Will federal IT budgets ever see growth periods again?
- By David Hubler
- Mar 28, 2012
The $80 billion federal IT market will continue to experience intermittent periods of headwinds and calm during the next 12 to 18 months, said Bill Loomis, managing director of Stifel Nicolaus, as he opened a federal IT outlook discussion on March 28 organized by TechAmerica.
“There is going to be a lot of uncertainty and that creates delays” in contract award activity due primarily to current and expected fiscal constraints and the November election, he said.
“Everybody is seeing their bid pipelines continue to pile up,” he said.
Loomis predicted “a little relief toward the end of the fiscal year. But then we’ll be back again with delays,” which he attributed to federal budget uncertainties, pricing pressures and the demand for great efficiencies.
“All this is slowing organic growth,” Loomis said.
But there is some reason for optimism looking to 2014 and beyond primarily because of demand for improving cybersecurity applications, he added.
Dan Chenok, vice president for technology strategy and a senior fellow at the Center for the Business of Government at IBM Global Business Services, agreed.
“Some spending in IT will decline,” he said.
But there will be a pickup in activity in the last quarter of fiscal 2012 because program managers will be under pressure to fund programs before the new fiscal year begins October 1.
“Then there will be a big lull. Then, depending on the outcome of the election, if there’s a turnover [in administrations] you’ll see a lot of activity toward the end of the calendar year and early January because the [Obama] administration will want to get as much out the door as it can,” Chenok said. “Then there will be another lull while the next administration comes in. But if there’s a second term, that [lull] will be much more limited.”
Tim Hoechst, chief technology officer at Agilex Technologies, said perception affects behavior. Everyone realizes this year that budget constraints apply across the board, so “the decision-making is much more measured,” he said.
Agencies and contractors are planning for lower budgets rather than being paralyzed by the thought of them. “In some ways it feels like a more deliberate and measured approach through the spring and into the late summer hopefully in the choices them make,” Hoechst said.
“Despite the fact that the budgets will be smaller, that gives us a little bit of comfort in that we can plan a little bit better this year,” he added.
The negatives, however, have created a great opportunity for small businesses, which can reap benefits from the government’s move to multiple award contract vehicles and solving problems in small bites, Hoechst said.
“It does mean we live day to day a little bit more, [with] six-month engagements rather than six-year engagements and that means a lot more work to keep the business going. But it’s part of the reality,” he added.
In addition, small companies have a lower cost structure, which can give them the opportunity to bid on the multiple [blanket purchasing agreements] and the smaller contracts that agencies are turning to, said Tim Young, senior manager at Deloitte Consulting.
Although the panel agreed there are numerous pressures on the industry now, they had different ideas about which technologies will have the greatest impact on the federal IT market looking beyond 2012 and 2013 – cloud, mobile computing, data analytics, Web 2.0 or cybersecurity.
“The value IT has to a government enterprise can be measured in how it makes the enterprise more efficient and we want to reduce the cost of IT,” Hoechst said. He chose cloud computing because of the value data consolidation plays in agency missions.
But Young said global issues are making the No. 1 driver cybersecurity, which accounts for 10 percent of the IT budget and growing. It’s a function of what government has to do to keep data safe.
“So if we don’t get cybersecurity right, nothing else matters,” Young said.
Molly O’Neill, vice president of CGI Federal, said they all will yield a big impact. “But the reality is if we do these in silos, we’ll never get the impact we want,” she said. “It really has to be [through] convergence of all of them.”