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Big Data Spending Trends: What Agencies are Spending on Services

It’s not difficult to determine what federal agencies spend on IT services every fiscal year.  Parsing that data into specific types of services, however, can be tricky, particularly if one is seeking to understand a specific set of services related to an emerging technology trend like big data.  This post features a set of data related to big data services investment in both the civilian and defense sectors of the federal government.  As a reminder from last week’s post, this data collection is based on a set of 69 keywords relevant to big data investments.  These keywords range from the names of specific solutions (e.g., Sqrrl, Splunk, and Hadoop) to types of products and services (e.g., fusion centers, high performance computing, and predictive analytics).  The resulting dataset is discreet, constituting a narrowed-down picture of federal big data investment.  I offer it as a baseline for analyzing and understanding agency investment trends.

Federal Big Data Investment in Services

The chart below shows that federal investment in big data-related services (ex-High Performance Computing) followed a steady uptrend from fiscal 2010 until the end of fiscal 2014.  I assume the trend continued intact through 2014 because the data from 2014 is incomplete due to a 90 day reporting lag from the DoD.  Once that data comes in I fully expect the final total will be higher than 2013 because most federal IT spending takes place in the fourth quarter of each fiscal year. 

High performance computing was separated from “other services” to provide an even more specific look at big data services.  The services included in this category include analysis support, data warehouse services, software and hardware maintenance, system development, and research and development, among others.  A separate category for HPC has been included because high performance computing is closely related to big data style computing projects.

An interesting detail shown by this data is that investment in big data related services did not fall in fiscal 2013 as a result of sequestration related cuts.  This is curious because nearly every other area of federal IT spending declined in fiscal 2013 thanks to sequestration.

Spending by Market Sector

When broken out by buyer segment the data below reveals a couple of interesting details.  The set shown includes both “other services” and high performance computing.

First, we see that services spending by civilian agencies flattened in fiscal 2012 and dropped in fiscal 2014 by $150 million.  Civilian agency data is reported quickly at the end of each fiscal year, so the set is more complete.  Second, defense spending continued to increase in fiscal 2014, showing a rise of $115 million even though not all of the data for Q4 has been reported. 

Conclusions

The brief analysis here shows that sequestration did not have an impact on big data related services spending at the DoD.  This bodes well for companies hoping to capitalize on rising interest in big data services among defense customers. The impact of budget cuts was, however, felt more acutely at civilian agencies, illustrating that the impact of sequestration can be felt unevenly across government.

The analysis presented here is a small sample of the kind of valuable insight that readers will find in FIA’s new report, Federal Update: Cloud, Data Center, Big Data, and Mobility, due to be published on October 31, 2014.

Big Data Spending Trends: What Agencies are Spending on Software Solutions

In October 2013 Deltek GovWin’s Federal Industry Analysis team began publishing an annual report that delves into the progress federal agencies are making toward reaching a specific set of information technology goals. The areas examined are cloud computing, data center consolidation, big data, and mobility. Cloud and big data are my areas of responsibility and expertise so in this week’s post I’ll provide a small sample of the data that we analyze in the report. The data details spending related to big data investment in both the civilian and defense sectors of the federal government. Collection of the data is based on a set of 69 keywords relevant to big data investments. These keywords range from the names of specific solutions (e.g., Sqrrl, Splunk, and Hadoop) to types of products and services (e.g., fusion centers, high performance computing, and predictive analytics). The resulting dataset is therefore discreet, constituting a narrowed-down picture of federal big data investment. It doesn’t capture all investment as that would be impossible given a lack of granularity in the government data, security clearance issues, and all of the spending that takes place as part of large-scale IT services efforts. What the data does provide, however, is a baseline by which to analyze and understand agency investment trends.

Federal Big Data Investment in Software
 
The chart below shows that federal investment in big data-related software nearly tripled in the 3 fiscal years from 2010 to 2012, until it hit the brick wall known as sequestration in fiscal 2013. 
 

 
No segment of federal government technology spending escaped sequestration related cuts – even emerging areas like big data where there are clear benefits for federal customers using solutions for data analysis and visualization. In the case of big data related software the “correction” in spending amounted to a 27% drop from $61 million in fiscal 2012 to $48 million in fiscal 2013. The good news is that spending recovered somewhat in fiscal 2014 thanks to some stability in the federal budget. Not all of the data for Q4 of fiscal 2014 had been reported as of this post’s publication so we can expect that the final number for FY 2014 will come in higher than fiscal 2013.
 
