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NHS Could Face £100M Microsoft True Up Bill [ Expert Panel ]

The National Health Service (NHS) in the UK recently decided to end its Enterprise Agreement with Microsoft.

The NHS employs over one million staff and is said to be the largest user of Microsoft technology and third largest organisation on the planet (The only other larger organisations are the Chinese Army and Indian State railway).

The terminated agreement allowed NHS staff full access to the Microsoft Office suite of applications and a copy for home use for a nominal fee.

I asked a panel of worldwide ITAM experts their views on the NHS Enterprise Agreement.

In particular I was keen to know what challenges the NHS faces outside of the Enterprise Agreement and what advice they would share for companies exiting an all-you-can-eat license.

Gemma Poole, CRC

Gemma Poole, CRC

Gemma Poole of UK SAM Specialist CRC

“As a result of the government terminating the NHS Connecting for Health (CfH) Enterprise Agreement, licensing deal with Microsoft, which covered approximately 800,000 desktops, sources close to Microsoft are reporting a potential non –compliancy liability of approximately  £100m.

Microsoft is beginning the process of contacting NHS Trusts to ascertain the software under use and how much of it has been paid for. As Gartner says“More than 50 percent of organisation have been audited by at least one software vendor in the last 12 months” Gartner 2009 and the Trusts are surely going to be in that 50%. And where Microsoft leads other vendors will follow.

Most Trusts have some form of audit / inventory management technology, so clearly they should have the wherewithal to deal with the possibility of audits. But we believe one of the most challenging tasks facing the NHS Trusts is to move from discovering installed software to reducing costs by identifying effective purchasing strategies and harvesting existing licenses.

It is often difficult for an organization to step back and untangle the complex issues associated with managing software assets. When a company exits a site wide Microsoft license agreement, the organization will own rights to use the most current version of software included on the agreement at the date of expiry.

In order to maintain control of license costs, maximize the previous investment and ensure the business is compliant, a robust SAM program should be maintained.

  1. A clear inventory of the software installed and in use on the network – Discovery / software metering
  2. Precise records of all proof of license entitlements and understanding of product usage rights
  3. Compliance management and maintenance of an Effective License Position
  4. Software Asset Management process and policy design and implementation
  5. Effective volume license agreement modeling and purchasing strategies
  6. Expert, knowledgeable and impartial licensing and SAM resource

We are finding that many Trusts are concerned about taking advice on managing their software estates, from the same companies which sell (Microsoft) software. This places Microsoft Large Account Resellers (LARs) and Value Added Resellers (VARs) into the role of both ‘poacher’ and ‘game-keeper’, with only one aim, and that is to sell the maximum number of licences as quickly as possible.

We believe one area of cost reduction is understanding the metrics of what software is actually being used. Recently a customer was able to reduce their Microsoft Office license estate by 70% by providing a free word viewer for those users who only needed to view and print word documents.”

Jason Allaway, from SAM specialists SAM Practice (now part of Kelway )

“Within the confines of an Enterprise Agreement an organization typically has a looser reign on software assets. They can consume as much as they like with some applications with no regards to actual usage. As they exit the agreement the vendor is going to be interested in their asset base and the controls in place.  They face the cultural shift from an annual true-up ‘ticking the box’ exercise to being a lot stricter on installs, version controls, purchasing and regular compliance checks.

There is currently a strong appetite for audits in the current climate and I believe tree will be a large risk of audits across the NHS trusts. Microsoft have lost a significant contract and will want to ensure costs are recouped and intellectual property is not being exploited. I imagine there will be a significant true up exercise as the exit the agreement.

As an independent SAM practitioner I would advise the NHS trusts to identify what assets they have and only buy what they need going forward. They will need to be more disciplined in what applications are deployed”

Phil Heap, FAST Ltd

Phil Heap, FAST Ltd

Phil Heap, Head of Products and Services at FAST Ltd
“NHS organisations should take the opportunity to baseline their IT infrastructure, with a view to optimising IT assets for the future. This will assist them in planning their technology requirements and to understand the current position with regards to their software needs. Once established they need to ensure that they are only paying for the licences that they are going to use. Organisations should speak to a professional before purchasing the required licences to ensure that they are future-proofing their investment.

“NHS managers, who will now be responsible for obtaining and maintaining software licences for all Microsoft systems, applications and servers deployed in their environment, must ask themselves a series of questions.

  • Do I know how many licences we actually need?
  • Can we effectively plan for future technology upgrades?
  • Can we save money by optimising our investment in hardware & software assets?
  • How will we manage software upgrades in the future?”

Grant Brierley, Express Metrix

Grant Brierley, Express Metrix

Grant Brierley of Express Metrix
“It’s an interesting situation for everyone coming out of this wide-ranging agreement.

In these more cost-conscious times, it will raise significant challenges, but also some good opportunities for cost control.

Fortunately, there are now some well-established technologies and practices which enable smooth discovery, analysis and management of software usage.

Express Metrix has already worked with extensive organisations to make this a reality”

Bernhard Boehler, Aspera

Bernhard Boehler, Aspera

Bernard Boehler from Aspera

“Opening up IT procurement to other vendors is definitely one way to get competitive pricing on software.

Aspera has a customer that made a similar decision in regards to an enterprise-wide contract with a top publisher. An audit came pretty quickly after the announcement not to renew the contract.

The decision was made months in advance and we worked together with the customer to prepare for the audit. Of course, we were only assuming that the vendor would initiate an audit, but we were right.”

Steve O'Halloran, AssetLabs

Steve O'Halloran, AssetLabs

Steve O’Halloran from Asset Labs

“At first glance, the dissolution of Microsoft’s largest Licensing agreement with the NHS gives the perception that the NHS wasn’t satisfied with the ‘value’ that Microsoft was offering. But when you determine the logistics of license management across those 800 agencies, it is more likely that a lack of standards, and license management ‘accountability’ is the core issue.

