round of negotiations over the fees. At that time Microsoft wanted to raise fees on government contracts and the OGC said that it would consider finding cheaper software elsewhere if a deal was not reached.

The two sides came to an accord, signing a contract in March 2002, although the deal's value was not revealed. At that time, the OGC also entered software agreements with Sun Microsystems and IBM's Lotus division. It hailed its negotiations with the three suppliers as a collaborative purchasing success, and estimated that the government would save £100m over three years under the deals.

According to the OGC's Day, the government is on track to meet the £100m cost savings.

While the OGC has decided to stick with Microsoft, a number of governments around the world have recently taken a more serious look at open source.

Last year the city of Munich dropped Windows for Linux and is currently looking to deploy open source operating systems across all of its departments, and local governments in India, Australia, Italy and France, among others, have all recently decided to move to open source as they look to reduce costs and gain flexibility in the systems they use.

Microsoft hasn't taken the trend lightly. The software maker has been busy courting governments through the creation of a new public sector organisation within the company, charged with influencing governments' buying decisions. It has also rolled out an entry-level, lower priced version of its Windows XP operating system, called Windows XP Starter Edition, and has negotiated with governments to deploy the software to novice users.

Microsoft's efforts seem to be paying off. Earlier this week it scored a win with another UK government body, the London Borough of Newham. Newham, which is seen as one of the country's most progressive government users of IT, decided to go with Microsoft over an open source alternative. The Newham government's decision was aided by a Capgemini SA evaluation that claimed it would save £3.2 million in support costs over five years if it chose the Microsoft option.

The company's UK wins came as little surprise to RedMonk LLC analyst James Governor.

"The UK has always been an important beachhead for Microsoft in its public sector fight. They've been in the trenches in Newham and are waging an air war with the OGC," Governor said.

Microsoft has a history of winning UK government contracts, and has done some heavy lobbying here, Governor said. He added that the UK government has improved negotiating with the software maker and has pinned down some advantageous deals.

"No doubt other European governments will look at what Britain has negotiated and say ' I want a piece of that,'" Governor said.


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