Spending by Market Sector
 
A closer look at spending by market sector reveals interesting details that show the picture of a fiscal 2014 recovery in spending is not rosy across the board.
 

 
As it turns out civilian sector spending on big data related software continued to rise in spite of sequestration. In contrast, spending in the defense sector fell precipitously after it had risen from fiscal 2010 to fiscal 2012. To note again, Q4 defense spending data for FY 2014 hasn’t been reported yet. Even so, the fiscal 2014 total is unlikely to surpass spending in fiscal 2013.
 
Conclusions
 
The brief analysis above shows that sequestration had a decisively negative impact on big data related software spending at the Defense Department. This news is troubling given reports that commonly cite defense organizations as being among those most in need of big data solutions. If the data is any indication, vendors seeking business opportunity in this technology area are best off focusing their efforts on civilian agencies as these customers are increasing their spending.

The analysis presented here is a small sample of the kind of valuable insight that readers will find in the next version of FIA’s Progress Update report, due to be published on 31 October.

 

The Rising Risk of Federal Agency Cloud Investments

Last week saw the publication of a report by the Government Accountability Office that reprimanded federal agencies for not pursuing cloud investments as aggressively as is mandated by the Office of Management and Budget’s “Cloud First” policy.  As a result, the GAO’s Cloud Computing: Additional Opportunities and Savings Need to Be Pursued report concluded, agencies had not derived the cost benefits that they might have if they had chosen to use a commercial cloud service rather than reinvest in the ongoing operation of numerous legacy systems.  At roughly the same time the Department of Energy’s Office of the Inspector General published an audit report showing that although DOE offices and programs had invested more than $30 million dollars in cloud computing those offices could often neither account for the services they used, nor had they established adequate data management policies.  Lastly, the audit found that none of the cloud services reviewed were fully compliant with the Federal Risk and Authorization Management Program (FedRAMP).

In effect the GAO lambasted agencies for not considering cloud solutions to replace aging legacy systems, while at the same time yet another agency IG criticized its offices for failing to adequately protect data and coordinate investment management.  Several weeks ago the OIG at the Environmental Protection Agency revealed flaws in the EPA’s cloud investments that are similar to those at the DOE and last year the National Aeronautics and Space Administration was slapped for making cloud investments that lacked adequate data governance and security oversight.

Does anyone see the problem here?   

The OMB pushed Cloud First onto agencies with the sole objective of reducing IT costs.  This unerring (and I would argue irresponsible) focus on reducing costs forced agencies to jettison their typical risk aversion and jump into a new technology approach that they were not prepared for.  Lest readers think I am overstating the problem, I ask for consideration of the following.  Over the last two years I have documented hundreds of cloud investments that agencies have made since 2009.  These investments include back office systems and even a few mission critical programs that go far beyond the 3 programs that Cloud First originally mandated.  Now agency IG after agency IG is coming forward with audits revealing uncoordinated investments, absent data management policies, and lack of FedRAMP compliance.

Consider FedRAMP compliance.  Last time I checked fewer than 20 commercial cloud solutions had received FedRAMP certification.  Years ago representatives from industry warned that the FedRAMP approach would create a bottleneck of epic proportions; something GSA officials repeatedly promised wouldn’t happen.  Now where are we?  Agencies caught between the rock of OMB (and Congress, for that matter) and the hard place of the glacial FedRAMP authorization process have invested in cloud solutions well before they were ready for them.  The result has been chaos and the expansion of risk  across government in the name of saving a few million dollars; all of this against a backdrop of soaring entitlement spending that reaches into the trillions.  Is it any wonder that agencies have sought to keep legacy systems running rather than wade further into water that is already up to their noses?

The reality of the situation is that federal agencies have already made significant investments in cloud computing.  Many of these investments were made before FedRAMP had been stood up, meaning very, very few of them are compliant.  Worse yet, agency data management policies providing standards for the handling, storage, and accessibility of data are still largely missing.  The result is a federal IT environment in which risk has soared – the risk of breached or lost data, the risk of poorly managed investments, and the risk of cost overruns.  All of this has come at the cost of saving a few pennies at a time when the Federal Reserve regularly CTRL+Ps billions of dollars into existence per month.  The Department of Defense’s more conservative approach to the cloud doesn’t look so bad now.

