Deltek: Federal IT Spending to Remain Flat Over Next 5 Years

When the Obama administration’s 2017 budget was released in February, it showed that IT spending was set to grow 1.8 percent, up to $89.9 billion over last year’s total, with about $51.3 billion designated for civilian agencies.

This was positive news for the defense and tech contractors that serve the federal government, but the uptick may not be a sign of things to come. According to the analysts at Deltek, federal IT spending will actually decline over the next five years as agencies attempt to modernize aging IT infrastructure and reduce duplicative technologies and investments.

The Federal Information Technology Market report released earlier this month estimates total federal IT spending declining from $99.8 billion in fiscal 2016 to $98.3 billion by 2021. To note, Deltek’s analysis of total IT spend includes IT spend data within the Office of Management and Budget’s tally -- $89.9 billion for fiscal 2017 -- plus other forms of IT often unreported by agencies, such as the embedded IT serving as the backbone for weapon systems.

Compounded, Deltek forecasts a negative annual decline of 0.3 percent – or essentially, flat spending – but it’s interesting to note particularly because of increases in variants of spending, including cybersecurity, which, spurred by the Office of Personnel Management hack last year, jumped $5 billion in the proposed fiscal 2017 budget.

“Agencies are challenged by the need to meet near-term demands while planning a long-term strategy, modernize IT environments and streamline contracting and management processes, all within an often ambiguous environment," Deltek analyst John Slye said in a blog post last week.

Deltek estimates growth opportunities in the aforementioned cybersecurity as well as cloud computing, data center optimization, big data and infrastructure modernization. While the pending administrative change could have short-term effects on IT policies, Deltek’s analysis suggests changes will be more cosmetic than catastrophic shifts.

What may have a significant impact in spending, though, is the IT Modernization Fund championed by U.S. Chief Information Officer CIO Tony Scott. Should the policy become law – some consider it a long-shot at the moment – agencies could use it to fund as much as $15 billion worth of new applications and infrastructure over the next several years, Scott has said. The IT Modernization Fund could drive significant spending in agencies allocating more budget dollars to legacy IT and less on developing new tech and applications.

“The IT Modernization Fund could bring significant opportunities to contractors, provided that agencies can drive the tangible cost savings required to reimburse the fund,” Slye said.