Survey: Government IT spending to grow 5 percent over five years

Public-sector spending on commercial information technology and support services is expected to grow about 5 percent in the next five years, from $66 billion in 2007 to about $90 billion in 2013, according to a new survey by Houston business advisory firm EquaTerra.

The increase reflects government efforts to deal with constrained budgets, under-funded mandates and the wave of retiring baby boomers from government service, EquaTerra said in its "2Q08 Public Sector IT, Business and Mission Support Pulse Survey."

The survey found that service providers are optimistic about the near future, with 41 percent saying they expect third-quarter government demand to increase. Thirty percent reported their second-quarter pending deals were up quarter over quarter.

Nearly half the service providers polled said current market conditions are driving increased demand, "despite the predictable pre-election slowdown in anticipation of reallocation of government spending."

"Most public-sector managers are struggling to get the job done with outdated technology, cumbersome business processes and loss of institutional know-how as senior staff retires," Stan Lepeak, managing director of research at EquaTerra, said in a statement. "Many see outsourcing as the most viable way to cope."

But respondents said they expected project-based contracts rather than outsourcing awards to remain the preferred method of engaging service providers.

Projects that deliver near-term reductions in operating costs are also accelerating, according to EquaTerra. Forty-six percent of service providers polled said the main impetus in government outsourcing was cost reduction or cost avoidance.

They cited as the hottest emerging outsourcing needs IT modernization, including software-as-a-service solutions, migration from legacy systems, human resources recruitment efforts and IT to automate various work tasks.

EquaTerra officials said the survey was the first the company has conducted that focuses on all segments of the public-sector market, including civilian, defense, health care, education and nonprofit.