Federal IT Contractors Can Thrive Amid Tight Budgets

The next five years will see federal IT budgets drop, but the move to the cloud, data-center consolidation and other initiatives will stimulate new demand federal IT contractors.

By Kenneth Corbin
Wed, August 08, 2012

CIO — Amid ongoing budgetary pressure, federal agencies are tightening their belts as they aim to do more with less.

But while that climate poses obvious challenges for government contractors in all industries, those in the IT sector can look forward to some significant opportunities, according to a new study from the Deltek, a software and services company catering to government contractors and professional services firms.

"While the overall market is declining, we see some pockets of opportunity that companies can tap into to soften the impact on their business," Deniece Peterson, director of Deltek's GovWin IQ Federal Industry Analysis program, said in a statement.

The report comes at a time when the federal IT operations are undertaking a seismic, multi-year transformation as government agencies respond to several administration mandates spanning cloud computing, data-center consolidation, mobility and other areas.

That means that even as overall hardware acquisitions, for instance, are expected to decline, agencies will still be in the market for targeted purchases and have a need for contractors to assist them with their transition to the cloud.

Just last week, officials from the General Services Administration hosted government contractors for an event to discuss the agency's call for information about how cloud-brokerage service providers can help federal IT teams further their agencies' business objectives.

Overall, Deltek is projecting that federal IT spending levels will dip from $121 billion in 2012 to $112 billion by 2017, a decline of nearly 7 percent, or a 1.4 percent reduction measured by compound annual growth rate.

The Deltek forecast takes an expanded view of the federal IT apparatus, citing a report from the Government Accountability Office that found that the White House's Office of Management and Budget (OMB) typically lowballs federal IT spending levels. OMB has pegged federal IT spending at $79 billion annually, but that figure excludes IT investments in the legislative and judicial branches, as well as 58 executive agencies, according to the GAO.

The move to the cloud and the consolidation of data centers are designed to achieve a dramatic reduction in the government's IT footprint, as underused facilities will either be closed or merged, and legacy systems are phased out. That figures to create an opportunity for contractors that can assist with those initiatives as well as analytics providers to help CIOs root out wasteful or duplicative systems.

"Data-center consolidation and the administration's new digital strategy are forcing agencies to inventory their existing infrastructure," said Deltek analyst Alex Rossino. "This will undoubtedly uncover redundant and unused assets and impact demand for hardware and software."

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