Microsoft customers could win big discounts as the software giant comes under increasing pressure to reduce licensing costs or lose deals to open source competitors.
Several major public sector customers have negotiated better prices, and the government's buying arm, the Office of Government Commerce (OGC), is in negotiations with Microsoft to obtain more favourable terms.
Microsoft signed a Memorandum of Understanding (MoU) with the OGC in 2000, which guaranteed discounts on software licences for public sector buyers.
But Newham Borough Council in east London has already cut a new deal with Microsoft after looking at open source alternatives.
Richard Steel, IT director at Newham, told vnunet.com: "I'm interested in getting the best value.
"We have the bones of an agreement called the universal access framework. It gives us flexibility over per-workstation licence cost."
The deal, which should be signed by March, will save "around £1m a year", according to the council, although not all of this is on licensing.
Steel explained that the agreement "represents a reduction" on the prices he was able get under the MoU.
The Ministry of Defence (MoD) has also recently signed its own deal with Microsoft, which will come into force this April.
Under the MoU, the prices agreed by Newham and the MoD would not be offered to others. But the discounts do show that Microsoft is flexible.
The move also increases the pressure on Microsoft and the OGC to renegotiate the deal signed in 2000. The OGC confirmed that renegotiations were "ongoing".
And if the public sector is able to get better terms, others will be able to follow suit, according to analysts.
"Price pressure on Microsoft will continue as news of deals like that with Newham Council gets around, and as open source continues to gain traction in various quarters," said Ovum Holway analyst Phil Carnelly.
Microsoft, which declined to confirm whether it would offer further discounts, said in a statement: "We are keen to ensure that all of our licensing agreements represent value.
"Microsoft is committed to ensuring that we help our customers gain value from their investment."
Additional reporting by Peter Williams.
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