IT spending shifting to services

Federal information technology outsourcing will more than double during the next five years, according to a report the research firm Input released Jan. 8.

In the 2002 budget, IT outsourcing accounted for about $6.6 billion in federal spending, but by fiscal 2007, that number could reach $15 billion, the report indicated.

The total amount of money spent on IT will remain constant, as will the usual year-to-year increases, but how that money is spent will change radically, said Payton Smith, manager of public-sector market analysis services at Chantilly, Va.-based Input. The shift from spending on infrastructure and hardware to the outsourced services industry will be notable, he said.

The study indicated that federal IT outsourcing would increase at a compound annual growth rate of 18 percent.

"A combination of administrative pressures to compete nongovernmental activities and difficulty retaining and replacing qualified technical and program management personnel is driving a significant increase in spending by federal agencies for IT outsourcing services," Smith said in a statement. "The legislative obstacles to outsourcing that loomed at the end of 2001 largely disappeared in 2002, and even though the subject remains politically sensitive, Input expects that the new congressional leadership will foster a generally favorable atmosphere for outsourcing vendors in 2003."

According to the report, several large initiatives are under way that will influence the development of outsourcing programs in the federal government.

"The Navy Marine Corps Intranet program at the Department of Defense and the IT Managed Services contract at the Transportation Security Administration will both play a significant role in defining future outsourcing projects in the defense and civilian agencies, respectively," Smith said.

The report states that NMCI's implementation in particular is having a significant impact on DOD spending, pushing the growth rate for defense IT outsourcing to 19 percent over the next five years.

"The obvious effect of the NMCI implementation is that the Navy is doing its computer purchasing in a whole new manner," Smith told FCW.com. "There will be a fundamental shift from capital spending to spending on services.

"What this means for the other services, and other agencies in the federal government, is they can take a look at what the Navy is doing and what TSA is doing and learn from that, draw lessons from the projects," he said.