 

 

Spending on DISA’s Encore II Contract Vehicle

Officials from the Defense Information Systems Agency confirmed at their recent Forecast to Industry that the competition for the Encore III contract vehicle will begin in fiscal year 2015.  Encore III’s predecessor, Encore II, has been heavily used by defense customers, with about $5.8 in contract dollars going through it since fiscal year 2008.  Encore III is expected to receive even heavier use, particularly since DISA officials have emphasized the coming consolidation of services contracts that are deemed duplicative.  Given the agency’s shrinking budget, it is not beyond the realm of possibility that in the years to come the overwhelming majority of contract spending on information technology services at DISA will go through Encore III.  This implies that the available pool of competitive opportunities at DISA will be much smaller in the future, necessitating that interested vendors win a spot on Encore III.  Laying the groundwork for bids includes understanding the customer base using Encore II and the top vendors on the vehicle, as all of these will probably be bidding on the follow-on.

Top Customers

Looking first at the top customers using Encore II we can see, not surprisingly, that DISA spends the most contract dollars through the vehicle.

This said there are a number of other defense community users putting millions of dollars through Encore II.  Of these, the Army comes in second with $233 million in obligations.  This is a trend I would expect to continue as the Army also narrows the number of contracts it uses for IT services and as it continues to look to “DISA-first.”  With $87 million in obligations, the Bureau of Alcohol, Tobacco, and Firearms stands out as the lone civilian customer among those listed.

Top DISA Customers

Narrowing the analysis to DISA customers only, we arrive at the following results.

Readers will notice right off the bat that the total amount of dollars represented here does not equal the total amount listed as “DISA” in the first chart above.  This is because of vagaries in the reporting.  Often “DISA” is listed as the major spending agency in the available data, but when one gets down to the level of the office requesting the funding there will not be a customer given, or the customer will actually belong to one of the Services (e.g., Navy’s Space and Naval Warfare Systems Command).  Where the DISA-specific customer is available I have listed them here.

It is most informative when looking at this chart to zero in on the specific customers rather than the general categories, like “DISA” which sits at the top of the chart.  Similarly, the spending listed under the various entities of the Defense IT Contracting Organization (DITCO) doesn’t reveal much.  Digging deeper we find that several organizations now under Chief Technology Officer Dave Bennett’s Enterprise Information Services business unit use Encore II the most.  These organizations include the former Computing Services Directorate, the Systems Management Centers, and the Infrastructure Services Center San Antonio.  I would anticipate this trend to continue in the years ahead as DISA consolidates core data center support contracts and funnels more contract dollars through Encore III.

One other thing worth observing is the relative absence of spending related to the Defense Information Systems Network (DISN), now known as the Defense Information Network (DoDIN).  I suspect there is spending here related to DISA’s transport services, but it cannot be parsed out due to the lack of granularity in the data.

Top Vendors

Lastly, let’s examine the top earning vendors on Encore II.  The chart below shows the top ten highest earning companies by obligations from DISA alone. 

The gap between companies number 2 (Raytheon - $402M) through 5 (HP Enterprise Services - $359M) is relatively slim.  The earnings by Northrop Grumman, however, tower above them all, with $1.4 billion representing almost 4x the next closest competitor.  Noteworthy too is DSA, which the data says has been awarded $271 million in contracts as a small business (partial).  Presumably, DSA will not be able to compete for Encore III as a small business, which should make the competition for large business slots that much more competitive.

 

Army Spending on ITES-2S

Army customers have put more than $3 billion worth of procurements through the Army’s Information Technology Enterprise Solutions 2 – Services contract vehicle.  Now that competition for the follow-on is expected to begin in fiscal 2015 it is worth looking at how that spending data shakes out by customer, product service code, and competitor.  This post provides a brief analysis of all three spending areas to help industry prepare for the coming competition.

