Forecast Sees Flat Federal IT Market

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Forecast Sees Flat Federal IT Market

By Nick Wakeman
Staff Writer

The federal market for information technology will remain relatively flat through 2002, but IT companies can expect to see the market for services grow while equipment and software sales decline slightly, according to a five-year forecast by the Electronic Industries Association.

Professional services such as outsourcing and privatization are growing as the government tries to do more with less funds, according to the EIA forecast.

EIA, which surveyed and interviewed 200 officials with 50 government agencies, predicted that IT budgets will rise about 1.3 percent annually, when adjusted for inflation. Civilian budgets account for the growth, with contracted-out spending expected to grow from $13.8 billion in fiscal 1997 to $15.3 billion in 2002, a rate of 2.1 percent annually.

Meanwhile, contracted-out spending by the Department of Defense is expected to drop from $8.16 billion in 1997 to $8.03 billion in 2002.

Despite the drop in defense spending, the federal market outlook is cheerier than it was just a year ago, said Gerald Harvey, director of U.S. business development for Lockheed Martin Corp. of Bethesda, Md. He is the chairman of EIA's forecast committee.

Last year, EIA's forecast expected IT budgets to drop by 1 percent from 1996 to 2001, he said.

However, in June 1996, when the 1996 survey was conducted, the government was recovering from gridlock that shut the agencies down, the impact of procurement reform was just beginning and the government was dealing with the effects of downsizing, said Judie Mopsik, director of business development with Tracor Information Systems Co. of Austin, Texas, and a member of the forecast committee.

These changes have caused the vendor community to adapt, she said. "Traditionally, business development focused on large programs," Mopsik said. "Now everyone has to become an [indefinite-delivery, indefinite-quantity] salesman."

Buying through IDIQ contracts, the General Services Administration schedules and blanket purchasing agreements will continue to rise, according to the survey.

In 1992, about 20 percent of government IT spending was through these vehicles. In 1997, the percentage is expected to rise to 42 percent, and by 2002, 62 percent of government buys will be through IDIQs, GSA or BPAs, according to the survey.

Because these vehicles allow agencies more flexibility and speed, companies also need to be more proactive, Mopsik said. Companies cannot rely on announcements in the Commerce Business Daily or agency press releases.

The number of requests for proposals coming out of the Department of Defense illustrate the evolution from large program purchases to smaller modular buys. In 1995, defense RFPs reached nearly 160 for the year. By 1998, just a little more than 20 are expected.

"If you are waiting for the RFP, you won't be in the ballpark," said Michael Kush, director of marketing analysis for Electronic Data Systems Corp. of Plano, Texas.

The survey also showed that there is still little likelihood for special appropriations from Congress for funding to fix year 2000 problems. Money likely will come from delaying other IT projects and diverting program dollars to year 2000 work, she said.

But even if the year 2000 is viewed as a short-term market, it gives companies a way to penetrate new agencies, Mopsik said. Relationships forged through year 2000 work can pay off when the pent-up demand from canceled IT programs is released, she said.

On the defense side of the IT market, the military is going through a revolution as it works toward "total battlefield awareness," Kush said.

Defense is changing from a weapon-centric approach to warfare to a network-centric approach, he said. Information technology is of increasing importance as the military tries to do more with what it has, Kush said.

Using commercial, off-the-shelf technology is a key element of this, he said. Defense research and development dollars will be concentrated on security and intelligence areas for which there is no commercial market.

The government - and defense in particular - will be looking for contracts that allow flexibility. Refreshing technology will become an automatic feature on contracts, he said. Leasing of IT equipment will increase.

The government is moving toward creating a system where information technology is considered a utility like the telephone, Kush said. More contracts are expected like GSA's Seat Management procurement, he said. Under that program, the contractor is responsible for the equipment, services and support.

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