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The government has failed to strike a new three year software licencing deal with Microsoft.
The State Services Commission says in a statement that it "became apparent during discussions that a formal agreement with Microsoft is no longer appropriate".
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Microsoft has, instead, agreed to provide "recommended retail price certainty" for agencies as a basis for their individual negotiations, the SSC says.
SSC spokesperson Marian Mortensen says government looks for three things in its negotiations: value for money, fitness for purpose and strategic benefit.
"We didn't feel we got the appropriate levels of benefit from the negotiations," Mortensen says.
Don Christie, head of the New Zealand Open Source Society, says there has evidently been a huge collapse in the negotiations that could open the door for more use of open source software in government.
"Everyone right now should be running pilots and evaluating open source up and down the stack," he says.
Christie says government and agency CIOs have failed in their duty of care by not exploring alternatives earlier.
"I'm surprised they've [the SSC] has come out with such a strong statement," he says. "I expected Microsoft to say it was bundling this and that to add value."
The SSC says it will be "supporting agencies to explore how they can maximise their ICT investment and achieve greater value for money".
Mortensen says open source will be "part fo the mix, definitely". However, she adds, such choices will be made by individual agencies.
Since 2000 the government has negotiated a series of three-year agreements with Microsoft, enabling public sector agencies to purchase Microsoft products on an opt-in basis.
Negotiations on the latest deal began in late 2008.
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