The Army’s Information Technology Enterprise Solutions 3 – Services (ITES-3S) is one of the most hotly anticipated contract competitions coming in fiscal year 2015.  For this reason I thought it would be worthwhile to provide readers with a brief analysis of spending by Army customers on the current iteration of the contract vehicle – ITES-2S.  In the process of this analysis I’ll also provide some insight into the performance of incumbent contractors as measured by their earnings with Army customers on this list.  The data shown here comes from all contract actions that have been reported through the end of May 2014.

Top 10 Army Customers

The table below shows the ten Army customers that have obligated the highest amount of contract dollars on ITES-2S since the inception of the contract vehicle.  Altogether, these customers alone have put $3 billion through ITES-2S.  It is not surprising, perhaps, to see the Program Executive Office Enterprise Services at the head of this list.  PEO EIS is the organization responsible for the administration of ITES-2S and its sister vehicle for commodity IT products – ITES-2H (now 3H).  PEO EIS thus keeps much of its spending close to home, a reality that every vendor seeking to do work at EIS needs to know.   

Top 10 Product Service Codes

Having identified the top spending entities using ITES-2S, let’s take a look at what they are buying.  The government data does not provide sufficient detail in all cases to make an apples to apples comparison by customer so the analysis will have to be limited to the Product Service Codes assigned to each purchase.

Source: FPDS, Deltek

 

The table above shows that by far and away the most money obligated is for “D399: Other ADP & Telecommunications Services.”  D399 is a default code or general catch-all category for IT services, so the designation of work under D399 doesn’t tell us much.

Looking at the numbers and categories that follow D399 we can get a little better idea of what the ten customers above are spending on.  Using these categories we can determine that they are buying equipment maintenance and repair services ($195 million), systems development services ($118 million), and engineering/technical services ($95 million), among others.  Interesting here is the amount spent in commodity IT categories - $179 million under PSC 7022 for computers and $39 million for software (PSC 7030) – totaling less than 1% of spending represented.  Assuming that there is minimal equipment represented under D399, we can tentatively conclude that these customers aren’t buying much new IT equipment as part of the services they are procuring through ITES-2S.  These purchases probably all went through ITES-2H.

Top 10 Vendors

Lastly, let’s take a look at the competitive landscape.  All of the current players on ITES-2S can be expected to compete for places on the follow-on vehicle, so a comparison of earnings on 2S can provide a slight indication of potential strength in the follow-on competition.  The chart below shows that Northrop Grumman and Lockheed Martin have both earned the most on ITES-2S, followed by a number of other companies.  Curiously, Dell Federal is missing from this list despite having acquired Perot Systems, which was an original awardee on ITES-2S.  Perot Systems had in turn acquired QSS Group, which was also originally on ITES-2S.  Dell therefore receives credit in the data for three companies on ITES-2S and still it failed to crack the top ten shown on this graphic.

Parting Thoughts

ITES-3S is expected to be even more heavily utilized than its predecessor due to the Army’s desire to push more of its IT acquisition dollars through a smaller number of contract vehicles.  Therefore, in terms of customer spending, PEO EIS is likely to put an even greater percentage of its acquisition dollars through 3S.  This makes it absolutely critical for competitors to know what EIS is working on and which kinds of solutions it wants to buy.  One important consideration here is that EIS, like customers across the DoD as a whole, will be seeking solutions that can be implemented using commercial-off-the-shelf equipment and software.  The more COTS products that bidders are able to put into their proposed solution sets, the more likely it is that EIS will give them the nod.  More importantly, if bids can be based on a COTS baseline with readily identifiable commodity IT costs, bidders will have gone a long way toward giving EIS proposal evaluators the clarity they need when evaluating responses.

For more detailed analysis of task order contract vehicles used in the federal IT market, see Federal Industry Analysis’ new report Federal Information Technology Task Order Vehicle Trends.

 

 

 

Federal Fourth Quarter FY 2014 – What Will Agencies Be Buying?

Making the most of the traditional “federal busy season” requires understanding and preparation on the part of federal contractor firms and that includes understanding what is needed and what is typically purchased. Spending in the final weeks of the fiscal year is often viewed as predominantly transactional in nature, with a focus on commodities. But is this actually the case?

This entry continues a series of posts around agency contracted spending in the fourth and final quarter (Q4) of the federal fiscal year (FY), which has increasingly been the busiest quarter of the year, with September being the busiest month of the quarter. Recently, I highlighted which agencies are ramping up for September to spend large sums of money on IT contracts, averaging to more than $17 billion each September over the last five years.

