Bob Griffith, Socitm's national secretary, said, "We have got a meeting with Microsoft to discuss the proposals and we have been working with the Office of Government Commerce (OGC) to formulate a response to the proposals with a view to a joint deal."
An OGC spokesman said the Treasury agency was currently negotiating with Microsoft to roll out a cross-government software licensing agreement. "We are looking at all options, everything is under consideration and nothing is ruled in or out," he said.
OGC officials have already warned that Microsoft's proposed licensing changes, announced in May last year, could cost the Government an extra £60m a year - enough to fund a medium-sized hospital.
Socitm has estimated that Microsoft's licensing arrangements could cost town halls as much as £80m over the next two years.
Microsoft confirmed that it is still in negotiations with the OGC regarding the licensing issue, although it refused to divulge any further details. However, the software giant hinted that local government stands to benefit from a possible Microsoft/OGC deal.
Duncan Reid, UK licensing manager at Microsoft, said, "We are in negotiation with the OGC regarding a licensing agreement for government. Such an agreement may benefit local government."
Read more on IT for small and medium-sized enterprises (SME)
The government is setting up a software swap-shop to allow government departments to use spare software without paying extra licensing costs.