In a deal that appears to buck the growing trend among governments to adopt open-source alternatives, the UK's Office of Government Commerce (OGC) is negotiating a renewal of a three-year agreement with Microsoft.

Both parties confirmed this week that they have discussed extending an existing memorandum of understanding (MOU), which is set to expire next year, although terms of the new deal have yet to be revealed.

OGC spokesman Martin Day said that while the existing MOU primarily covers software-licensing fees, the new three-year contract will focus on services and support.

"We wanted to put something in place to have a seamless transition between the two contracts," Day said.

He added that the new MOU isn't expected to be signed until the end of next month. Microsoft released a statement saying that it is pleased to have reached an agreement with the OGC but that it is not in a position to give details while talks are still underway.

The OGC procurement office, which negotiates volume deals for the public sector, initially sewed up an agreement with Microsoft in 2002 to offer competitive licensing fees on desktop software for the country's nearly half a million public servants.

The agreement came after a tough round of negotiations over the fees. At that time Microsoft wanted to raise fees on government contracts and the OGC said that it would consider finding cheaper software elsewhere if a deal was not reached.

The two sides came to an accord, signing a contract on March 1, 2002, although the deal's value was not revealed. At that time, the OGC also entered software agreements with Sun Microsystems and IBM's Lotus division. It hailed its negotiations with the three suppliers as a collaborative purchasing success, and estimated that the government would save £100 million ($182.4 million) over three years under the deals.

According to the OGC's Day, the government is on track to meet the £100 million cost savings.

The company's UK wins came as little surprise to RedMonk LLC analyst James Governor.

"The UK has always been an important beachhead for Microsoft in its public sector fight. They've been in the trenches in Newham and are waging an air war with the OGC," Governor said.

Microsoft has a history of winning UK government contracts, and has done some heavy lobbying here, Governor said. He added that the UK government has improved negotiating with the software maker and has pinned down some advantageous deals.

"No doubt other European governments will look at what Britain has negotiated and say 'I want a piece of that,'" Governor said.