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UK Health Agency Enters Huge, Long-term Licensing Deal with Microsoft

Apparently it pays to be huge and hard-nosed when it comes time to negotiate a new contract with Microsoft.

The United Kingdom's Health Minister, John Hutton, this week announced an agreement on the licensing of Microsoft desktop and mobile computing software for the National Health Service (NHS).

The nine-year contract allows NHS to use Microsoft desktop software on up to 900,000 computers, up from 500,000 in the previous agreement. The entire deal is reportedly worth an estimated 500 million pounds ($900 million).

"The NHS is in a uniquely strong position as an IT customer, currently the largest procurer of IT services in the world," lead negotiator Richard Granger, the director general of NHS IT, said in a statement. "This agreement illustrates Microsoft's commitment to supporting the needs and demands of one of its most important customers."

Bearing out Granger's assessment of his own importance: Microsoft CEO Steve Ballmer was the guy at the other end of the negotiating table.

"It represents not only substantial savings over both previous NHS pricing but also that of other public sector purchasers," Granger said in a statement clearly aimed at British taxpayers.

What can you get when you have the leverage of nearly 1 million desktops?

  • An estimated initial savings of 112 million pounds (about $206 million at Thursday exchange rates) over the first three years of the deal, according to Granger.
  • A nine-year deal subject to three-year break points allowing for renegotiation should costs fall or circumstances change.
  • An estimated savings in excess of 330 million pounds (about $607 million) over the life of the deal.
  • A 40 million pound ($72 million) R&D commitment from Microsoft to contribute to guidelines and toolkits to allow ISVs to deliver an NHS-specific user interface.
  • Rights to future editions of Microsoft desktop software released during the nine-year contract.
  • Provisions for the growing number of mobile users within NHS.

    The agency, which pooled licensing rights so that smaller agencies and departments will be buying licenses under the agreement, had another thing going for it. The previous week, the U.K.'s Office of Government Commerce published a report calling open source software a "viable alternative for governments." OGC officials contacted by British media, however, said they were quite happy with the NHS-Microsoft deal.

    Pretty good, but NHS may have been able to do better, according to Scott Braden, consultant and author of "Microsoft License Secrets."

    "NHS won big, but not disproportionate, concessions," Braden says. "As a percentage of the deal size and given their history, it's a good deal but the money saved as a percentage of spend is good but not great."

    On the other hand, the R&D commitment from Microsoft is a win-win, Braden says, because Microsoft has been lagging in the healthcare space. And NHS could also benefit from a clause in the agreement that it would get a share of any license fees that Microsoft gains from licensing the new user interface code to other organizations. "This could be really big, depending on how the fees are shared," Braden says.

    See also, "7 Steps to a Better Bargain," the Redmond magazine guide to negotiating the best deal with Microsoft.

  • About the Author

    Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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