How the numbers add up to create today's market optimism

There is plenty to be optimistic about in today’s federal market and Kevin Plexico, Deltek’s senior vice president of research, put some numbers behind that optimism Wednesday with his annual Federal IT Market Outlook presentation.

A major source of optimism is the Bipartisan Budget Act that passed in February. That law raises the caps on spending in this current fiscal year and FY 2019. We’ve had that kind of legislation before but this one was different. The numbers went up and up significantly.

“It was a big surprise to many in industry and at the agencies,” Plexico said. The Defense Department’s increase was larger than they expected, while civilian agencies saw an overall increase instead of the sharp cuts they were anticipating.

But IT budgets actually have been growing since fiscal 2014, Plexico said. That is something we also have seen in our annual Top 100 reports.

According to Deltek’s data, the bottom was fiscal 2013 when IT contract spending hit $68 billion. In 2014 and 2015, it was $70 billion and $71 billion. After that the growth started to accelerate, reaching $77 billion in fiscal 2016 and $82 billion in 2017.

Civilian spending grew 18 percent from fiscal 2015 to 2017. Defense IT grew 14 percent during that time.

Deltek is predicting that defense IT will grow by 2.4 annually through fiscal 2023, civilian 2.2 percent and intelligence-related IT at a slower rate of 1.2 percent.

Plexico said that there will be a strong contracting environment for fiscal 2018 and 2019. The one word of caution is that the Budget Control Act is still on the books and the threat of sequestration is still there once the Bipartisan Budget Act expires.

“We’ll see if we get more relief from the Budget Control Act levels,” Plexico said.

But given that Congress has twice extended the caps, he said he expects history to repeat itself with more legislation to override the sequestration caps.

This is significant when you compare what Congress has passed and what the sequestration levels are.

For fiscal 2018, the defense budget was $551 billion under sequestration, instead of the $629 billion cap set by the Bipartisan Budget Act. The same is true on the civilian side, which saw a $63 billion boost over the $516 billion sequestration cap.

Plexico outline several market drivers or influencers as he called them:

• IT modernization
• Cloud computing
• Customer engagement
• Buying Power/Category management
• Cybersecurity
• Data analytics

These are all part of President Trump’s management agenda. It was just released in March so we should see more of its impact when the 2020 budget proposal is released in early 2019.

“A lot has happened in a short period of time, so the management agenda is just now getting baked into plans,” Plexico said.

Some of the increased IT spending that Plexico describes falls in the broad category of IT modernization. Agencies are spending more now in hopes of reducing their long-term spending on IT, he said.