Rise in federal IT spending caps a month of surprises

Jennifer Sakole is the principal analyst for Federal Information Solutions at Deltek. Her experience spans 20 years in the federal market in various roles including proposal writer, pricing analyst, marketing manager and account manager. She has been with INPUT and Deltek for over a decade.

February has been a month of surprising revelations.

Jon Stewart is leaving the "Daily Show."

Cholesterol in your diet is okay.

Federal IT spending is on the rise.

Wait, what?

Although all three revelations left me stunned (and oddly hungry for a steak-n-egg breakfast), the last was truly the most surprising.

In the early part of this century, federal IT spending increased year-over-year to a peak of $80.7 billion in fiscal 2010. Since that time, IT spending declined to a low of $68.5 billion in fiscal 2013.

At Deltek, analysts have been reviewing the reported federal spending for fiscal 2014 and have found that government spending as a whole continued to decline last year.

When that information is coupled with the understanding that the federal government is working to achieve IT savings by consolidating contracts, reducing redundancy in IT systems and moving to the cloud, it would seem logical that IT spending would have also decreased.

Instead, FY 2014 IT spending INCREASED from the previous year by $1.6 billion.

Let's be clear: this is not a fantastic rebound. It is a minor increase – a mere 2.4 percent over the previous year – but it is still a surprise and good news.

An initial review of the spending data revealed that agencies with the most increased IT spending include the Air Force, Health & Human Services and Commerce.

  • The Air Force was at the top of the list, with an $800 million increase in spending from fiscal 2013 to 2014, bringing its IT spending almost on par with 2012 levels. Obligations on its Space Fence Final Development and Production contract with Lockheed Martin accounted for about $442 million in FY 2014.
  • HHS continued its trend of year-over-year increased IT spending, with a bump of more than a half-billion dollars from fiscal 2013 to 2014. There was significant growth in obligations, about $140 million, to Hewlett Packard in FY 2014 under the CMS IT Virtual Data Center Large Business IDIQ.
  • After years of decline, the Department of Commerce saw a nearly $400 million increase, bringing its IT spending to the highest level since fiscal 2010. Obligations to many companies increased, including Harris Corp. for its Geospatial Operational Environmental Satellite (GOES) contracts; CSC's High Performance Computing System (HPCS) contract; and Ace Info Solutions for its 8(a) NOAA LINK contract and a data center task order for the Census Bureau awarded under CIO-SP3 SB.

In previous analysis, Deltek identified that the use of task-order-based contracts is continuing to increase. This is evident in IT spending across GWACs and Schedule 70:

  • IT Spending on Alliant Full & Open increased by more than $700 million from fiscal 2013 to 2014, resulting in over $2.3 billion in reported IT spending in FY 2014. For companies looking to win a spot on the Alliant program, the Alliant 2 and Alliant 2 Small Business solicitations are expected in Q1FY16.
  • FY 2014 IT Spending on SEWP IV surpassed FY 2013 levels by more than $400 million, bringing the GWAC's FY 2014 total to $2.6 billion.
  • Good news for small business: there was increased spending on both STARS II and Alliant SB from fiscal 2013 to2014 – a $380 million increase on STARS II and a $250 million increase on Alliant SB.
  • Even Schedule 70 – which has seen declines in reported IT spending since fiscal 2010 – had a rebound of almost $300 million from fiscal 2013 to 2014, bringing the FY 2014 IT spending total to slightly below $6 billion.

More detailed analysis of why this uptick in IT spending occurred will be required, of course. Was it the result of a spending release that had been held back during the sequester?

Was it the result of investments that may ultimately lead to long-term savings, like cloud computing, virtualization and data center consolidation?

Was it in response to the nation's increased cybersecurity needs? Or was it just an aberration in a declining/ flat market?

At this point, none of these options would be a surprise.

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