IT

Opportunities still exist in slow growing civilian, defense markets

From now until fiscal 2022, both civilian and defense markets are expected to grow, but contractors should temper their expectations because this growth will be gradual.

One spokesperson at PSC's Vision Conference on Wednesday forecasted the civilian and defense budgets and walked contractors through potential pockets of opportunity.

One of the most overt problems at hand is the amount of agency IT budgets that is spent on operating and maintaining legacy systems. "The ugly truth is that nearly 80 percent of budgets is going to sustain operations and keep the lights on," a PSC spokesperson said.

However, there are IT reform and modernization initiatives that are intended to fight this trend. One such bill is the Modernization of Government Technology Act, which was passed by the House of Representatives in September.

The bill authorizes funds to replace legacy IT, combining a cloud funding measure originating in the Senate and an Obama administration-backed bill that calls for a $3.1 billion revolving fund to retire and replace legacy systems.

“The challenge is to enable the government to fund its modernization,” a PSC spokesperson said.

The proposed IT budget is about $81.6 billion in fiscal 2017. PSC expects that to grow to $91.7 billion by fiscal 2022; however, while that might may look like a decent rate of growth, the fiscal 2022 figure is tempered by inflation, a PSC spokesperson said.

“We’re showing signs of growth, but we’re really not gaining anything in terms of purchasing power,” the person said.

As for the specific market perspective, since fiscal 2011, the civilian market has had a compound annual growth rate of 3.8 percent while the defense market has declined by 2.2 percent; the decline in defense funding occurred across the unclassified portion of the defense budget, PSC said.

PSC pegs the civilian market budget in fiscal 2017 at $51.3 billion dollars and anticipates that number growing to about $57.7 billion by fiscal 2022. That growth rate—2.4 percent—is about half the growth rate that the market saw between fiscal 2012 and fiscal 2017 (4.7 percent). So, while the civilian market is forecasted to grow, it will grow at a slower rate than contractors have seen in the last five years.

Of all civilian agencies, the agencies expected to have the strongest growth through fiscal 2022 are the Health and Human Services, Veterans Affairs, Treasury, Transportation, Justice, State and Energy departments.

“Essentially what we’re seeing is moderate growth across all of the agencies,” the spokesperson said, with the majority of agency spending going toward operating and maintaining IT infrastructure.

Going forward, cybersecurity will still be a chief concern for agency CIOs, PSC said. Additionally, as a result of an increasing focus on disproportionate operations and maintenance spending, digital government will continue to grow and new contracting approaches will become the mainstay as a result of things like the cloud and “X as a service.”

“Civil agencies overall admit that they are making progress, but it is not as fast as they would like to see.”

Shifting to the defense market, PSC pegs the fiscal 2017 defense budget to be at $30.3 billion. That figure is expected to trend upward to $34 billion in fiscal 2022.

“There is a pretty strong reversal of the past five year trend of a minus 2.9 percent over the last five years to a positive 2.3 percent rate. That’s a pretty significant swing over a very short period of time,” the spokesperson said. Defense health IT is going to be a big part of this increase.

Right now in the defense market, data is still seen as a mission enabler, driving the Joint Information Environment and other similar programs. Going forward, defense agencies will continue to consolidate contracts as a way to achieve transformation; this means, PSC said, that some contracts are at risk.

Additionally, defense agencies are improving their adoption of automation. Tied into that is an increased spend on cybersecurity and integration of new technologies to achieve agencies’ missions securely.

“[Defense] transformation is still struggling in the defense market, but that is mainly because it is under tight budgets,” the official said.

As for opportunities in both markets, contractors should keep an eye on agencies looking to modernize themselves and replace outdated, legacy technologies and accelerate their move to the cloud. Cybersecurity is also of great importance to every agency, PSC said.

Agencies are also focused on improving their processes, namely through becoming more agile and reengineering processes.

While some contracting opportunities will be reduced due to agency trends like increased shared services purchases, PSC said, there is still opportunity in data and digital transformation.

“Think about technology as your friend and as an opportunity to help the government change. There’s a lot of opportunity in helping them get to use that technology and replace those legacy systems,” the official said.

About the Author

Mark Hoover is a senior staff writer with Washington Technology. You can contact him at mhoover@washingtontechnology.com, or connect with him on Twitter at @mhooverWT.

Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Our databases track awards back to 2013. Read More

  • Navigating the trends and issues of 2016 Nick Wakeman

    In our latest WT Insider Report, we pull together our best advice, insights and reporting on the trends and issues that will shape the market in 2016 and beyond. Read More

contracts DB

Washington Technology Daily

Sign up for our newsletter.

I agree to this site's Privacy Policy.