Agency Spending on Outsourced IT Nearly Doubled in Fiscal 2019

Federal agencies have been gradually moving to outsource more and more of their IT work, but fiscal 2019 saw a significant jump in spending on cloud and managed services, which nearly doubled year over year, according to analysts.

As of the most recent spending data reported, nearly one-fifth of federal IT spending is going to private sector companies doing IT work on behalf of an agency, according to Greg Lobbin and Steve Vetter, who presented their analysis as industry partners at the Professional Services Council’s 2019 Vision conference.

“Provisioned IT spend is now 18% of the federal IT budget,” Vetter said, accounting for $12 billion of the $90 billion in federal spending allocated in fiscal 2019. “I don’t think most of us expected to see how fast it is moving.”

Lobbin said the team of analysts looked at agency spending reported through the IT Dashboard with a focus on “managed services”—which run the gamut from advisory services to app development to systems integration—and the three primary legs of cloud services: infrastructure-, platform- and software-as-a-service.

“There’s a whole plethora of things” covered under provisional IT, Vetter said. “But, basically, it boils down to: the agency is not doing [the work] itself, it’s paying someone else to do it, and it’s paying for it, normally, on the basis of a [service level agreement] or based upon a unit of commoditization.”

While spending on provisional IT increased year over year by 90%, only a portion of that—about $1.5 billion—was spent directly on cloud services. The broader umbrella of managed services doubled year over year, going from just under $5 billion in fiscal 2018 to almost $10 billion in 2019.

Some of that increase can be attributed to better reporting, Lobbin and Vetter told Nextgov after their presentation, due to more involvement from agency CIOs and CFOs as part of the Federal IT Acquisition Reform Act, or FITARA, as well as the administration’s mandate to use the Technology Business Management, or TBM, framework as an IT accounting standard. While it is unclear how much is due to better data, it’s clear there has also been a significant jump in actual spending on managed services, according to the analysts.

“We believe there’s both,” Vetter said. “There is some increase in the actual data that is now being categorized in that area. But [the increase] is too big. And in other areas, we’re seeing and in dialogues with agencies, it’s a different way of thinking.”