The government has scrapped the long running NHS Connecting for Health (CfH) enterprise agreement (EA) with Microsoft after deciding there was no business case or budget to renew it.
The EA, which was scheduled to kick off on 1 July, had already been pared back from the original value of £80m to just £21m, and was set to run for three years through Microsoft LARs - Softcat, Trustmarque and Phoenix Software.
However, sources close to CfH said that at the eleventh hour the Cabinet Office pulled the plug on the EA, agreed in 2004 for a total of nine years including three-year breakpoints to allow the NHS to review its application requirements.
"Out of the blue the Cabinet Office rejected the cut down version of the renewal, the noise from the top is that they are not sure national agreements work, it will be down to the trusts to make sure they are fully licensed," said the source.
The EA covered around 800,000 desktops in all regions of the NHS in England, the largest deal of its kind on the planet.
The Cabinet did however agree to a true up, paying Microsoft around £50m to cover software used in the previous agreement that was not licensed but attributed the spend to the last administration's budget.
"The money is coming out of the same pot but politically and on paper it looks like the new government is saying that it has not spent any money as the last lot used it all," said another insider.
However others have questioned the value of the EA: "NHS were given a free lunch that they didn't order, was the deal any good if certain entities were not using the software? It makes sense for those using the software to buy it."
Software prices are expected to rise two to three times without the economies of scale that an EA agreement provided but the decision will also lead to massive compliancy issues, sources close to Microsoft have claimed.
"There are around 400 trusts in the UK and although they are licensed for some elements there is a big hole out there that could be as large as £100m," he added.
Microsoft is beginning the process of knocking on the trusts' doors to ascertain the software under use and now much of it has been paid for.
The debacle has left a question mark hanging over the future of quango CfH, which had agreed the deal with Microsoft but has had to make an embarrassing climb down.
Only last week, the government met with the largest suppliers to the public sector to ask them to cut profit margins, a plan that appears flawed. The Treasury has also announced a moratorium on any public sector contracts valued at more than £1m.
Despite repeated attempts, the Cabinet Office and CfH did not comment. Microsoft refused to comment.