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June 20, 2012
4 Min Read
With the threat of sequestration--automatic 10% budget cuts--looming in January unless Congress takes action, declining spending on federal IT projects is probable, according to market research firm Deltek. What is not known is whether the reduction will be a little or a whole lot.
President Obama is submitting budget requests that the Congressional Budget Office considers basically in line with Budget Control Act caps, but not sufficiently reduced to meet the requirements of sequestration, said Ray Bjorklund, Deltek's VP and chief knowledge officer.
"Certainly, the administration is not acting like [sequestration] is going to happen; they're not taking any steps. I've heard people in the administration say they're doing no planning," Bjorklund said.
Should the automatic cuts actually be enacted, in the IT arena they would be likely to hit the contracting community the hardest, Bjorklund said.
"It could be a higher level of impact on contractors than on other types of spending in government because most people believe that almost every account will need to be cut on a pro rata share, you can't pick and choose," he said. "But some things are off limits, like soldier pay ... so you've got to spread those cuts across a smaller [base]," i.e., contractor services.
[ The Office of Management and Budget is requiring federal agencies to tap into a more efficient IT delivery model. See Federal Agencies Devise Shared Services Plans. ]
Deltek estimates the fiscal 2012 federal IT market at approximately $120 billion. This is noticeably higher than the government's own figure of $79 billion; Bjorklund said the difference is because the Deltek forecast tries to capture the whole federal "addressable" market, including the legislative and judicial branches and a host of independent and quasi-governmental agencies, such as the U.S. Postal Service, Fannie Mae, Freddie Mac, and the Tennessee Valley Authority. The company also includes spending on IT systems contained within other programs, such as aircraft and weapons systems, and estimates on IT spending within the U.S. intelligence community.
The government's own number is drawn from submissions by executive branch departments and agencies to the Office of Management and Budget, and does not include other branches of the government, the intelligence community, or the quasi-governmental organizations.
Deltek's fiscal 2013 budget figures do not take into account the potential impact of sequestration, since Bjorklund says Deltek sees a very low probability that sequestration will happen. In the IT market, there's no way to estimate right now how sequestration might affect spending because the hard choices haven't been made yet. Bjorklund thinks a lot of IT spending will be protected because of the potential for cost savings, but it won't be completely immune.
Overall federal IT spending is expected to decline at a 1.4% compound annual rate between 2012 and 2017, from $121.7 billion to $113.3 billion. Spending on IT hardware is projected to decline at a 7.2% compound annual rate, from $28.3 billion to $19.4 billion. Spending on IT services also is projected to decline, but far less precipitously, from $60.4 billion to $58.1 billion, or a -0.8% compound annual rate. Communications and network services, on the other hand, are projected to increase at a compound annual rate of 1.1%, from $18.7 billion in 2012 to $19.8 billion in 2017.
All of these numbers reflect the major trends driving federal IT spending priorities, the Deltek report said.
The Obama administration has redirected its goals for IT projects, looking for opportunities to cut costs rather than emphasizing government efficiency, the report said. This is reflected in some of the trends in federal policies such as "cloud first" and "shared first," and directives to consolidate data centers and migrate systems to the cloud.
Despite the gloomy forecast, Bjorklund said it isn't that bad. "I wouldn't call it grim. Compared to overall spending in the government, it's a bright spot," he said.
The Office of Management and Budget demands that federal agencies tap into a more efficient IT delivery model. The new Shared Services Mandate issue of InformationWeek Government explains how they're doing it. Also in this issue: Uncle Sam should develop an IT savings dashboard that shows the returns on its multibillion-dollar IT investment. (Free registration required.)
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