The Cabinet Office has signed a new deal with Oracle that it said will deliver savings in licensing costs of at least £75 million by 2015.
It follows HM Revenue and Customs' (HMRC) contract renegotiation with Capgemini earlier this month, which is expected to save the government more than £200 million.
Cabinet Office minister Francis Maude said: "The days of the government paying different prices for the same goods or services are over. We will no longer sign inflexible contracts that tie the taxpayer into unfavourable terms.
"We are pleased to have made these savings with Oracle and expect more deals with other suppliers to follow."
The new deal will to the end of this parliament, after which further contract negotiations will take place.
Central government currently spends "north of" £200 million on software licenses with Oracle, according to Liam Maxwell, director of ICT Futures at the Cabinet Office.
The £75 million in savings will be due to measures such as the application of a single discount for new Oracle contracts signed from now on – but not applicable to existing contracts – with the government acting as a 'single customer' buying products in bulk from the supplier.
Previously, different parts of government have purchased Oracle software on different terms and at different prices, for example, via system integrators, which charge an administration fee for the service.
Under the new agreement, government departments wishing to purchase Oracle products will need to go via the central, Crown-led Government Procurement Service, which will procure directly from the vendor.
"It is our desire to separate the service integration from the service management. To do that we need to become smarter," said John Collington, chief procurement officer for the government.
A new 'transferability' component has also been added to the Oracle contracts, to allow government to re-use and move licences across departments.
This is significant as a reduction in the size of the civil service in recent years has led to the government over-spending on licences.
"Given the civil service has been reduced, you end up with more licences than you need today. One of the key elements was introduction of transferability and flexibility," said Collington.
In addition, the government hopes to make savings from its shared services, such as HR and payroll, by reducing the need for software upgrades.
"Oracle will be selective in the upgrades [it applies to government licences]," said David Callaghan, senior VP of technology and UK country leader at Oracle.
This will be instead of "rushing with system integrators to upgrade", Collington added.
By buying from Oracle directly, as a single customer, the government and Oracle hope to benefit from a closer and more collaborative relationship.
For example, Oracle is establishing a centre of excellence in the government's procurement team to help it maximise its investment in Oracle.
Meanwhile, despite committing to a further three years with Oracle, the government said it was still committed to open source options.
"We are committed to a level playing field. This makes the playing field more level," said Maxwell.
The Cabinet Office confirmed it is currently in talks with other major IT suppliers to negotiate further cost-savings.