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IT spending projected to drop this year

Oct. 20, 2013 - 11:23AM   |  

Agencies will have fewer information technology dollars for innovative projects and systems migrations, as overall discretionary spending shrinks over the next five years.

Civilian and defense IT spending are pegged at $70.0 billion this year, down from $73.5 billion last year, according to an annual forecast by TechAmerica Foundation. Annual IT spending over the next five years is projected to reach $78.5 billion, of which $42.1 billion will go toward civilian agencies.

The modest increase in overall IT spending amounts to a compound annual growth rate of 2.3 percent due to inflation, according to the forecast. The foundation projects IT managers will have to contend with sequester budget cuts through fiscal 2014 and beyond.

“IT is now fighting for dollars the same way personnel is, real estate, fleet vehicles, salary increases [and] training,” said Robert Haas, a spokesman for the foundation. “And it’s all in the same buckets.”

Much IT spending will go toward maintaining existing systems. And any savings from cost-cutting efforts are often used to meet sequester targets and can’t be reinvested, Haas said. Agencies are having to consider scaling back technology migrations to newer systems and investments in IT that may improve operations but not provide immediate savings.

The tone of agency CIOs has also changed compared with previous years, he said.

“Doing more with less was something that they were told that they needed to do, and I think many valiantly tried,” he said. “There was a resignation that we’re going to be doing less with less.”

The sentiments of these CIOs are a stark contrast from views expressed by federal CIO Steven VanRoekel. VanRoekel has said agencies need to do more with less by cutting funding from legacy systems and investing in new technology.

The White House had instructed agencies to cut a combined $7.7 billion from their IT budgets in 2014 and propose ways to redirect it to other priority projects. However, there has been little transparency on where those dollars were cut and how they will be reinvested.

But security concerns and fears of adopting new technology like cloud computing and mobility are inhibiting adoption, especially within DoD, Haas said.

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

A separate forecast released last month by market research firm Deltek also projects an overall decline in federal IT hardware, software, professional services and network services spending. IT outsourcing, which includes cloud services, is projected to see modest growth — from $26 billion in fiscal 2013 to $26.4 billion in 2018, according to Deltek. However, near-term spending on IT outsourcing is projected to decrease to $24.6 billion this year.

The need for deeper cost savings is among the factors driving agency spending habits. And there’s greater pressure to choose lowest-price, technically acceptable bids, especially when buying common IT services, Haas said.

“They basically said best value is translated into lowest cost, and it’s lowest cost by tight compliance with the requirements that are in the contract,” he said. “So, they’re not looking for extras. They’re looking purely on what’s required, and what’s in that requirement statement, and what is the lowest cost that gets me there.”

While senior officials say this type of bid analysis is one of many tools available when selecting contracts, there is significant pressure on the people executing the contracts to find the lowest price, technically acceptable option, said TechAmerica Foundation spokesman Trey Hodgkins. Usually, if they choose another option, it requires approval or justification at the supervisor level.

The forecast takes into consideration the impact a temporary continuing resolution will have on spending.

The CR passed last week, which funds the government through Jan. 15, doesn’t allow for new programs to be started, DoD Comptroller Robert Hale said in an Oct. 17 briefing.

“And generally we aren’t allowed to reprogram when we’re under [a] continuing resolution,” Hale said. “So, for a while, we kind of have to hold our breath — and try to look to the future and be as conservative as you can.”

The department hasn’t issued formal orders for spending at the sequester levels, but DoD “will slow down our execution, at least to the CR level, and probably a little bit south of that, just because there’s so much uncertainty,” Hale said.

Due to the sequester cuts, areas like procurement and research, development, test and evaluation are projected to take double-digit cuts, Hodgkins said.

DoD procurement dollars are expected to decrease about 5 percent to $60 billion, and RDT&E funding is projected to drop 10 percent from $90 billion to $81 billion this year, according to the forecast.

The forecast projects DoD’s base budget will drop below $500 billion through 2016 and increase to $551 billion in fiscal 2019, as the department absorbs overseas contingency operations funding into its base budget.

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