Government IT Spending Projected To Slow

U.S. government spending on IT is expected to slow significantly over the next five years, following a decade of strong growth, a market-research firm said Tuesday.

Spending by the federal government is forecast to decrease to a compound annual growth rate of 4% from 2005 through 2009, compared with an average of 5% to 10% over the last 10 years, Datamonitor said.

But the impact of the decrease isn't expected to be felt immediately by IT vendors, since the government is on target to spend more than $46 billion during the current fiscal year, which ends in September.

The government's IT shopping list for the next five years is expected to favor customer-relationship management software that lets citizens take greater advantage of the Internet in doing business with the government. Other technologies forecast to be high on the government's list are security and enterprise resource planning, particularly human capital management and financials. Collectively, those technologies are expected to account for nearly an eighth of the projected $56.5 billion in IT spending in 2009, Datamonitor said.

Beyond the general slowdown, IT vendors should expect greater scrutiny from federal officials. The government is expected to be more watchful in light of the role of contractors in the Iraqi prison abuse scandal and debate over whether major government contracts should be doled out to contractors not based in the United States.

Currently under the government's microscope, for example, is CACI International Inc., which allegedly supplied Iraqi prison interrogators via an IT services contract. Accenture's decision to have its headquarters in Bermuda rather than the United States came under scrutiny following its win of a Homeland Security contract. Accenture was cleared to proceed with the contract.

Datamonitor also found in its five-year outlook on government spending that 70% of federal IT dollars in the current fiscal year were spent by the departments of Defense, Homeland Security, Transportation, Energy and Treasury.

In addition, spending on software and services is expected to grow faster than on communications and hardware over the five-year period.