Federal IT market poised to hit $111.9B by 2015

In the next five years, information technology contractors will see the federal market for their services increase by a compound annual growth rate of 5.4 percent to a total of $111.9 billion by 2015, according to market research firm Input.

That figure compares to the $86 billion in federal IT spending expected this year. Input also projected that the cybersecurity market will grow from $8 billion this year to $12 billion by 2015 -- a compound annual growth rate of 8 percent.

Input expects the outsourced portion of the IT budget to grow at a faster rate than the IT budget overall. By 2015, total IT spending will hit $121.4 billion at a compound annual growth rate of 4.9 percent.

Kevin Plexico, Input’s senior vice president of research and analysis services, attributed the difference in projected growth rates to expectations that agencies will contract out more of every dollar spent on IT. “Even though they’re starting to hire more people…a lot of those people aren’t IT people, so that doesn’t affect the internal cost,” he said.

Plexico shared Input’s predictions at the firm’s MarketView 2010 conference in Falls Church, Va. The firm plans to release a more detailed report in the coming months.

Input predicts a compound annual growth rate of 5.6 percent for civilian IT contract spending, 4.8 percent for defense spending and 6.4 percent for spending by intelligence agencies.

Professional services represent the healthiest segment of the market included in Input's predictions. Consulting work on data center consolidation, service-oriented architecture and cybersecurity will drive the growth in professional services spending, Plexico said.

Through 2015, Input projected the following compound annual growth rates:

• Professional services -- 7.1 percent.
  
• Systems integration -- 6.3 percent.
  
• Outsourcing -- 5.6 percent.
  
• Software products -- 5.2 percent.
  
• Communications and network services -- 4.9 percent.
  
• Computer equipment -- 3 percent.

Plexico said the growth is coming from the expanded role the federal government is playing in the U.S. economy, particularly in social, regulatory and security programs. He also said presidential budget requests tend to be conservative compared to what ends up being spent on IT in a given year.

In addition, agencies' increased reliance on task-order contracting means that it’s important for companies to align with the agencies they want to do business with. “So if you have key growth ambitions on [the Homeland Security Department] and you’re not part of EAGLE II, you’re potentially going to be in a lot of trouble,” he said.

Meanwhile Plexico said contractors shouldn’t buy into the buzz about insourcing.

“It’s a bit of a red herring, we believe, for just the negativity that’s developed between Congress and agencies around contracting,” Plexico said. “There are some areas that will be affected…but in aggregate, it’s going to have a very minimal effect on contracting at large.”