Input warns of flat IT market

Growth in the federal information technology market is essentially flat from the actual amount appropriated in fiscal 2006 to the amount requested in the White House budget proposal for 2007, according to market research and consulting firm Input.

Although contractors can be sure that more money will be spent than the proposal reflects, fiscal 2007 is going to be another lean year for spending, said James Krouse, Input's director of market analysis.

Speaking today at Input's MarketView 2006 event, Krouse said the budget submitted for fiscal 2007 -- following the Office of Management and Budget's revision to it earlier this month -- requests $63.8 billion for IT, up only marginally from the $63.5 billion enacted for '06.

"Taking into account inflation, you could almost say this is a downturn," Krouse said.

Krouse cited two factors as contributing to the minuscule increase. For one, OMB's initiatives intended to increase efficiencies in federal IT projects are paying off, resulting in lower costs that require less funding.

But secondly, he added, this is a political budget, influenced by concerns that have little to do with IT effectiveness.

Defense Department spending is the area most likely to outstrip the budget numbers, he said, because DOD typically gets supplemental appropriations to meet emerging needs.

"If the business case is made and the money is needed, the money will be made available," Krouse said.

The markets likely to see the most activity outside DOD include IT security, homeland security and health care IT, he said. That last category is new enough to remain only roughly defined, but it will include integration efforts at the Centers for Medicare and Medicaid Services and CMS’ integration with its counterparts in individual states, he said.

Outsourcing is the market segment expected to grow most strongly, at an average annual rate of 5.9 percent between 2006 and 2011 in Input's forecast. Communications follows at 5 percent, and professional services at 4.5 percent.

"The communications area is one you can continue to count on for most of our lifetimes," Krouse said.

Robert Shea, counselor to the deputy director of management at OMB, said the agency will continue its pressure on agencies to spend their IT dollars wisely and show tangible results for investments.

"Every program should be doing better at what it does this year than last year, and better next year than this year," he said.

That includes the continued requirement for agencies to lay out a business case to justify spending the money in the first place, Shea said. "If a program can't articulate what they want a system to do, we shouldn't be investing in that system," he said.