The UK government’s five‑year Strategic Partnership Arrangement 2024 (SPA24) with Microsoft has crystallised into one of the most consequential technology procurement decisions of the decade: roughly £1.9 billion a year in public‑sector software and services, approaching £9 billion across the contract’s term, with Microsoft Copilot added to the mix for the first time. This is a deal that promises scale and integration, but it also raises immediate and profound questions about value for money, market concentration, digital sovereignty, and future agility — questions that demand transparent answers and sustained oversight. (crowncommercial.gov.uk)
Where SPA24 can deliver genuine value, that value should be measurable, independently verified, and re‑contestable. Where risks exist — particularly around Copilot, licensing economics and market concentration — they must be mitigated through transparency, competition, and active governance. The alternative is a convenience premium paid from the public purse, at the expense of frontline services and future negotiating power.
A five‑year multi‑billion procurement deserves more than a single MoU and occasional reassurances. It demands continuous transparency, refreshable competition, and an AI procurement framework that protects public interest while enabling innovation. That is the pathway to turning a large vendor agreement into sustained public value rather than an accelerating revenue stream for an already dominant supplier. (crowncommercial.gov.uk, microsoft.com, gov.uk)
Source: theregister.com The £9 billion question: To Microsoft or not to Microsoft?
Background
What SPA24 is and what it covers
SPA24 is a five‑year Memorandum of Understanding between Microsoft and the Crown Commercial Service (CCS), replacing the earlier DTA21 arrangement and taking effect on 1 November 2024. It offers eligible public sector organisations access to Microsoft 365, Azure, Business Applications, and — notably — Microsoft Copilot under an aggregated procurement approach designed to deliver “enhanced value” through scale. The stated aims are familiar: simplify buying, reduce per‑unit pricing through aggregation, and broaden access to Microsoft’s latest cloud and AI capabilities for central and devolved government, the NHS, local authorities and other public bodies. (crowncommercial.gov.uk)The headline figures that kicked off the debate
Parliamentary disclosures and reporting revealed roughly £1.9 billion of Microsoft licence spend routed through SPA24 in a recent financial year window. Annualised, that rate points toward multi‑billion annual expenditure; commentators and journalists have rounded the five‑year total to about £9 billion — a straightforward multiplication but one that focuses attention on scale rather than subtlety of contract terms. Those headline numbers are now the focal point for scrutiny, because a multi‑billion pound procurement should generate commensurate transparency and demonstrable savings.Why this matters: scale, market power and public value
The Microsoft financial context
Microsoft is not a marginal vendor. Its fiscal performance over the past year has been nothing short of extraordinary: for fiscal 2025 the company reported revenue of $281.7 billion and net income of $101.8 billion, delivering net margins that sit in the mid‑30s as a proportion of revenue. Microsoft Cloud alone reached $168.9 billion for the year, with Azure and related cloud services contributing more than $75 billion and posting high double‑digit annual growth in recent quarters. Azure and other cloud services growth rates in key quarterly reports were cited as 39% year‑on‑year for the latest quarter. Those figures explain why large‑scale government deals attract particular attention: procurement dollars are not just purchases, they fuel revenue lines and, indirectly, market valuations and competitive dynamics. (microsoft.com)Market concentration and competition concerns
The UK Competition and Markets Authority (CMA) has concluded that competition in UK public cloud markets “is not working well,” identifying systemic barriers such as proprietary licensing, data egress charges, and technical incompatibilities that depress multi‑cloud adoption. The CMA’s market investigation highlighted that two hyperscalers — Microsoft and Amazon Web Services (AWS) — together control a dominant share of the UK cloud market, and pointed to Microsoft’s licensing practices as a particular issue for competitors and buyers. This regulatory backdrop changes the negotiating frame: it turns routine procurement oversight into a national‑economic concern about market structure, supplier leverage and the long‑run costs of dependency. (gov.uk, ft.com)Dissecting the deal: benefits that should deliver, and benefits that must be proven
Potential genuine advantages
- Economies of scale — central purchasing through CCS can yield lower unit prices and simpler supplier management for repeatable commodity items such as Office licences and cloud compute.
- Operational standardisation — a shared base of productivity software and identity/access models can reduce integration friction across agencies.
- Faster access to AI capabilities — including Copilot under SPA24 may accelerate early AI adoption for back‑office automation and data‑driven decision support where there are sound use cases.
