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IT spending hits the brakes

Oct. 22, 2011 - 03:53PM   |  

Federal information technology spending is expected to remain mostly flat over the next five years, with agencies receiving little or no additional funding for administration priorities such as cloud computing and data center consolidation, according to a new IT spending forecast by TechAmerica Foundation.

Discretionary budget cuts and greater scrutiny of poor-performing projects and programs will be big factors in keeping IT spending from growing, TechAmerica predicted in a forecast presented last week.

As a result, the fate of federal efforts to embrace cloud computing and mobile computing technologies is relatively uncertain, according to the forecast.

"The overall plan is more or less indefinite at this time because [agencies] can't make commitments based on particular funding levels," said Robert Haas, a TechAmerica Foundation spokesman.

Much of the government's future IT spending will be focused on health IT, wireless and mobile technology and investments in consolidation initiatives.

"Combined, all of these challenges are bigger than at any other time in recent U.S. history," Haas said

Annual IT spending will rise slightly from $81.2 billion this fiscal year to $85.7 billion in 2017, according to the forecast. That equates to a 1.1 percent compound annual growth rate, or a 5.5 percent increase over the five year period, compared with a 19 percent increase from 2007 to 2012.

The forecast is based on data analyses and interviews with federal executives, congressional oversight committees, think tanks and industry.

At the same time spending is flat, the number of contractors competing for federal business is increasing, Ray Bjorklund, chief knowledge officer at Deltek, said in an interview. "There are a few more players, and there are less dollars. That means competition heats up."

And while administration initiatives like cloud computing are aimed at reducing costs, agencies are uncertain whether congressional appropriators will allow them to reinvest those savings.

"That's not my call," said Richard Spires, chief information officer for the Department of Homeland Security. "That's the budget process."

Spires said his goal is to be transparent with legislators about IT costs and savings.

"As Congress gives you money, so they take it away," said Dave McClure, associate administrator for the General Services Administration's Office of Citizen Services and Innovative Technologies. "So, a lot of the times you don't have the option of reinvesting what you save."

In the current budget environment, the main focus is what agencies are doing to save, McClure said. "We're all being asked to find ways to reduce our budget," he said.

Agencies will have to show return on investment from their initiatives, and most budgets won't include funding for transformation projects like data center consolidation, Haas said.

IT spending at civilian agencies is expected to see the most growth 9.6 percent over the next five years from $42.7 billion to $46.8 billion. But the Health and Human Services, Treasury, Justice and Agriculture departments are the only civilian agencies expected to see budget increases. These increases are driven by mission requirements under health care and financial reforms that require modernization or development of new IT systems.

Defense Department IT spending is projected to grow 1.3 percent to $38.9 billion during the same period. DoD IT consolidation efforts are constrained by legislation that dictates who can spend what money when, Haas said. Initiatives will be under more scrutiny to show a return on investment, he said.

The Army, for example, does not expect to have a budget for IT transformation, and funding will likely come from existing projects or other initiatives the service will have to scale back, Haas said.

Agencies are also using more indefinite-delivery, indefinite-quantity contracts to reduce administrative costs and move toward shorter contracting periods to reduce risk, Haas said.

Cybersecurity is one of the few bright spots that could provide IT contract opportunities, he said. Agencies will continue to focus on minimizing risks and adopting identity management technologies.

Contractors have to focus on their strengths, and they have to do a better job of cultivating relationships with agencies, Bjorklund said.

Past performance is critical. "If you had some hiccups with an agency, they may be more inclined to pick somebody that they have more confidence in," he said.

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