Input: State and local outsourcing to hit $20B by 2011

Originally posted Jan. 31 at 10:00 AM and updated Feb. 1 at 3:45 PM

(UPDATED) The state and local outsourcing market is expected to grow from nearly $12 billion in 2006 to about $20 billion in 2011, according to a new report.

The Reston, Va.-based market research firm Input Inc. said that state and local outsourcing is regaining its footing following a period of political turbulence tied to a backlash in recent years over offshore and welfare outsourcing.

Vendors should expect to see steady outsourcing growth in the market through 2007, which will be followed by a more pronounced increase in 2008. The spending estimates include both IT outsourcing and business process outsourcing combined, Input said.

The increase will stem from growing economic pressure as state budgets are squeezed by programs such as Medicaid while, at the same time, they become more open to innovative outsourcing approaches that bring an influx of capital investment and new jobs to their states.

"Outsourcing remains a political hot button at the state and local levels," said Michelle Miller, a senior analyst with Input. "In recent years savvy leaders have found ways to sell outsourcing plans to state legislators by focusing on an approach that strikes a balance between cost savings and keeping jobs and government revenues in-state."

The result has been notable outsourcing awards in Virginia and San Diego over the past 15 months. "Right now everyone is in a 'wait-and-see' mode, but once one of these projects is deemed a success, I believe we will see the market take off," Miller said.

Increased demand in the areas of data center management, application management, desktop services and hosting will propel the growth, according to Input.

Business process outsourcing will not play as large a role as previously projected in the market, Input said. This is because the majority of elected officials remain uncomfortable with the political risks of transferring control of government business processes to a contractor.

About the Author

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

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