NHS delivers swift kick to Microsoft's wallet over fee demands

Microsoft, like the other big vendors, is trying to make revenue through the use of compliance, police, and customers fighting back Aivars Lode

By | Paul Kunert 3rd July 2014 11:37

NHS delivers swift kick to Microsoft's wallet over fee demands

'Don't panic buy' those non-refundable licences, bellows procurement head

Exclusive Microsoft is finding out that it doesn't always pay to play nasty with large government customers: NHS procurement bosses are telling authorities and bodies to hold firm against a wave of licensing compliance threats.

As exclusively revealed by The Channel last week, Microsoft wrote to all 160 healthcare bodies across England in early June to warn them they had until the end of the month to cough up for extra licences, via the discounted PSA12 framework, or be charged private sector prices to settle their bills.

But in a letter to NHS organisations on Monday (30 June), Peter Dyke, head of customer engagement at the Health and Social Care Information Centre, fired back at Microsoft, indirectly telling Trusts to halt all but emergency procurement. At least, that was how a number of sources translated it.

He told Trusts that "joint discussions" between the Department for Health, Cabinet Office, NHS England and Microsoft "have now started with the objective of putting in place a new and better agreement for the NHS during 2014".

"The new agreement will provide a constructive and positive way forward for all in the NHS to maintain licence compliance, as well as to provide a clear and best value route to make NHS strategic investments in new technology over the years ahead," the missive stated.

Better pricing and efforts to "more broadly support the development of the NHS as a whole" will be tenets of any new deal, it added.

Several sources close to the matter told us the timing of the letter, which landed on the last day of Microsoft's fiscal '14, was uncanny and designed to dampen any spending on licences.

One insider told El Chan, that "reading between the lines", the letter from Dyke appeared to suggest that, "if you're planning a a significant upgrade that requires new desktop licences, hold off until the end of the year".

Then yesterday, the man from HSCIC - who was previously head of industry liaison at Connecting for Health before it was shuttered in 2013 - sent another note to Trusts to clarify what he meant by "new agreement".

This is not going to be another Enterprise Wide Agreement for the NHS, he said. "There is a broader programme of work underway with Microsoft looking at how the NHS and Microsoft can work more effectively together".

The talks involve "resolving any non-compliance and maintaining compliance going forwards", and "getting best value licensing options in place for the health and social care system going forwards".

Dyke said negotiations will "not generate a new national centrally funded arrangement but will allow us to work together with Microsoft to deliver best value to the NHS".

The hint is that government and Microsoft are beginning negotiations for a three-year Public Sector Agreement from 2015 as the last one, PSA12, moves closer to expiry. HSCIC urged NHS stakeholders to provide input and requirements.

Trusts need to consider strategic investment over the next five to six years, understand historic issues with licensing, and find ways to improve the way they work with resellers, HSCIC said.

A Public Sector Agreement, unlike an EWA, is a framework of commercial terms with no guarantee of spending.

The last EWA with the NHS was murdered in 2010when the coalition came to power, and cited a lack of business case or budget to renew it for another three years at an estimated cost of £80m.

That EWA was first signed in 2004 and was valued at £500m over nine years. It included three three-year breakpoints.

Microsoft contacted the NHS trusts last month claiming that since the structural re-org across the NHS, which started in April 2013, had been completed, based on the licensing data that Redmond had, some trusts owed it money.

Licence entitlement for each Trust comprises: licenses purchased in their own right; those inherited via transfers or mergers from other organisations; and some held centrally by HSCIC.

One medium-sized authority told us that its "discounted bill" was in the region of £1.2m because there was a licensing shortfall, "but the only way to verify this is by using an Microsoft endorsed and supplied auditing tool".

In yet another letter sent to Trusts on 18 June - the first response to Microsoft's threatening letter - Dyke at HSCIC urged procurement heads in healthcare not to "panic buy" because licences are non-refundable once bought.

"Licence compliance is important and should be resolved as quickly as possible. However, it is all too easy to buy more licensing than is required if you don't consider all the options," he said.

The letter added that under PSA12 terms, licences must be purchased within 30 days of deployment to qualify for the discount, which is the general position from most software suppliers.

"They have the right to charge you more if you have breached the agreement terms, so it's best not to. Usually, where there is a good relationship with a customer, they don't impose punitive terms, even if they can, since that damages a productive long term revenue stream," stated Dyke.

Microsoft refused to comment. ®