New York City has upgraded to Office 365, Microsoft's new cloud-based version of Office.

Mayor Michael Bloomberg and Microsoft Chief Executive Steve Ballmer announced the agreement in a news conference in New York on Wednesday. The five-year contract is worth $20 million per year, saving the city $10 million annually.

"We had more than two dozen separate license agreements and many different individual maintenance and support packages," Bloomberg said at the news conference. "It was complicated, cumbersome and, needless to say, not very cost effective."

The new agreement covers 100,000 city workers, and it includes Office 365, as well as Azure for city developers to build applications on Microsoft's cloud computing platform. New York will continue to run software and keep data on city servers, but some software and data will move to Microsoft's data centers.

Microsoft announced the new Office 365 service on Tuesday, which offers e-mail, SharePoint and lightweight Web versions of Word, Excel and PowerPoint bundled into a monthly subscription. For New York, the software package will vary for different types of workers.

The contract was not put out to bid. The city said it did not request bids because the agreement consolidated business they were already doing with Microsoft.

"It's about consolidating our business," said Eddie Borges, spokesman for the city's Department of Information Technology and Telecommunications.

He said staying with Microsoft would help maintain productivity.

"The whole idea is productivity. If we were to tell our employees we're changing your sofware overnight, can you imagine what it would do to productivity?" Borges said.

The city of Los Angeles has moved to Google Apps.

Borges said of L.A.'s decision, "We're a bigger city."

Here is our story with all the details on Office 365.