Microsoft is playing hardball with the NHS, threatening trusts and authorities with drastically increased software payments over claimed licence violations.
The tough talking comes more than a year after an organisational shift began across the NHS (April '13) saw some Primary Care Trusts and strategic health authorities abolished and clinical commissioning groups taking their place.
The company this month wrote to NHS organisations saying the overhaul made "this latest review and subsequent re-allocation necessary". It told the bodies to assess their software estate and cough for any "identified shortfall" by 30 June.
Microsoft said it received data from the gov quango the Health and Social Care Information Centre and checked this against its own purchasing history for the past four years (since the last NHS-wide Enterprise Agreement).
"This has enabled us to carefully identify and prioritise specific areas of non-compliance risk across SQL, Office, Project, Visio and Windows products based on the declared or known PC and mobile device and seat count," the letter, seen by El Chan, stated.
"We will engage with every NHS organisation over the next three to six months, but as a priority, we will look at the highest risk organisations in the NHS and start this process in July," the letter added.
Any public sector body can use the Public Sector Agreement 2012, a discount structure thrashed out between No. 10 and Microsoft. It gives cash-strapped and publicly funded buyers discounts of 28 per cent versus the standard private sector price list.
Microsoft UK can offer further discounts on big deals of between 10 and 22 per cent, say sources, but anything higher needs to be reviewed by European and US bosses.
But those discounts will be removed from any NHS body that fails to get its licensing house in order before Monday's deadline, the letter stated:
This is your decision but given your high risk status without action you will be asked to undertake a software licensing review. This review will start in July and if further non-compliance is identified, and commitment is not given to resolve it, you may be liable for the full amount under the commercial select level A pricing and may be subject to further compliance action".
[If] further non-compliance is identified [in the July review], and commitment is not given to resolve it...You may be liable for the full amount under the commercial select level A pricing and may be subject to further compliance action.
The threats come as Microsoft’s fiscal year comes to an end on 30 June.
A Microsoft spokesperson told us it had been working “collaboratively” with the Department of Health” to allocate licences from the previous NHS enterprise-wide agreements following the spring '13 health service re-org.
“This process has just been completed, so as expected, we are making sure all organisations including new ones are correctly licensed,” Microsoft said.
Channel partners told us that Microsoft had talked tough with the public sector before but said this was a risky strategy, and one claimed "when the rubber meets the road Microsoft will back down".
Evidence of this was seen in 2012 when - two years after the closure of the previous NHS-wide Enterprise Agreement - the Cabinet Office got fed up with Microsoft's demands and froze all but emergency spending on Microsoft wares for six months across the entire heath sector, as The Channel exclusively revealed at the time.
"Microsoft talks tough but at the last minute when it needs a deal it capitulates. Microsoft is the victim of its own commissions plans and quarterly targets. Smart buyers manipulate the situation, those that can wait for deals in June," he added.
If Microsoft does soften on NHS Trusts it will likely try to claw back the money using the dark arts of software licensing, the source claimed.
Some in the channel defended Microsoft, with one saying NHS Trusts had dragged their feet over licensing compliance, and that the vendor was well within its rights to audit and claim for any shortfall.
A Date With History
It is almost four years since Cabinet Office Minister Francis Maude told Microsoft there was no budget or business case to justify renewing a volume arrangement.
An Enterprise Agreement had been signed by the previous regime in 2004, valued at £500m over nine years with three three-year breakpoints. At that point there were 500k PCs in use across the NHS but the contracts covered up to 900,000 seats.
Microsoft's fiscal '14 closes this month and a spike in NHS revenues will help lift the numbers, no doubt, with some close to the company estimating several million pounds could be made from this audit exercise.
Any failure by an NHS body to hit the deadline this month will equally be a welcome boost to Microsoft's Q1 sales ledger for the next financial year.
We are still awaiting comment from the Department for Health.