Where the economics become opaque
- Discount transparency — public statements about “discounted pricing” under SPA24 exist, but independent disclosure of the baseline prices, marginal discounts on Copilot seats, or the elasticity of pricing as volumes shift is lacking in publicly available documents.
- Bundled inclusion of new high‑price items — Copilot licences are materially more expensive than base productivity seats; when bundled into multi‑year arrangements they can materially raise total contract value and recurring costs.
- Hidden costs of transformation — migration, retraining, identity and access redesign, and exit costs (data egress, portability work) can overwhelm nominal headline discounts if not accounted for in total cost of ownership (TCO) modelling.
Copilot and AI: strategic opportunity, or lock‑in accelerator?
What Copilot brings
Generative AI features can increase productivity on repetitive tasks, speed drafting of documents and briefings, and surface insights from large document stores. For customer‑facing services and back‑office processing there are plausible use cases that might justify the license cost. Microsoft has integrated Copilot across Office and Teams in ways that can reduce friction for large user populations. (microsoft.com)What Copilot risks
- Ecosystem entrenchment — designating Copilot as the default or recommended AI engine in a government MoU shifts the path dependency of future projects toward Microsoft’s API, data models and governance model.
- Data governance and sovereignty — the more public data sets and workflows are processed by a vendor’s AI, the more complex exit and portability options become, particularly where models or derivative outputs are concerned.
- Comparative pricing opacity — Copilot seats and usage‑based AI pricing can vary dramatically depending on contract terms. Absent clear comparators, the public sector cannot know if it is paying a market rate or a premium tied to vendor lock‑in.
The Crown Commercial Service — enabler, manager, or preservation of status quo?
CCS’s role and incentives
CCS operates as a trading fund and executive agency of the Cabinet Office. As a trading fund it applies levies and commissions on commercial agreements to recover costs and deliver a return, and it counts aggregated demand as a core part of its value proposition to customers. CCS’s annual reporting shows commercial benefits tracking and levy mechanisms in detail, but those documents do not publish contract‑by‑contract commission receipts for strategic MoUs like SPA24. That opacity creates a perception risk: if CCS’s business model rewards revenue scale rather than aggressive supplier competition, incentives can align to preserve stable large suppliers rather than finetune cost pressure. (gov.uk)The fee question — small percentage, large sums
Some commentators have calculated that even a small percentage levy on £9 billion represents a non‑trivial sum (the Register suggested roughly £30 million across the contract term). The mechanics of CCS levies are published in its accounts and framework notes — they confirm levies are applied on reported supplier sales — but the precise levy schedule applied to SPA24 and the amount actually retained by CCS as a direct result are not published in a single accessible line item. That makes the headline arithmetic plausible but not independently verifiable without CCS disclosing SPA24‑specific levy receipts. Until such line‑item transparency is provided, those fee totals should be treated as reasonable estimates rather than established facts. (gov.uk)Alternatives and opportunity costs
What else could £9 billion buy?
Even modest improvements in procurement outcomes could free significant funds for public services: an illustrative 10% improvement on £9 billion equals £900 million — enough to fund thousands of frontline staff or accelerate critical modernisation projects in health, transport and education. That simple arithmetic reframes procurement as a lever for public policy and not merely a technical commercial exercise. The decision to concentrate spend is therefore a political and fiscal choice as much as a technology choice.Are alternatives realistic?
