Contractors must reevaluate in face of budget cuts

Government IT spending is contracting, but that's only if you look at overall numbers, according to a new study from Deltek Inc.

There are still growth opportunities in key areas that are driven by the government's need to become more efficient and cost effective, the report found. 

With projected federal budget cuts, according to the GovWin IQ study, spending on IT products by federal agencies will decline over the course of the next five years, which will spur challenges and opportunities for federal IT contractors.

Deltek’s report estimates the decline in spending to be around $8 billion by the year 2017, going from $121 billion to $113 billion.

Some of the reasoning behind this owes to the Obama administration’s budget pressures and IT mandates. Deltek projects that, because the administration is forcing agencies to drive cost savings and consolidation in their IT infrastructures, most agencies will have reduced IT budgets over the next five years.

These budget and policy reforms, however, are actually driving investments in important areas of IT, like cost-saving initiatives, that represent growth opportunities for government contractors. Such areas also include reducing waste, fraud and abuse in government programs, adoption of cloud computing and the consolidation of redundancies in data centers and systems.

Deltek’s study also suggests that the federal government’s expanding role in health care, cybersecurity and foreign affairs areas is driving investments that support these initiatives. Companies and agencies are, at the same time, facing increased transparency requirements and contract rules that are becoming more and more complex.

The study also points to reduced federal employment, adoption of strategic sourcing, a transition to lower cost mobile and thin client computing as being responsible for IT equipment and professional services contraction.

The study states that, from their approach to mergers and acquisitions to capture strategies and program management, IT contractors must reevaluate business strategies and operational processes. Only then will IT providers profitably grow, according to Deltek.