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Australia inks five-year deal with Microsoft to drive AI and cloud adoption
The Digital Transformation Agency’s new agreement promises cost certainty, improved discounts, and a skills fund to support the government’s digital transformation agenda
The Australian government has struck a major five-year volume sourcing agreement with Microsoft to speed up adoption of artificial intelligence (AI) and cloud technologies across the public sector.
Dubbed VSA6, the agreement, negotiated by the Digital Transformation Agency (DTA) on behalf of the Commonwealth, is expected to provide cost certainty to government agencies through stable pricing, improved discounts, and capped price increases that will shield the Australian Public Service (APS) from global price fluctuations.
Through the deal, which commences on 1 July 2026, the APS will be able to access Microsoft’s core enterprise and cloud stack, including Microsoft Copilot, Microsoft 365, Azure cloud services and Dynamics 365, as well as security and identity services.
Chris Fechner, CEO of the DTA, said the renewed arrangement introduces a standardised contracting framework that will strengthen the government’s ability to operate critical ICT infrastructure into the future.
“The recent review of our single-seller arrangements confirmed their value in delivering stronger protections, better terms and significant cost savings for the Australian government,” Fechner said. “Building on these strengths, the Microsoft VSA6 will deliver benefits for all agencies, particularly smaller entities, while supporting the government’s digital transformation agenda.”
The DTA recently revealed that the government’s single-seller arrangements have achieved A$1.6bn in discounts between 2019 and 2024. These savings have allowed the government to invest in core services such as healthcare, education, and agriculture.
Beyond technology procurement, arrangements like the Microsoft VSA6 also make broader economic contributions, the DTA said. Over 10,000 Australians are currently employed by single-seller arrangement vendors, with the companies making ongoing investments in long-term workforce capability and skills development across the country.
As part of the deal, Microsoft is establishing a A$1.55m training fund for the APS to deliver tailored skills training, including for ethical AI use.
Unlocking the productivity dividend
Writing in a blog post announcing the deal, Vivek Puthucode, general manager of public sector at Microsoft Australia and New Zealand, noted that updating the technology governments use in their operations can help improve service delivery, increase resiliency, and “unlock the productivity dividend of digital government”.
Specifically, the VSA6 agreement lays the groundwork for agencies to confidently increase their use of responsible AI and cloud technologies, increase efficiency and improve the services they provide to Australians, he added.
“This deal aligns our industry-leading data protection and responsible AI commitments with government data and security expectations, providing confidence for whole-of-government Copilot adoption, following the successful trial in 2024 in which participants saved around one hour per day,” Puthucode said.
He added that Microsoft will continue to comply with Australia’s regulatory requirements, including the security of critical infrastructure legislation, the protective security policy framework, and the Australian Signals Directorate’s information security manual, all underpinned by the Independent Registered Assessors Program (IRAP).
Microsoft has made significant investments in Australia in recent years. In 2023, it announced that it would invest A$5bn to expand its cloud and AI infrastructure in Australia – the single largest investment in its 40-year history in the country.
The move would increase Microsoft’s computing capacity in Australia by about 250% to meet the growing demand for cloud computing services, which are expected to almost double from A$12.2bn in 2022 to A$22.4bn in 2026, according to IDC.
Read more about cloud and AI in Australia
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- Report finds governance gaps, a lack of training and fear of risks as key reasons for the nation’s slow uptake of AI compared with regional peers.
