Study: Government IT Outsourcing Will Grow As Workforce Ages

The aging IT workforce among state and local governments will foster increased use of outsourcing, according to a study conducted by government IT market-research firm Input.

Nonfederal spending on IT outsourcing will soar by 130% in the next five years to $23 billion in fiscal 2008, up from $10 billion this year. "The growth will become dramatic as retirements outpace the ability of governments to staff important technical functional areas," says James Krouse, Input's manager of state and local market analysis.

Governments also will turn to outsourcers as they modernize their IT systems. According to Input, Medicaid and welfare management, major program areas that have repetitive processes and recurring transactions, will lead service areas for outsourcing. "Increasing costs driven by regulations such as compliance with the Health Insurance Portability and Accountability Act have led officials to turn internal systems over to outside vendors," Krouse says. "Considering the inability of the state and local governments to replace the departing workforce, there's no longer necessarily a stigma of outsourcing equaling lost jobs."