Input: State outsourcing to grow by 75 percent

Antiquated information technology systems and an aging workforce will drive state and local governments to outsource applications and systems at unprecedented levels in the next five years, according to a report that will be released tomorrow.

Input, a Virginia-based market research firm, projects a spending increase in IT outsourcing contracts from about $10 billion in fiscal 2005 to nearly $18 billion in fiscal 2010, a 75 percent jump.

“Outsourcing has always generated significant political debate, which in some cases has stalled this sector's growth at the state and local level,” said James Krouse, Input’s manager of state and local markets, in a press release.

“Although this market remains volatile, improvements in the state governments' financial positions have eased pressures politicizing contract decisions,” he added. “This has allowed agencies to be more aggressive with their spending, particularly on the outsourcing of technical applications and systems.”

Growth in this area will be moderate in fiscal 2006 but will rise noticeably the following year. Applications management, platform operations and desktop services will account for the majority of the growth, according to the report.

Although existing systems and an aging workforce are factors leading to more outsourcing, state and local government officials will also “continue to review operations more as private-sector entities, consolidating IT operations and centralizing control,” according to the report.

It states that the business model doesn’t support continued government investment in rapidly depreciating hardware and software, including customized solutions.

“Any optimistic speculation that government workforces could be repopulated by [fiscal] 2008 is unlikely,” according to the report. “In general, reports indicate that students entering the workforce are continually drawn to the high-tech applications that the private-sector offers, as well as more competitive compensation packages.”