In what could be one of the biggest cloud computing contracts to date by number of users, the Department of Veterans Affairs will move 600,000 users to Microsoft cloud email and calendaring services.

The five-year, $36 million contract will first see 15,000 VA employees move to Microsoft's government community cloud collaboration offering, Office 365 for Government, with the rest of the agency's 600,000 users to follow over the remainder of the contract period. Office 365 includes email, calendaring, instant messaging, web and video conferences, Office collaboration tools and SharePoint, though VA will stick to just the email and calendaring features for now.

Instead of working directly with Microsoft, VA has signed on with HP Enterprise Services, which will act as the systems integrator and provide disaster recovery services. However, VA has a long history as a big Microsoft shop. In July, for example, the agency signed a five-year enterprise agreement giving the agency access to a broad array of Microsoft products and services.

Microsoft has characterized the agency as having "one of the largest technology systems in the United States." The agency has 6,300 IT employees, 400,000 PCs and more than 100,000 mobile devices, and is the second largest federal agency, trailing only the Department of Defense. The agency's users and IT systems are spread out across 163 hospitals, 135 nursing homes, 800 clinics and the agency's headquarters, among other locations.

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Cost-cutting and the potential for improved service drove VA's decision to move to cloud email. The move is part of a larger initiative, the VA Transformation Twenty-One Total Technology (T4) IT modernization program.

"VA is moving to cloud-based email and collaboration as part of a broader effort to leverage emerging technologies to reduce costs, increase efficiencies and, most importantly, improve service delivery to our nation's veterans," Charles De Sanno, VA's executive director of enterprise systems engineering, said in a statement.

VA had been planning its move to cloud email since at least February 2011, when it released an initial request for information.

VA joins numerous other agencies in moving to Microsoft cloud services. Other Microsoft customers in the federal government include the Department of Agriculture, the Defense Information Systems Agency, the Federal Aviation Administration and the Environmental Protection Agency, which signed a deal at the end of October. Other Microsoft government customers include Santa Clara County, Calif., Chicago, San Francisco, Minnesota and California.

Microsoft has been in heavy competition for government cloud collaboration business with Google, which counts among its government customers Lawrence Berkeley National Laboratory, the National Oceanic and Atmospheric Administration, the General Services Administration and others.

Editor's note: Updated 11/15/12 to clarify that the agency will use only email and calendaring features at outset.

More than half of federal agencies are saving money with cloud computing, but security, compatibility, and skills present huge problems, according to our survey. Also in the Cloud Business Case issue of InformationWeek Government: President Obama's record on IT strategy is long on vision but short on results. (Free registration required.)