IDG News Service — Los Angeles City Council approved a US$7.25 million five-year deal Tuesday in which the city will adopt Gmail and other Google Apps.

Google is touting the deal as a major endorsement of its cloud-based approach to computing, but it turns out that some of the funding is indirectly coming from an unlikely source: Microsoft.

According to Los Angeles City Council minutes, just over $1.5 million for the project will come from the payout of a 2006 class action lawsuit between the City and Microsoft. Microsoft paid $70 million three years ago to settle the suit, brought on behalf of six California counties and cities who alleged that Microsoft used its monopoly position to overcharge for software. Microsoft has paid out more than $1 billion in other class-action settlements based on similar claims.

Los Angeles City Council approved the deal unanimously on Tuesday, according to Google Spokesman Andrew Kovacs.

The migration from the city's Novell GroupWise e-mail servers will be handled by contractor Computer Sciences Corp. Other applications such as calendaring, document sharing and chat will be handled by Google Apps too.

The five-year contract will cost Los Angeles about $1.5 million more than simply sticking with Novell. But because the city will get extra storage capacity from Google, while at the same time being able to run other software on the Novell servers, it's worth the cost, according to an Oct. 7 city finance committee memo written by City Administrative Officer Miguel Santana.

Google has pushed Google Apps as an option for government agencies, promising to ship a product called Government Cloud, which will be certified under the Federal Information Security Management Act (FISMA), sometime next year.

The Los Angeles deal may hint at how this product will work.

According to a Sept. 15 memo from the Los Angeles Information Technology Agency, Google will "provide a new separate data environment called 'GovCloud.' The GovCloud will store both applications and data in a completely segregated environment that will only be used by public agencies."

This GovCloud would be encrypted and "physically and logically segregated" from Google's standard applications. The data would be stored only in the U.S. and only accessible to U.S citizens who have undergone security clearance. Because data would be encrypted and then stored on many different servers, Google's administrators wouldn't typically be able to access the information, although there would be so-called "Super Administrators" who would be able to recompile the data and read it.

The city would own the data and would be notified of "any request of data or security breach," the memo states.

Critics are still worried about security and privacy, though. They convinced Los Angeles council members to tack on a "liquidated damages" clause to the contract that would award the city a payout in the event of a data breach.

Kovacs of Google downplayed privacy and security concerns over the project. "One thing that was very clear in council today," he said. "They believe that Google Apps will make the city more secure than their current solution."