IT outsourcing market to reach $15 billion by 2007

Federal spending on information technology outsourcing services will increase from $6.6 billion in fiscal 2002 to nearly $15 billion by fiscal 2007, a compound annual growth rate of 18 percent, according to a report by Input Inc., the Chantilly, Va. market research firm.

"A combination of administrative pressures to compete non-governmental activities and difficulty retaining and replacing qualified technical and program management personnel is driving a significant increase in spending by federal agencies for IT outsourcing services," said Payton Smith, manager of public sector market analysis services.

Smith said the legislative obstacles to outsourcing that arose at the end of 2001 largely disappeared in 2002.

"Even though the subject remains politically sensitive, Input expects that the new congressional leadership will foster a generally favorable atmosphere for outsourcing vendors in 2003," he said.

There are several bellwether initiatives under way that will influence the development of outsourcing programs in the federal government, the report said.

"The Navy Marine Corps Intranet program at the Department of Defense and the IT Managed Services contract at the Transportation Security Administration will both play a significant role in defining future outsourcing projects in the defense and civilian agencies," Smith said.

NMCI is the eight-year, $6.9 billion outsourcing contract won by Electronic Data Systems Corp., Plano, Texas, in October 2000. Unisys Corp. of Blue Bell, Pa., was awarded the TSA's billion-dollar ITMS contract in August 2002.

The Input report said that the Navy's NMCI implementation in particular is having a significant impact on Defense Department spending, pushing the growth rate for IT outsourcing there to 19 percent over the next five years.