Government slashes SAP and Microsoft spend by £150m

The government expects to slash its software licence and maintenance bill with Microsoft and SAP by up to £150m by 2015, via a framework renegotiation.

Under the deal the public sector will avoid recent Microsoft’s licence fee hikes. The Cabinet Office estimates the government will save £65m in yearly fees to Microsoft in 2012/13, and more than £3m to SAP.

Bill Crothers, executive director for commercial relationships at the Cabinet Office said this figure could rise to £150m in savings on Microsoft and SAP licence and maintenance fees across the public sector by 2015.

Annually, the public sector spends around £300m with Microsoft and £50m on SAP. The framework agreement is projected to save 22% in Microsoft fees and 10% on SAP per year in total.

The government also saved 22% in software maintenance charges alone for SAP, which is used by a number of police forces and NHS Trusts in England as well as over 50 local government organisations.

Crothers said the disaggregation of licensing deals under system integration contracts was a challenge, but the government would increasingly look to purchase direct from suppliers in order to maximise cost benefits.  “Even BPO [business process outsourcing] is [an area] we are looking to disaggregate. You can get electricity cheaper than typical BPO provider [are able to offer],” he said.

Crothers said the Cabinet Office now expects suppliers to treat the public sector as a single customer. He said government should enjoy the benefit of its position as a large customer who always paid on time.

Stephen Kelly, government crown representative added the Microsoft deal would save £10m across the NHS, the equivalent of 300 nurses.  He said the deals took nine and six months to negotiate with Microsoft and SAP respectively.

Jos Creese, CIO of Hampshire county council, worked closely with the government and suppliers on the deal. He said the key to its success was taking a partnership approach between central and local government. “By working together we are getting better value than we could have done separately,” he said.

He said organisations in Hampshire’s shared services arrangement between the county council, police and fire services would benefit from the deal allowing flexibility to transfer licences.

Liam Maxwell, deputy CIO, said the government would consider publishing it maintenance and support spend with suppliers for on-premise IT  as part of its transparency agenda. He said the renegotiation would not be a “one time hit” deal.

He added: “Most of [our] IT spend is with the oligopoly, a small group of large suppliers. [The] software we buy gives us a key as to how we can get better value for the taxpayers.”

In a statement Cabinet Office minister Francis Maude, said: “These new deals will provide better IT at cheaper prices for police, NHS and council workers across the country.”

The deal follows government plans to claw back £200m in spending with IT supplier Capgemini over the next five years, and £75m with Oracle by 2015.