Israeli Government Breaks Off Microsoft Contract Talks

A manager from the Finance Ministry claims the company no longer meets the 'needs of the government' and renewing their contract will 'lead to an increase of tens of millions of shekels in government spending'

Assaf Rappaport, the new CEO of Microsoft Israel's R&D center.
Kobi Koanks

With just four months to go before its current agreement expires, Israel’s government on Tuesday declared it would not renew an agreement to continue using Microsoft, saying a change in license terms sought by the company would lead to a steep price increase.

Under a current framework agreement signed in 2013 and extended in 2016, Israel pays more than 100 million shekels ($27 million) a year for the rights to use Office desktop software, Windows and server software for ministries and government offices. 

The contract expires at the end of this year, but Gal Amir, a manager of the Finance Ministry’s procurement office, said Israel was breaking off the negotiations over a new agreement that began close to a year ago.

“Microsoft is seeking to the change the work configuration and move to a licensing model that doesn’t meet the needs of the government and will necessarily lead to an increase of tens of millions of shekels in government spending,” he said in a statement.

According to the Finance Ministry, Microsoft wants to shift Israel from a licensing system where it owns the software and can use it as it wishes, to a subscription system that is similar to leasing. The change includes moving data to the cloud.

Microsoft Israel declined to comment.

Industry sources expressed skepticism that the government would actually cut off its long-standing relationship with the company and said they regarded Amir’s declaration as a tactical move to coax Microsoft into improving its terms.

However, the treasury may decide to continue using Microsoft to operate government personal computers only, said one source who asked not to be identified.

“In other areas, like servers, the process is already underway in which other systems are replacing those of Microsoft and open source software is replacing it,” he said. More and more government servers are being run on Linux and other open source software, among them content-management systems like Drupal and Joomla.”

In any case, the treasury is negotiating over the use of Microsoft products in government offices. In schools, the Education Ministry also uses Microsoft and negotiates its own agreement.

In the PC segment, however, Microsoft has retained is grip on the market. According to data from netmarketshare.com, as of July Microsoft’s Windows operating system was used in 88.4% of all the world’s PCs. Apple’s Mac OS was in second place, but with just a 9.1% share.
Linux, an open source operating system, was on board 1.9% of all PCs and Google’s Chrome OS on a mere 0.3%. 

Unlike Windows, which is a closed system that only Microsoft can alter, Linux be used, modified and distributed – commercially or non-commercially – by anyone under the terms of its respective licenses and can downloaded from the internet.

Experts say there are a lot of advantages to Linux part from the fact that the software itself is free. Among other things, Linux-based systems are less likely to be targeted by hacker.

Several months ago the Government ICT Authority said it would gradually move to open source, a move that would allow independent developers to build applications and improve services to the public as well as identify weaknesses in code, bugs and the risks for cyberattacks. Using open source will also allow smaller ministries with limited budgets to gain access to tools developed in bigger ministries.

The government’s reliance on Microsoft has been a source of controversy for years, with critics saying the state was overpaying and allowing one company to dominate the market. In 2003, the treasury made an announcement similar to this week’s that it would not renew the Microsoft contract. But it did.

Advocates of open source spent years trying to convince officials to abandon Microsoft and in 2010, a government committee explored alternatives, but as Tal Haramati, then the deputy accountant general, said there were no “quality alternatives” to Microsoft products.

Still, many governments in developed and developing countries, looking for low-cost software for computers and servers, have turned to Linux. China, India, France, Germany, the U.S. and even North Korea have built Linux distribution systems  for government agencies.

If the talks with Microsoft don’t resume, the treasury said it retained the right to use the Microsoft products it has already acquired – it simply won’t be entitled to get newer versions. However, Microsoft will be required to provide updates and security patches. 

Israel plans to freeze the existing license structure owned by government ministries, which may be used without further payment.

Gov’t says it will not renew contract for Microsoft software

Treasury breaks off contract talks, saying U.S. company will greatly raise the cost.