The National Audit Office (NAO) will today report that initiatives to obtain discounts on software licences are failing to meet targets because of a lack of awareness.

Central government purchasing body the Office of Government Commerce (OGC) established agreements with software suppliers such as Microsoft and Oracle.

It had been expecting to save between £40m and £60m per year, and to have negotiated preferable rates with suppliers. The deal with Microsoft alone was aimed at saving £100m over three years.

But in its Purchasing and Managing Software Licences report, the NAO pointed out that savings reached by January 2003 amounted to just £31m.

The OGC is confident that more departments will sign up to the discount scheme in the coming months.

"Many departments have existing contracts in place. As these end, they will look to move onto the terms offered by the deal," said an OGC spokesman.

But lack of awareness has also hampered uptake.

"Our discussions with departments indicated that not all were aware of the agreements with suppliers," said the report.

Additionally, many departments were underestimating the costs of upgrading their software. According to the report, fewer than half considered the total cost of ownership before upgrading.

By signing up to the agreement reached between Microsoft and the OGC, departments would be entitled to upgrade to Microsoft's Windows XP.

But the operating system requires a 300MHz Pentium II processor and 128Mb of Ram as base specifications.

The NAO warned that there is a "risk that the full cost of investment in IT may be underestimated".