Deltek forecasts narrow paths for IT market growth opportunities

Changes in how agencies view IT as an item that needs to see cost reductions versus being a tool to drive change in their organizations will limit growth opportunities for contractors going forward.

There is still growth to be had for industry but there is a catch in that vendors have narrower swim lanes to chase opportunities as the White House works to shift spending to defense and away from many civilian areas, according to the latest IT market forecast from government contracting intelligence company Deltek.

Deltek’s latest FederalMarketView forecasts singles out growth opportunities over the next five years as limited to a small group of agencies that includes the Defense, Homeland and Veterans Affairs departments. All three of those agencies were slated for increases in President Trump’s fiscal year 2018 budget blueprint.

That blueprint is seemingly on pause for now, however, as Trump and congressional leaders reached a deal earlier this month to fund Hurricane Harvey relief efforts, extend the federal debt ceiling and pass a continuing resolution to fund agencies through Dec. 15. Congress now has Hurricane Irma relief on its agenda, so it remains to be seen how that plays into budget negotiations.

Contractor-addressable IT budgets will rise at a nominal compound annual growth rate of 1.1 percent to $104.9 billion through to fiscal 2022, according to the MarketView presentation. New funds for the Pentagon and prioritization of cybersecurity and IT modernization will drive that along with new operational reform initiatives.

Within that addressable market, Deltek projects defense agencies’ share to grow from 46.4 percent to 49.5 percent. Civilian agencies will see a small bump from 43.4 percent to 45.4 percent even with the blueprint’s planned cuts. Intelligence’s portion will crawl up from 9.7 to 9.9 percent.

Deltek’s forecast pegs the VA as the largest winner from the spending shift as the firm forecasts a 6.3-percent compound annual growth rate through to fiscal 2022. Homeland Security will grow at a 3.2-percent CAGR in line with civilian spending priorities for enterprise IT modernization, cloud computing and cybersecurity. Defense agencies will get an infusion of funds for readiness, warfighter technology and new cyber capabilities among other areas.

The share of the overall top-line IT budget in discretionary spending has held steady in the 6-percent range from fiscal 2010 onward and the 10-year average comes out to 6.2 percent through 2018, according to Deltek. Next fiscal year will see an increase from 6.4 percent to 6.7 percent.