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Study: State, Local Government Outsourcing On The Rise

One big factor is the upcoming retirement of many government employees, meaning that states will need more outside help to get things done.

State and local government outsourcing expenditures, slated to grow slowly in fiscal year 2005, will begin to undergo pronounced growth in FY06 and will reach the $18 billion level by FY10, said a study released Tuesday by Input, a market research firm.

FY05 expenditures are just $10 billion, held down by political pressures and risk aversion, Input said. But that may change.

"Outsourcing has always generated significant political debate, which in some cases has stalled this sector's growth at the state and local level," said Input's James Krouse, manager, state & local market analysis, in a statement. "As the economy continues a strong recovery, we expect outsourcing opportunities to increase on the state and local level."

Krouse said the coming loss through retirement of seasoned government IT executives and officials will affect most state and local agencies, contributing to an acceleration in outsourcing growth.

Input said the majority of growth in the sector will be driven largely by outsourcing in Applications Management, Platform Operations and Desktop services. Business Process Outsourcing (BPO) will grow less rapidly because of the reluctance of government IT officials to give up control of system operations to outside vendors.

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