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Forecast: IT spending to dip 9 percent by 2017

Jun. 14, 2012 - 06:24PM   |  
By NICOLE BLAKE JOHNSON   |   Comments
“I can assure you that what everybody around government is thinking about right now is, ‘How do I respond exactly to OMB while making very clear to them that there is no way possible my budget can take a 10 percent cut?' ” Roger Baker, VA's chief information officer, said at the June 14 event.
“I can assure you that what everybody around government is thinking about right now is, ‘How do I respond exactly to OMB while making very clear to them that there is no way possible my budget can take a 10 percent cut?’ ” Roger Baker, VA’s chief information officer, said at the June 14 event. (Thomas Brown / Staff file photo)

Fewer investments in hardware and information technology services will help fuel a 9 percent decline in federal IT spending over the next five years.

The federal IT market is projected to slump from $120.8 billion this year to $110.5 billion in 2017, according to a forecast released Thursday by market research firm Deltek.

The market is expected to decrease on average 2 percent a year.

The Defense Department is expected to absorb most of the cuts as the wars in Iraq and Afghanistan wind down and IT funding tied to overseas contingency operations diminishes.

Intelligence agencies and some civilian agencies, including the Veterans Affairs and Treasury departments, are expected to see increases in spending, according to the forecast. Health care, cybersecurity and software analytics will drive increases in spending.

“We’ve seen maybe a couple years here and there where we’ve had some reductions but not having an environment where there is this prolonged period of expected challenges,” said Kevin Plexico, vice president of research and analysis services at Deltek. “But in the aggregate, it’s still a relatively large amount of money.”

Agencies spend far more than the $80 billion often quoted by federal officials. An October report by the Government Accountability Office found that agencies’ IT budgets don’t account for all of their IT spending.

Deltek’s forecast accounts for spending, such as IT embedded in Defense systems and equipment, which are usually excluded from agencies’ IT budgets.

The forecast also assumes that Congress will find a way to avoid automatic budgets cuts, known as sequestration, that could take effect in January.

While federal IT has historically been a growth area in past market forecasts, administration initiatives to consolidate data centers, share more IT services and move to cloud computing are driving down costs. As the federal workforce shrinks, agencies will buy fewer computers and rely more on analytic and cybersecurity software tools, Plexico said.

On top of that, the Office of Management and Budget has directed agencies to cut their 2014 IT spending by 10 percent in comparison with the average from 2010 and 2012.

“I can assure you that what everybody around government is thinking about right now is, ‘How do I respond exactly to OMB while making very clear to them that there is no way possible my budget can take a 10 percent cut?’ ” Roger Baker, VA’s chief information officer, said at the forecast event.

Starting next year, Baker said VA will save $40 million annually in software spending by pushing for bigger discounts from its largest vendors and buying only what is needed.

Vance Hitch, senior adviser with Deloitte Consulting LLP and former CIO at the Justice Department, said he expects agency managers to target cuts at chronically underperforming projects, training programs and technology upgrades.

He said it is important that CIOs not get caught up in annual budget drills that leave them scrambling to find last-minute savings. Instead, they must try to see the big picture and work with department executives to determine how IT will support their missions over time as budgets decline.

“You can’t just look at IT as an isolated line item,” Hitch said.

Deltek’s Plexico anticipates that agencies will find ways to skirt a 10 percent cut to their 2014 IT budgets.

He also advised contractors to be proactive in helping agencies identify opportunities for savings.

“If you don’t point it out to them, somebody else might,” he said.

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