Microsoft’s advantages for the public sector are concrete: scale, compliance certifications, integration with widely used productivity workflows, and a massive partner ecosystem. Replacing that base is neither free nor guaranteed to succeed. International case studies show both potential savings and implementation risk:- French Gendarmerie (GendBuntu) — the Gendarmerie’s migration to a Debian/Ubuntu‑based distribution (GendBuntu) and open‑source toolchain demonstrated measurable savings and reduced licence dependency when implemented over many years, but it required sustained technical investment and local capability building. (wired.com, en.wikipedia.org)
- Munich’s LiMux — widely cited as a cautionary example, Munich’s LiMux migration initially delivered savings and independence, but political changes, support and interoperability problems, and shifting priorities resulted in a partial rollback and complex lessons about governance, political commitment and the cost of long timelines. The LiMux story is a reminder that open‑source transitions succeed when governance, skills and political will are aligned. (joinup.ec.europa.eu, en.wikipedia.org)
Lessons from previous UK reform efforts
Gershon and the 2010 moratorium — discipline can work, but it must be sustained
The Gershon Review (2004) and the coalition government’s 2010 moratoria on non‑essential IT spending were both attempts to impose discipline and central accountability on public‑sector IT. Gershon emphasised procurement consolidation and efficiency; the 2010 moratoria produced immediate cash savings and tighter controls on large IT projects. Both efforts underline a simple truth: structural levers — procurement frameworks, central scrutiny and enforced pause on spend — can deliver value, but only if those levers remain active and transparent governance continues. History shows the discipline can erode without ongoing political and institutional will. (api.parliament.uk, gov.uk)Why repetition without reform is dangerous
Repeated cycles of aggregation followed by vendor reliance can solidify market power. Without active competitive testing, periodic pilot competitions, and mandatory benchmarking of new high‑value items (for example Copilot), central deals risk becoming default choices by convenience rather than choices proven to deliver better value.Practical recommendations for policymakers
- Increase transparency immediately
- Publish SPA24‑specific pricing bands, discount schedules and the methodology used to compute “enhanced value.” Independent reviewers should be allowed to audit the commercial mechanics and report publicly.
- Mandate external verification of major claims
- Any assertion that SPA24 will save X% or deliver Y benefit must be supported by independent ex‑post evaluation from the National Audit Office (NAO) or equivalent, with public reporting of findings.
- Create an AI procurement guardrail
- Introduce a government‑wide AI policy covering interoperability, model audit trails, data provenance, portability and exit rights. No large‑scale AI procurement should proceed without clear metrics for outcomes and safety.
- Fund pilot programmes for credible alternatives
- Allocate a small but meaningful fund to run open‑source and multi‑cloud pilots across health, local government and education, measured with rigorous TCO and service‑continuity metrics.
- Regularly test commercial arrangements
- Require scheduled re‑competition and benchmarking events (e.g., every 12–24 months) for core commodity items and AI services to retain negotiating leverage.
- Strengthen supplier‑agnostic capability inside government
- Invest in public‑sector cloud and procurement skills so departments can challenge suppliers with meaningful commercial and architectural alternatives.
Strengths and risks — a balanced appraisal
Notable strengths
- Service continuity and scale — Microsoft’s platform maturity offers immediate operational advantages for large, distributed organisations.
- Rapid AI enablement — bundling Copilot can accelerate experimentation and adoption of productivity AI in government.
- Simplified supplier management — SPA24 centralises contracting and offers standardised legal terms that can simplify cross‑department buys. (crowncommercial.gov.uk, microsoft.com)
Material risks
- Opaque discounting and unproven savings — headline claims are not matched by public line‑item disclosures that would allow independent verification.
- Entrenchment and reduced bargaining power — long‑term volumes concentrated with a dominant vendor reduce future competitive pressure and raise exit costs. The CMA’s market analysis shows structural barriers to switching. (gov.uk)
- AI governance gaps — Copilot‑scale adoption without mandated standards for auditability, data use and portability risks embedding proprietary workflows and model‑dependent outputs that are expensive to extract.
- Hidden TCO elements — migration, retraining, integration and egress costs can turn apparent licence discounts into net cost increases if not modelled and contested. (gov.uk)
Conclusion — pragmatic partnership or complacent dependency?
The SPA24 arrangement embodies a pragmatic response to the operational reality of modern public services: governments need scale, proven compliance, and the capacity to access leading‑edge technologies. Microsoft is a logical partner in many respects. But pragmatism must not be permitted to calcify into complacency.Where SPA24 can deliver genuine value, that value should be measurable, independently verified, and re‑contestable. Where risks exist — particularly around Copilot, licensing economics and market concentration — they must be mitigated through transparency, competition, and active governance. The alternative is a convenience premium paid from the public purse, at the expense of frontline services and future negotiating power.
A five‑year multi‑billion procurement deserves more than a single MoU and occasional reassurances. It demands continuous transparency, refreshable competition, and an AI procurement framework that protects public interest while enabling innovation. That is the pathway to turning a large vendor agreement into sustained public value rather than an accelerating revenue stream for an already dominant supplier. (crowncommercial.gov.uk, microsoft.com, gov.uk)
Source: theregister.com The £9 billion question: To Microsoft or not to Microsoft?
Last edited:
