Australia inks five-year Microsoft cloud & AI deal

Microsoft and the Australian Federal Government have signed a new five-year Whole-of-Government Volume Sourcing Arrangement, giving Commonwealth agencies access to Microsoft's core software and cloud services under an updated contracting and governance framework.

The deal, known as VSA6, sits within the government's broader use of whole-of-government procurement arrangements for major technology suppliers. It sets common terms for licensing and online services used across departments and agencies, with the Digital Transformation Agency (DTA) overseeing the agreement on behalf of the Commonwealth.

Under the arrangement, agencies can purchase Microsoft products with stable pricing, improved discounts and capped price increases, providing cost certainty for essential ICT products and services across the public service.

Contracting framework

The agreement introduces a standardised contracting framework across government, with added provisions covering governance, reporting and the handling of government data. The DTA said the framework strengthens legal protections around security, liability and regulatory requirements.

Chris Fechner, the DTA's CEO, said the arrangement would shape how the government runs core technology services in coming years.

"We are partnering closely with agencies to deliver a smooth and coordinated transition to the new arrangement."

The DTA also described the deal as part of its effort to improve commercial consistency across agencies, including smaller entities that typically have less negotiating leverage.

Microsoft's inclusion in the government's single-seller model follows a review that found the arrangements delivered material savings. The DTA said the review identified USD $1.6 billion in discounts between 2019 and 2024 across the single-seller arrangements.

The review also linked the arrangements to broader economic impacts, including employment across the vendor group and investment in training programs. The DTA said more than 10,000 Australians were employed by single-seller arrangement sellers.

Cloud and software

VSA6 provides access to Microsoft's "core enterprise and cloud stack", spanning Microsoft 365, Azure and Dynamics 365, as well as security and identity services. It also includes Microsoft Copilot, which has previously been trialled in government settings.

Security settings and compliance requirements are central to how agencies consume cloud services. Microsoft said it will maintain compliance with Australian Government frameworks that apply to cloud hosting, protective security and information security controls, and noted its participation in the Independent Registered Assessors Program.

The DTA said the agreement strengthens governance and reporting requirements and tightens provisions around the use and handling of government data.

AI and training

The arrangement places a specific focus on responsible AI use across government. Microsoft said it aligns its data protection and responsible AI commitments with government expectations, describing this as a foundation for broader use of Copilot across agencies.

In its comments on the arrangement, Microsoft General Manager, Public Sector, Vivek Puthucode, pointed to a Copilot trial in 2024 that he said showed participants saving around one hour per day. He also highlighted the need for modernised cloud platforms that are "secure by design" and consistent with government standards on transparency and responsible AI principles.

The agreement includes a $1.55 million training fund for targeted Australian Public Service training. Information provided with the deal says the program includes ethical AI capability building.

Microsoft also highlighted the role of its local partner ecosystem in delivering services into government under the arrangement, including Australian-owned firms that provide implementation and support for agencies purchasing under the VSA.

Next steps

The five-year agreement is scheduled to commence on 1 July 2026. Fechner said the DTA will work with agencies on transition activities as the new arrangement takes effect.

"Building on these strengths, the Microsoft VSA6 will deliver benefits for all agencies, particularly smaller entities, while supporting the government's digital transformation agenda," Fechner said.