Federal Cloud Contracting in Fiscal Year 2016

After rising $632M from fiscal year 2014 to 2015, the total value of federal contracts awarded for cloud services declined by a modest $128M in FY 2016 to a total awarded contract value of at least $2.4B. At least because Deltek estimates that a high percentage of federal spending on cloud services goes through contracts and contract vehicles that are for other requirements including cloud services. For example, the Department of Transportation receives a considerable portion of its cloud services through its Common Operating Environment contract which mentions cloud nowhere in its name or original requirements document. Similarly, Homeland Security consumes cloud services provided by its large data center managed services providers. A lot of cloud spending is hidden, therefore, making the true size of the market difficult to determine.

Despite these challenges, Deltek GovWin’s Federal Market Analysis group makes an effort to parse the data about cloud that is readily available. This data shows the following trend for the period from FY 2014 through FY 2016.

The rise in overall awarded cloud contract value from FY 2014 to 2015 can probably be attributed to three factors. First, after cuts related to sequestration, stability in agency budgets provided a platform for increasing spending on new technology approaches like cloud. Second, policy pressure from the White House and Congress forced agency personnel to take a harder look at cloud capabilities. Third, trust in the viability of cloud services to meet business needs rose among federal personnel who have grown increasingly familiar with cloud in their daily lives.

Whither FedRAMP?

To what extent did growth in the number of Federal Risk and Authorization Management Program (FedRAMP) approved solutions solidify the trust of federal personnel? Perhaps to a degree, but the data is inconclusive. The number of FedRAMP-approved solutions in contracted by agencies (as best as FMA could identify these) grew from 132 in FY 2015 to 179 in FY 2016. In percentage terms, however, the number of FedRAMP solutions contracted by agencies remained flat from FY 2015 to 2016 at 29%. The upshot is that while agencies contracted for a higher number of FedRAMP-approved solutions, those solutions cost less to acquire. The principle of cost-price deflation coming from the ubiquitous availability of commoditized cloud solutions – a force driving down cloud spending across all market sectors – is here clear to see.

Most Popular Cloud Deployment Type

Moving now to contracted solutions by deployment type, we see a remarkable shift toward public cloud in FY 2016.

The total number of public cloud solutions contracted in FY 2015 amounted to 143. Compare that to the 278 contracted in FY 2016. Community cloud use saw more modest growth over the same period, rising from 100 contracts awarded in FY 2015 to 113 in FY 2016. Awards for private cloud dropped from 123 in FY 2015 to 102 in FY 2016 and awards for hybrid solutions remained flat at 10 FY 2015 and 12 in FY 2016.

The shift from private to public cloud is attributable to a couple of factors, including growing trust and solution ease of access. In addition, however, public solutions like Adobe’s Creative Cloud and IBM’s MaaS360 Mobile Device Management offer impressive capabilities at low cost for agencies.

Concluding Thought

Despite once again topping $2B in contract awards, FY 2016 will undoubtedly be seen by many in industry as a less than exciting year in the federal cloud services market. Expectations for a rapid ramp up in spending have been sky high since former federal CIO Vivek Kundra suggested in 2011 that the federal government could one day spend up to $20B annually on cloud solutions. So far the available data for cloud contract awards and spending have come nowhere near that total.