This week I wanted to outline the broad product or service areas that agencies are buying in Q4. When contracts are recorded in the Federal Procurement Data System (FPDS) they are assigned a Product of Service Code (PSC) to designate what is being purchased on that contract transaction.

In keeping with my earlier analysis I looked at the most recent five fiscal years to see what patterns emerge and to minimize outliers. Pulling out the top ten PSCs for reported spending in Q4 for FY 2009 through FY 2013 gave the following areas to consider. (See chart below.)


The most consistently used Q4 Product or Service Codes (PSC) and their assigned descriptions are as follows:

  • R425 = Engineering and Technical Services
  • D399 = IT and Telecom-Other IT and Telecommunications
  • 7030 = ADP Software
  • D307 = IT and Telecom-IT Strategy and Architecture
  • R414 = Systems Engineering Services
  • 5895 = Miscellaneous Communication Equipment
  • D301 = IT and Telecom-Facility Operation and Maintenance Services
  • D302 = IT and Telecom-Systems Development Services
  • 7010 = ADPE System Configuration
  • 7035 = ADP Support Equipment
  • J058 = Maintenance, Repair & Rebuild of Equipment - Communication, Detection, and Coherent Radiation Equipment
  • D318 = IT and Telecom- Integrated Hardware/Software/Services Solutions, Predominantly Services

It is noteworthy that the top three Q4 PSCs over the last five years have been almost uniformly consistent, and if we were to drop FY 2009 from consideration the picture would be thoroughly consistent in both PSCs and relative proportion. On the services side federal agencies overwhelmingly buy Engineering and Technical Services and IT and Telecom services in the fourth quarter. In fact, Q4 spending is well dominated by services spending and the relative proportion of the various codes give a bit of granularity into general priorities, although some work could be categorized under multiple PSCs, depending on who is doing the coding.

On the products end, agencies predominantly purchase software products in Q4 under PSC 7030 ADP Software, but Q4 spending on 5895 Miscellaneous Communication Equipment is rarely very far behind, depending on the individual year. Both of these codes are used for a wide variety of software and hardware needs, so there is only so much we may conclude within the limits of the data.

Like most large organizations, federal agencies appear to be “creatures of habit” when under a time crunch and they need to get time-sensitive contracts signed, sealed and delivered. Savvy federal business development and capture folks know this and will be well prepared to respond to the demand. The rest will lose out.

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @GovWinSlye.

For others in this series see:

Federal Fourth Quarter FY 2014 – Who’s Got the Money?

Federal Fourth Quarter FY 2014, Part 2 – $30B in IT Contracts Likely

September – the “Spendingest” Month of the Year

Federal Busy Season – Which Agencies are Ramping Up to Spend in September?

Cloud Spending on VA’s T4 Contract Vehicle

Over the last month I’ve been posting series of brief analyses of cloud spending on some of the federal government’s largest task order contract vehicles.  So far this series has focused on Government-Wide Acquisition Contracts like Alliant and on Blanket Purchase Agreements like GSA’s cloud BPAs.  This week I’ll narrow the focus to an agency-specific multiple award contract, the Department of Veterans Affairs’ Transformation Twenty-One Total Technology (T4) vehicle.  Since its inception in 2011, T4 has assumed an increasingly important role in VA’s acquisition of information technology support services.  In fact, with 23% of overall agency IT spending going through T4 annually, one could say that T4 has become the go-to procurement vehicle for VA customers.

Within this context cloud computing has assumed an increasingly central role in the VA’s IT environment, a development reflected in spending on cloud computing on T4.  Since fiscal 2010 the VA has awarded contracts for cloud computing with an overall value of $189 million.  This figure comes from data I keep for Federal Industry Analysis clients and it is not comprehensive.  A lot of work is going on behind the scenes that I haven’t been able to capture due to a lack of reporting by the VA.  Nevertheless, I believe the $189 million figure approximates a good portion of the awards made so far. 

Of this total, cloud contract awards made via VA T4 add up to $153 million, basically the lion’s share of the work.  VA customers have awarded an additional $29 million in cloud contracts via GSA’s Schedule IT 70, and just over $1 million apiece for sole source and set-aside awards, so you can see just how central T4 is to cloud procurement at VA.

