Forecast: Look to state and local for ARRA IT opportunities

Information technology contractors who are eyeing potential windfall federal contracts stemming from the American Recovery and Reinvestment Act should lower their expectations and perhaps look at the state and local markets for new opportunities.

That’s because the lion’s share of ARRA funds will be divided among thousands of state and local jurisdiction offices and agencies in the form of federal grants, said Joaquin Gonzalez, director of research at CivicUS, a Rockville, Md., advisory service firm for state, county and municipal government executives.

That’s the same conclusion reached last Tuesday by Ray Bjorklund, senior vice president and chief knowledge officer at FedSources.

Bjorklund told the annual FedSources Outlook Conference that ARRA was temporary stimulus funding, much of which was being dispersed as grants to states and localities, and should not be counted on too heavily for federal contracting work.

Gonzalez said between $250 billion and $300 billion in ARRA funds has been targeted for state and local government projects to modernize and upgrade public services. “The IT number is a small subset of that,” he said. “If it’s pure IT, I wouldn’t think it would ever be more than $80 billion.”

Gonzalez said that figure includes all communications, systems integration, hardware and software, and outsourcing services, which then is divided among 50 states, hundreds of large cities and hundreds of communities.

“Then you have to further subdivide by different agencies – the purpose of the different agencies,” he said. “So for any large player in this space you’re not talking about more than a few hundred million” in contract opportunities.

“The amount that any one entity can spend is not very large,” Gonzalez said.

“Even though [the funding] is highly fragmented, even though the spend-per-project is not that large, I think the real meaning of the federal stimulus to IT vendors is their entry into a market that is going to undergo rapid change over the next five years,” he said.

“That rapid change undoubtedly is going to require a fair amount of information technology infrastructure,” he added.

Also, IT services and products – including software dashboards – will be needed to track projects and report spending to the granting federal agency. The IT provider will also have to track its spending, he said. “Managing the spend has attracted another group of [IT] vendors and another type and group of products,” Gonzalez said.