Outsourcing Boosts Federal Spending

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Outsourcing Boosts Federal Spending

By Nick Wakeman
Staff Writer

Agency outsourcing and greater use of professional services should propel the federal information technology market to grow at an annual rate of 4 percent through 2002, according to the Vienna, Va.-based market research firm Input.

In 1997, spending on information technology by the federal government is estimated at $29 billion annually. By 2002, Input expects spending to reach $35.1 billion a year.

"The major thing is the movement to outsourcing and professional services by the agencies," said Norm Berthaut, Input's vice president for government services. "There is a decline of skilled people in the government but also there is a growing dependence on information technology for providing services."

These opposing trends are forcing the government to look at outsourcing, Berthaut said.

Input forecasts the outsourcing market will grow faster than the government market as a whole, rising from $1.8 billion in 1997 to $2.6 billion in 2002.

Input bases its estimates on interviews with agency officials and vendors as well as examining budget documents and industry and government strategic plans.

The professional services piece of the market forecast covers consulting, software development, education and training, and systems integration services. This sector is expected to grow at an average of 8 percent annually through 2002. In 1997, the professional service market is estimated at $4.5 billion. By 2002, Input predicts it will be $6.7 billion a year.

To buy IT products and services, agencies are increasing their use of General Services Administration schedules, blanket purchasing agreements and indefinite-delivery, indefinite-quantity contracts, Berthaut said. The rise of IDIQ contracts that are open to all government agencies are of increasing concern, he said.

"Some [IDIQ contracts] seem to be as much an opportunity for agencies to make money as they are for agencies to find the best way to get products and services," Berthaut said.

An agency can make money off of an IDIQ contract because the agency charges other agencies a percentage to use the contract. Those percentages have been dropping as agencies compete with one another to attract business to their contracts, he said.

"There is a lot of internal government competition," Berthaut said. While he did not think this competition was necessarily a bad thing, Berthaut said he expected the Office of Management and Budget will eventually have to step in and set some guidelines.

Input's survey also showed that the use of the GSA schedule is expected to rise from $2.9 billion in 1997 to $4.7 billion in 2002. The growing popularity of services via the GSA schedules make it more important that systems integrators use the vehicles, Berthaut said.

"Basically, the government wants to speed up the way it purchases information technology," said William Loomis, a senior analyst with Legg Mason, Baltimore.

Because of the fast rate at which technology becomes obsolete, the government has had to move away from the longer and more traditional contracting methods and turn more to the GSA schedule, BPAs and IDIQs, said Loomis, who had not seen Input's federal market forecast.

"They are just easier to refresh with the new technology," he said.

Input's study also showed that the Army has the largest number of IT projects in the pre-award stages with 70 projects worth about $10.5 billion. The government as a whole has 522 projects in the pre-award stage with a combined value of $81.5 billion.

Professional services leads the list with 219 projects, estimated at $17 billion. But network and telecommunication services has the greatest estimated value at $41 billion spread over 66 projects, according to Input.

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