The federal government is expected to outsource $17.6 billion in IT work by 2010, an increase of more than $4 billion over last year, according to a recent report by market research company Input.
The projected increase in outsourcing is being driven primarily by the Office of Management and Budget’s lines-of-business initiative, according to the report. The government’s lines of business include financial management, IT security and grants management, among others. Government agencies will have to apply to OMB to become Centers of Excellence for a specific business function, and only agencies that receive that designation will be deemed qualified to perform that function.
Agencies not designated as Centers of Excellence will have to transfer their function to a Center of Excellence once the systems that support that particular function (such as financial management systems) reach the end of their lifecycle. The Centers of Excellence will then compete with outsourcing vendors for the opportunity to provide management services, though OMB has been tight-lipped about how the competitions will be organized.
“Generally speaking, the business challenges and market factors driving the decision to outsource are similar between the private and public sectors,” says Chris Campbell, senior analyst for federal market analysis with Input. “Most often, outsourcing is prompted by the need to supplement internal technical resources, reduce cost, infuse new technology, or standardize and streamline operations.” In the case of the federal government, the war in Iraq, budget deficits and shrinking agency budgets are driving outsourcing decisions, Campbell says.