Forecast says federal IT spending to slow

The federal government's spending on IT will drop slightly over the next five years, but the impact on IT contractors will be minimal, according to a new report from London market research firm Datamonitor plc.

The report, "Finding Opportunities in a Tightening U.S. Federal Market: Five-Year Outlook for Vendors," predicts that the compound annual growth rate of U.S. federal technology spending will drop to 4 percent over the next five years.

The growth rate has fluctuated during the past decade between 5 percent and 10 percent year to year, Datamonitor said.

The slowdown heralds greater accountability in how public funds are spent and marks a fundamental shift in how government views technology purchases, the report stated.

Federal government IT spending will increase from $46 billion in 2004 to $56.5 billion in 2009, but with such large outlays, the spending dip will not be readily apparent to IT contractors, according to Datamonitor.

During this period, companies that sell to the federal government will find three areas growing at a rate faster than that of the federal market overall: customer or citizen relationship management, enterprise resource planning and security.

Collectively, these opportunities will account for close to $7 billion worth of total federal government technology investments by 2009.

Other key findings:

  • The departments of Defense, Energy, Homeland Security, Transportation and Treasury account for more than 70 percent of federal information and communications technology dollars in fiscal 2004.

  • Despite slowing year-to-year increases in expected IT budget appropriations, the portion of total federal IT budgets that is available for vendors to bid on continues to increase.

  • Software and services opportunities are growing faster than the market overall, while communications and hardware demonstrate slower growth.

  • The Federal Enterprise Architecture is driving much of the momentum toward the adoption of enterprisewide systems to reduce intra-agency and interagency duplication.

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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