Hot on the heels of its 10-year strategic partnership with the London Borough of Newham, Microsoft is close to signing a new broad three-year public sector agreement with the government.

The three-year memorandum of understanding (MOU) being drawn up with the Office of Government Commerce (OGC) will cover support, services and a range of software.

Terry Smith, Microsoft's senior public sector director, said the initial three-year agreement, which is due to expire next year, had been highly successful in delivering cost savings.

"The new MOU will build on this success and will allow government to gain additional benefits from their licensing and software agreements with Microsoft," he said in a statement.

Newham's initial participation in the OGC's open source trials, looking at open source desktops, is believed to have acted as a catalyst for an improved Microsoft deal.

"This [Newham deal] proves the value of competition," an OGC spokesman told vnunet.com. "We encourage all public sector bodies to look for alternatives that offer total cost of ownership value for money."

Although the details of the MOU are commercial and in confidence, they are likely to lead to service provision enhancements rather than pricing reductions.

"However, this agreement has enabled departments to make savings in the area of IT procurement," added the spokesman.

The MOU is expected to be finalised by the end of September.

A Microsoft-funded survey by consultancy Capgemini calculated that Newham could reduce support costs by 13.5 per cent or £3.2m over five years by using Microsoft products - twice the saving of a Linux-based system.

"The agreement is Microsoft-centric in that we will take a 'why not Microsoft' approach and go for Microsoft if there is no good answer," said Richard Steel, Newham's head of ICT.

The council will pay Microsoft around £500,000 per year.

Newham has some 27 Unix and Linux systems, and a recent investigation identified around 16 existing open source projects, said Steel. There are no plans to migrate non-Windows systems across to Windows, he added.

The OGC open source trials have now been completed, with results currently being collated and analysed. The OGC's report on the trials is expected to appear in late September.