How does this break down by project?  Here are the top ten programs by total award value.

  1. Cloud Computing for Mobile Device Management and Mobile Application Environment - $49M
  2. Mobile Infrastructure-as-a-Service - $34M
  3. Cloud Computing Services - $28M
  4. Migration and Cloud Hosting Services for the My HealtheVet Application - $14.5M
  5. Veterans Relationship Management CRM Expansion Hosted Cloud Services - $13M
  6. Mobile Applications Collaborative Environment and Device Manager - $9M
  7. Cloud Hosting of Mobile Applications Collaborative Environment and Device Management - $9M
  8. VA for Vets Program Cloud Computing Support - $8M
  9. Voice-as-a-Service Project Support - $7M
  10. Turnkey Cloud Computing Environment to Support the MI 7 New Model of Care HRA - $5M

As we can see from this list there are two areas in particular where the VA has been investing in cloud computing – mobile communications services/capabilities and health IT.  These are of course related as the infrastructure and capabilities for mobile communications will enable access to and use of health IT applications on mobile devices.  In this sense, the VA has been using T4 for precisely the purpose that it was developed – to speed the acquisition of core technologies central to fulfilling the agency’s mission.   It’s worth keeping an eye on T4 as it progresses through its lifecycle because if the VA continues to demonstrate successful use of T4 to accomplish its technology goals, it will serve as an example for other agencies seeking to establish MACs they can use to achieve their own specific goals.

Federal Busy Season – Which Agencies are Ramping Up to Spend in September?

August is here and that puts us right at the mid-point of the fourth and final quarter of the fiscal year – the federal “busy season.” But that doesn’t mean that half of this business is already accounted for. In fact, historical spending trends suggest that things are just ramping up for its climax in September and several agencies will have billions of dollars to spend on IT before they face expiring funds.

Recently, I showed how federal agency spending trends in Q4 accounted for an average of 39% of agency contracted IT spending for the year, translating into an average of $30 billion in IT products and services contracted during the fourth quarter. Yet, the spending is even more concentrated than that. Upon further analysis, we can see that federal contract spending is disproportionately large in September, the final month of the fiscal year. Agencies obligate 18% of their total contract dollars across all goods and services and 23% of their yearly contracted information technology spending in September alone. That works out to nearly 60% of Q4 IT contract spending and means that about $17.3 billion in IT is likely to be contracted in the month of September.

Twenty five federal departments and agencies account for about 99% of this IT spending. So which of these biggest spending departments and agencies will have the largest percentage of their IT dollars likely to go out next month? See the chart below.


Twelve of the 25 highest spending departments – roughly half – will obligate 25% or more of their FY 2014 IT contract dollars in September, based on a 5-year average. State and AID will obligate more than a third!  The FY 2009-2013 average September contract spending for these 12 agencies is provided below.


Again, we are looking at an average of over $17 billion in IT spending at these agencies in September. Not all of these funds will necessarily expire at the end of the fiscal year, but the historical spending data averaged over the last five years still supports the trend that these agencies will spend at or near these levels, as it reflects some of the spending impacts of recent trends like shifting and tightening budgets, program delays, and sequestration.

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @GovWinSlye.

September – the “Spendingest” Month of the Year

Washington can be a pretty polarized town and August is perhaps the most polarized month of the year in DC. I don’t mean this from a political or policy standpoint, but in the general workaday sense. On one side, many government officials and their staffs – from Congress to the Administration and the bureaucracy – leave town on break. On the other side, the federal contracting community – both inside and outside government – is busy ramping up to close out the fiscal year (FY) before time runs out on authorized budgets. Most of this effort will come to fruition in September, making it the “spendingest” month of the year.

In this series of entries I have been looking at the potential for federal contract spending that could likely come in the final quarter of this fiscal year – the fourth quarter, or Q4 – spanning the months of July, August and September.  Rather than taking any one year as a benchmark, I hope that looking at a 5-year average will help smooth out any outliers that would skew the perspective. In the first week, I looked at total Q4 contract spending for the top 25 departments and agencies across all categories of contracted products and services. Last week, I looked at these same 25 departments specifically from a Q4 information technology contract spending perspective to see which departments should have the largest portion of their FY 2014 IT budgets still on the table for Q4. In this third entry I am digging deeper into the Q4 spending data to see how it breaks out month-to-month.

