New Study Pans Fed 2001 IT Budget Hike

By Nick Wakeman, Staff Writer

While the U.S. federal information technology market is showing steady growth, a large portion of that growth is devoted to maintaining existing contracts rather than new initiatives, states a new study by the market research firm Federal Sources Inc.

"This is the most boring budget I've looked at," said Thomas Hewitt, acting president of McLean, Va.-based Federal Sources.

Federal Sources is projecting that the overall IT budget will grow from $40.1 billion in fiscal 2000 to $41.9 billion in fiscal 2001, a 4.5 percent jump. But Hewitt said the overall budget does not provide enough money for promising technology projects.

Of 19 contracts worth more than $600 million that are on Federal Sources' "Juicy Targets List," 11 are recompetes of existing contracts.

"Part of the problem is a leadership factor," Hewitt said. The federal government lacks a central leadership for technology, an issue that has been resolved in high-tech driven states, such as Virginia, where there is a cabinet-level post dedicated to technology, he said.

There are some members of Congress who believe in using technology to solve problems, but "too many there see their role as trying to stop programs," Hewitt said.

However, Hewitt did praise Congress for its role in solving the year 2000 dilemma. "The [Clinton] administration said only $2.3 billion would be needed, but the Hill stepped up [with more funding]," he said.

One problem the government has is a time-honored dilemma: a lack of competition pushing the government to innovate, Hewitt said. "There is no Barnes & Noble vs. Amazon.com," he said, referring to the two leading online booksellers.

Hewitt encouraged attendees to Federal Sources' May 10 budget outlook conference in Falls Church, Va., to lobby Congress. The conference is attended heavily by company executives and other industry officials.

Industry has an important role to play in educating Congress and the administration about the benefits of technology and where it can be applied, Hewitt said.

While the budget may not be growing fast enough to satisfy Hewitt, he did identify several hot areas where federal agencies are increasing their spending.

Federal Sources projects that money spent on outsourcing will grow from $3.5 billion in 2000 to $4.6 billion in 2001, a 31 percent increase. Spending on electronic government projects will grow from $1.3 billion in 2000 to $1.7 billion, a 33 percent increase.

Conversely, the market for information assurance is expected to grow from $1.5 billion in 2000 to $1.7 billion in 2001, an increase of 13 percent.

"That is ridiculously low," Hewitt said. The budget for information assurance is not rising enough to satisfy demand, he said.

Administration officials at the Office of Management and Budget are using a similar approach to the early Y2K crisis in that they are saying agencies can reprogram dollars instead of getting new funds, Hewitt said.

While the overall federal IT budget is rising, the increase is being held down because of flat Pentagon spending. The Defense Department spends about half of the government's IT budget, according to Federal Sources' analysis of government documents. But overall defense spending on IT is expected to drop from $20 billion in 2000 to $19.9 billion in 2001.

The Army and the Air Force are the only parts of the military reporting an increase in IT spending. The Air Force expects to spend $4.79 billion in 2000 and $4.87 billion in 2001, while the Army is reporting $3.89 billion in 2000 and $3.95 billion in 2001.

The Navy expects is IT spending to drop from $3.63 billion in 2000 to $3.46 billion in 2001. Defense agencies also are expecting a drop from $7.68 billion in 2000 to $7.63 billion in 2001.

Spending by civilian agencies is expected to grow from $20.1 billion in 2000 to $22 billion in 2001.

Health and Human Services is the biggest civilian spender, with its budget expected to grow from $3 billion in 2000 to $3.1 billion in 2001. Other top-dollar agencies include the Transportation Department with $2.8 billion expected in 2001, Treasury with $2.5 billion, and NASA with $2.2 billion.

Federal Sources' analysis of budget documents found spending habits changing in the government marketplace, said Mary Ann Hirsch, former executive vice president of consulting for Federal Sources, who presented some of the budget figures at the conference. She now is executive vice president of Knowledge Consulting Group Inc., a systems integration company in Herndon, Va.

The explosive growth of General Services Administration's IT schedules continues. More than $16 billion of the $40 billion spent on IT is spent through GSA vehicles, she said.

GSA is experiencing 40 percent growth a year, so $22.1 billion is expected to be spent through GSA in 2001, Hirsch said.

But spending through governmentwide acquisition contracts dropped by 6 percent during 1999, and that trend is expected to continue, she said. "But that doesn't mean that you should abandon or ignore GWACs," she said. "They are still viable but more spending is moving to the schedules."

The use of government credit cards, especially for purchases under $2,500 is exploding, Hirsch said. In 2000, government credit cards will be used in 200 million transactions worth more than $18 billion, she said.

While many of these purchases are for non-IT items such as office supplies, government credit cards are "revolutionizing the buying of commodity items," Hirsch said.