Study: IT Growth in Government Could Hit Double Digits

By Nick Wakeman, Staff WriterThe government market is likely to see double-digit growth as demand for new concepts, such as electronic government solutions, outsourcing and information assurance, explodes in the coming years, according to a study by the market research firm Federal Sources Inc.Documents filed by agencies with the Office of Management and Budget predict spending on information technology will grow from $32.3 billion in 1998 to $34.5 billion in 2000, a 4 percent growth rate. But researchers with Federal Sources of Vienna, Va., say 10 percent is a more realistic projection, with the market reaching $36.6 billion by 2000."There is a lot of IT that falls under OMB's radar screen," Thomas Hewitt, Federal Sources chairman and chief executive, said in unveiling the study May 11.Industry needs to market solutions built around the "hot concepts" of electronic government, outsourcing, knowledge management, information assurance and enterprise resource planning, Hewitt said. "Marketing can make the numbers even bigger," he said.There also will be plenty of year 2000 remediation work to be done after Jan. 1, even if the government completes all the work on mission-critical systems, Hewitt said. There are more than 2,000 systems that are considered non-mission critical and will be in need of service, he said.But some government and industry officials fear the gains wrought by procurement reform may be eroded by concerns in Congress about competition and small business.Governmentwide acquisition contracts and the General Services Administration schedules "won't be politically sustainable over time if something isn't done about competition and the impact on small business," said Steve Kelman, former administrator of the Office of Federal Procurement Policy at OMB. Kelman is considered one of the fathers of procurement reform.Congress does not like the image that governmentwide contracts are vehicles for non-competitive task orders, he said. "It is only a matter of time before Congress acts." Kelman's successor, Deidre Lee, agreed. The agencies that issue governmentwide contracts and the agencies that use the contracts to procure products and services have to take responsibility for how those contracts are used, she said. "We have to focus on small business and competition," she said. Small business has taken a hard hit from procurement reform, said Robert Dornan, senior vice president at Federal Sources. Since 1995, the amount of business conducted by 8(a) businesses has dropped $1 billion, he said. These companies now only account for 5 percent of the business being done in the federal market. The top 15 companies, according to Federal Sources data, accounted for 40 percent of the business in 1998. The next 85 largest companies did about 34 percent of the business.Whether large or small, businesses have to change their approach to the government market, Hewitt said. Companies need to focus on providing solutions in vertical markets, such as tax systems, education and training, criminal justice and logistics, Hewitt said."You can't just be selling hardware and software," he said.Agencies do not care about technology, but they do care about how the technology helps them work better and fulfills their missions, he said. "In the past we were delivering technology. Today we have to deliver the value of the technology," Hewitt said. "IT is an enabler for performance."Outsourcing will be the best-selling capability within the vertical markets, Hewitt said. Federal Sources estimates outsourcing will be worth $3.5 billion in 2000. Enterprise resource planning implementations will be bring in $1.8 billion, followed by information assurance with $1.5 billion and electronic government at $1.3 billion.The market for knowledge management solutions is pegged at about $825 million. Federal Sources estimated that demand for year 2000 work after Jan. 1 will be at least $640 million but could be much higher, Hewitt said.The OMB budget documents on which Federal Sources based its study have changed from previous years, Dornan said. The documents offer a more detailed look at how agencies intend to spend their IT budgets, but OMB can use the documents to provide stronger oversight on how agencies spend their money, he said."OMB did this to tie spending to the agencies' missions," he said.Services dominate the spending plans of the agencies, Dornan said. Of the 454 contracts that agencies plan to award in the next year, about 311 are for services. Those contracts could be worth a total of $32.8 billion.Topping that list is National Institutes of Health's CIO-SP II contract, worth an estimated $11 billion. The Defense Department also is expected to award its $4 billion DISN Transmission Services for the Pacific contract in the coming months."There still is plenty of money to be made out there," Dornan said.