Government scraps £80m Microsoft licensing deal with NHS

The government has scrapped the long-running NHS Connecting for Health (CfH) enterprise agreement (EA) software licensing deal with Microsoft after deciding there was no business case or budget to renew it.

The EA, which was scheduled to kick off on 1 July, had already been pared back from the original value of £80m to just £21m, and was set to run for three years through Microsoft large account resellers Softcat, Trustmarque and Phoenix Software.

However, sources said that at the eleventh hour the Cabinet Office pulled the plug on the EA, which was originally agreed in 2004 for a total of nine years, including three-year breakpoints to allow the NHS to review its application requirements.

"Out of the blue, the Cabinet Office rejected the cut-down version of the renewal," said a source. "The noise from the top is that they are not sure national agreements work. It will be down to the trusts to make sure they are fully licensed."

The EA covered about 800,000 desktops in all NHS regions in England, and was believed to be the biggest deal of its kind in the world.

The Cabinet Office did agree to pay Microsoft about £50m to cover software used in the previous agreement that was not licensed, but attributed the spend to the last administration's budget.

"The money is coming out of the same pot but, politically and on paper, it looks like the new government is saying it has not spent any money as the last lot used it all," said another insider.

But others have questioned the value of the EA. "The NHS was given a free lunch that it didn't order - was the deal any good if certain entities were not using the software?" said another source. "It makes sense for those using the software to buy it."

Software prices are expected to rise two to three times without the economies of scale that an EA agreement would provide, but the decision will also lead to massive licence compliancy issues, according to sources close to Microsoft.

"There are around 400 NHS trusts in the UK and although they are licensed for some elements, there is a big hole out there that could be as large as £100m," added the source.

Microsoft is beginning the process of knocking on trusts' doors to ascertain the software under use and now much of it has been paid for.

The move has put a further question mark over the future of CfH, which had agreed the deal with Microsoft. CfH was created to oversee the £12bn NHS National Programme for IT, but that troubled initiative is also under review.

Only last week, the government met the largest suppliers to the public sector to ask them to cut profit margins to reduce the cost of IT contracts.

Despite repeated requests, the Cabinet Office, CfH and Microsoft failed to provide comment for this story.