The US General Services Administration will become the first federal agency to use a hosted email service, choosing Google, Unisys and others to offer the service.

The choice is a blow to Microsoft, which has tried to position itself as offering the most secure services for the government.

The five year contract is worth $6.7 million and was awarded to Unisys, which is partnering with Google, Tempus Nova and Acumen Solutions. They will offer a suite of services including email and collaboration tools "to facilitate a more mobile work force," the GSA said in a statement.

It said it is the first federal agency to use a cloud-based system for email across the entire agency. It expects a 50 percent cost savings over the next five years compared to costs associated with its current system.

Microsoft said it was disappointed in the decision. "Our BPOS-Federal proposal was a conscious decision to provide GSA with US-only data centre support, where data is maintained in the US, administered by US citizens with background checks, in accordance with ITAR standards in a FISMA-certified environment," it said.

The Federal Information Security Management Act and the International Traffic in Arms Regulation are two stringent security standards that some federal agencies are required to comply with.

Earlier this year Microsoft launched a version of its Business Productivity Online Suite that includes Exchange, SharePoint, Office Live Meeting and Office Communications hosted from special facilities to meet the needs of federal agencies. Physical access to the site is controlled with biometric systems and the only people with access to the facility are US citizens, Microsoft said.

Google has also made efforts to appeal to government customers. In July, it introduced Google Apps for Government, including Gmail, Talk, Groups, Calendar, Docs, Sites, Video and Postini. Data is stored only in the US and servers that support the offering are segregated from those used by non-governmental customers. The service complies with FISMA.

Microsoft has recently won high profile deals to offer cloud-based email and other services to the city of New York and the states of California and Minnesota.

Google has had a number of wins in the public sector as well, including Google Apps deals with Washington, DC, and Orlando, Florida. It also won a contract to serve the city of Los Angeles, an implementation that has been delayed.