Total Contract Spending

As mentioned previously, federal departments report spending about 32% of their yearly contract dollars in Q4 across all product and services categories. A deeper look at spending data over the last five fiscal years reveals that, on average, 18% of federal contract dollars are awarded in September alone. (See chart below.)

 

Information Technology

For IT, however, the percentage of federal fourth quarter contract spending rises to 39% and that translates into $30 billion in IT products and services contracted during the quarter. So does IT’s higher overall Q4 proportion translate into higher September spending as well?  It sure does. Compared to the 18% across all categories of spending, IT contracting in September averages 23%. (See chart below.)

 

No wonder Q4 gets labeled as a “the busy season” and September is dubbed a “spending spree!” Almost one quarter of all federal IT contract dollars are obligated in the final four weeks of the fiscal year.

Next week, we’ll see how the largest 25 departments and agencies compare in their average September IT spending.  Stay tuned.

 

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @GovWinSlye.

Forecast Decodes IT Market Hot Spots

Austerity may be the new norm for federal spending, but both sides of the government IT contracting table are still looking for a big payoff.

The Federal Industry Analysis Team’s flagship forecast report, Federal Information Technology Market, 2014–2019, predicts a decline in the federal IT market from $101 billion in FY 2014 to $94 billion by FY 2019, reflecting a -1.6% Compound Annual Growth Rate (CAGR). The report analysis examines the diverse influences shaping individual market segments and federal agency buying patterns, calling out the primary drivers and inhibitors affecting the IT investment decisions of federal agencies.

Declining IT budgets have ushered in an era in which agencies are tasked to “do more with less.” The realities of more limited funding resources are spurring cost saving initiatives across the government. Commodity information technology purchases are one area especially worth noting. Increased use of strategic sourcing contracts and enterprise license agreements are just two ways that agencies are approaching commodity IT cost reduction. The intention of driving down commodity costs can be found behind the shift away from reliance on desktop computers and toward greater use of thin clients, mobile devices, and laptops. Another tactic to save money comes in the form of delays to technology refresh cycles and efforts to scavenge existing commodity IT resources. These cost reduction initiatives are expected to facilitate operating on a new, lower budget baseline.

A lower baseline typically tracks to lower levels of contracted spending. In many cases, however, agencies intend to reinvest the savings that these changes produce. These reinvestment goals stand to provide contractors with a chance to provide additional products and services. Unlike in the past when agencies might have used recovered funds to pursue ‘nice to have’ capabilities, they are now in the position of stretching to make ends meet.

Facing federal technology mandates and expanding mission requirements, agencies are hard-pressed to prioritize investments to achieve the biggest impact and deliver the greatest value to government organizations. For many agencies, this focus will draw support for investments in hot spots like cybersecurity, cloud computing, virtualization, and big data solutions (e.g. data mining). As budget pressure continues, agencies will be particularly adverse to cuts in security spending. In order to facilitate expansion in cloud computing, big data, cybersecurity, program management and other critical areas, agencies will have ongoing requirements for support services.

Deltek’s Federal Industry Analysis (FIA) Team foresees the recent downward spending trend continuing in coming years but not entirely uniformly. The team’s forecast draws on a whole host of primary and secondary research. Looking beyond the funding reported through the Office of Management and Budget (OMB), the FIA team’s market sizing includes spending from the judicial and legislative branches, the intelligence community, federal organizations that are not subject to federal IT budget reporting requirements, and IT embedded in large defense systems. This off book spending helps to offer a more complete view of government buying. 

These market trends are influencing the future of information technology contracting and creating an environment full of both challenges and opportunities. The trick for vendors is positioning for those opportunities while avoiding pitfalls and keeping an eye on the shifting landscape. The first order of business is getting the lay of the land. Then, the next step is determining which moves will get your business ahead and which ones could be dead ends. For more analysis of contractor-addressable budgets across the federal Hardware, Software, IT Services, and Communications and Network Services markets, see our new GovWin IQ report “Federal Information Technology Market, 2014-2019.”

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @FIAGovWin.

 

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