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Reworked Microsoft and SAP contracts to save govt £70m

Discounts on licences and maintenance costs fit in with government's plans to overhaul public sector IT

By Steve Evans

The government has renegotiated two huge IT contracts with Microsoft and SAP, which should save the UK taxpayer around £70m thanks to discounts on software licences and maintenance costs.

The renegotiated contracts are part of the government’s plans to move away from big inflexible deals that provide little value to the taxpayer, Bill Crothers, executive director for commercial relationships, Cabinet Office, said at a press conference held at Whitehall this morning.

The majority of the savings will come via the Microsoft deal. An estimated £65m will be saved through discounts of software licences. A ‘revised discount schedule’ for the public sector has also been negotiated, Crothers said.

A further £3m is expected to be saved via SAP discounts, which will hopefully rise to at least £5m by 2015.

The government hopes that wider public sector savings, meaning savings beyond central government, could eventually top £150m during the life of this parliament.

Crothers added that the key to securing the savings was approaching Microsoft and SAP as a single customer, rather than having various government departments pay different amounts for essentially the same software.

"We’ve changed the view of how we view ourselves and how our suppliers view us, and that is as a single customer," Crothers told the press conference. "Previously each department would do business with a supplier as a client in their own right. This is not at all what happens in the private sector, where it is all a single view. That’s a fundamental change we’ve introduced."

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Stephen Kelly, former Micro Focus CEO who is now Government Crown Representative, said negotiations with both parties had been "tough", with Microsoft haggling for nine months and SAP six.

"In the world or proprietary software, vendors vigorously defend their licensing and maintenance revenue because for many of them it can make up half of their revenue stream," Kelly said. "With SAP we have negotiated a discount in excess of 20% on the running costs of the support and maintenance charges through their professional, premium support for large enterprises."

It was also revealed that the government will sit down with key suppliers later this week to discuss whether other software vendors would also embrace the single client idea, which could lead to further discounts.

"The days of signing huge, inflexible IT contracts are gone forever," said Maude in a statement. "We have skilled negotiators within the government and we are building up this expertise, taking a strategic view and acting as the taxpayer’s champion."

"These new deals will provide better IT at cheaper prices for police, NHS and council workers across the country," he added.

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