In effect, the NHS is like a fleet of vehicles and Microsoft is their Petrol station; you can’t blame the Petrol station if many of your lorries have bad fuel-efficiency and keep returning to the petrol station to ‘top up’ more than they should! So the dissolution of this huge EwA is akin to the fleet manager making each lorry driver accountable for their fuel consumption.

The dissolution of this EwA also changes the balance of power of the resellers (LARs) who are able to offer an MS Volume License Agreement. To date, there are 18 UK-based LARs that can offer a VLA to an NHS agency, but the now-defunct NHS agreement with Microsoft only allowed three of those LARs to offer the licenses. This meant that the other 15 LARs had to ‘sell through’ one of the 3 ‘authorized’ LARs (softCat, TrustMarque & Phoenix Software) and the profits were shared (though unequally).

With the ‘3 LAR monopoly’ now dissolved, there are now 10 LARs that are selected (by the Government CiTHS framework agreement) to directly offer a VLA, this means that there are 7 new LARs that are able to increase their margins by not having a middle-man ‘LAR’ that reduces their margins, and the other 8 ‘non-selected’ LARs have greater leverage in which of the 10 other LARs they can choose. Ultimately, this new arrangement of will create a very competitive environment…..when everyone comes back from summer holidays

For the Trust agencies, this new competitive arena of LARs is a bit of a moot point; now each agency must deal the very licensing problems that probably caused the NHS deal to be dissolved in the first place. To make issues more complex, each agency now has to understand that certain ‘value-adds’ under the old EwA have now been revoked, including:

  1. PCs with Windows 7 Enterprise can no longer use Virtualization functions
  2. Further deployment of Windows Vista & 7 is restricted to Professional edition; ‘Enterprise’ edition is no longer available
  3. All MDOP value-adds – including Asset Inventory Service(AIS) have expired.
  4. Multi-language User Interface (MUI) for MS Office also expires.

With many extended values of the EwA now being revoked, even the agencies that were probably diligent in their license position stand a good chance of being ‘mis-licensed’.

So, the first challenge for each Agency is to engage in a rapid license assessment; requiring a comparison between a ‘normalized’ software inventory against the their specific MLS (Microsoft License Statement, an XLS file of the purchase history..available via a LAR) … or the allocation/chargeback count as determined by the central office. Each agency needs to determine if they need to ‘uninstall’ any EwA benefits that have been revoked or whether to keep the applications and incorporate them into the new agreement.”

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About Martin Thompson

Martin is owner and founder of The ITAM Review, an online resource and community for worldwide ITAM professionals.

Martin is also author of the book "Practical ITAM - The essential guide for IT Asset Managers", a book that describes how to get started and make a difference in the field of IT Asset Management.

On a voluntary basis Martin a contributor to ISO WG21 which develops the ITAM International Standard ISO/IEC 19770.

Learn more about him here and connect with him on Twitter or LinkedIn.

3 Comments

  1. Not knowing the terms of the agreement (because yes, even EA’s

    frequently have addendum’s that grant additional rights or exceptions) I can’t comment on the specific points of the NHS agreement

    expiration. Phil Heap makes some excellent points about this now being a time of opportunity for NHS. The EA is very restrictive in it’s

    licensing and therefore is frequently not the most cost efficient solution for some organizations (even thought that rarely seems to be

    pointed out to customers). Here are some general EA expiration comments:

    1) CAL types can now be blended (user and device). They

    would have to negotiate with Microsoft to get the right number of each type if this is applicable though since the change is allowed at

    Software Assurance renewal (which they are not doing)
    2) No longer does each qualified user or device have to be licensed for the core

    components (Core CAL suite, OS and Office Pro Plus). Identify who really needs this software.
    3) Secondary use rights apply to

    software acquired through agreements other than the EA (the EA technically doesn’t provide secondary use rights).

    As many of your

    panel pointed out, this is a time when the Agency will need to be very careful in understanding their product use rights and to educate

    the appropriate divisions to ensure knowledge tranfer but it’s also a time that can provide significant cost savings opportunities.

  2. Kylie Fowler says:

    I have worked in the NHS, and the biggest changes may well end up being

    cultural.

    Although at Trust level we were short on details of the deals the NHS had brokered with the big boys (MS, IBM etc) what

    we did know was that we could install what we liked not worry about the licensing.

    Assessing end user requirements, checking for

    spare licenses and actually buying the licenses will be a major cultural change.

    We never budgeted for software because the

    agreements were so comprehensive. That’s another big change that will have to happen.

    IT Managers will also have to start

    including licensing considerations in their service operation decisions ie what CALs do we buy, how do we license our SQL servers, what

    about our virtual servers?

    Finally, Trusts are actually SMBs. Athough part of the world’s third largest employer, they behave and

    think like SMBs and expect to be treated as SMBs by their suppliers. Unless the NHS Executive has implemented a major licensing

    information and education programme for IT Managers in the Trusts, the Trusts are going to find themselves in BIG trouble quite quickly.

    They will not have the resources to employ the SAM specialists and consultants they require to make this transition smoothly.

    However in the medium to long term, this change is going to dramatically increase the job market for SAM Administrators and Analysts in

    the UK. Exciting times, and I will be watching with great interest.

  3. charlie says:

    I’m across the pond so just a observation with so many orgs NHS facing the what now question , it’s the what is

    that needs to be understood. Spliting up the licenses or entitlements between all the orgs is the definitive first step.. But that means

    everyone would have to be in agreement with there entitlements .. at the end and trup up’s .. actually true up would be or should have

    been occurring each year. Like folks are stating it will make alot of consultants money

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