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Deltek Report Finds Plenty to Be Optimistic About in Federal Cloud Market

Published: November 01, 2017

Federal Market AnalysisCloud ComputingDEFENSEForecasts and SpendingGSAInformation Technology

The federal cloud market shows signs of life despite a decline in agency spending in fiscal year 2016.

Deltek’s Federal Market Analysis team just published its Federal Priorities Spotlight: Cloud Computing report on the federal cloud market from fiscal years 2014 to 2016. Several trends identified in the report offer cause for optimism. Deltek notes that while reported agency spending on cloud computing fell to $1.7B in fiscal 2016, the decline was not unexpected due to the pending change of presidential administration. Additionally, changes in the way that the Office of Management and Budget (OMB) required agencies to report cloud spending muddied the waters quite a bit as spending categories either shifted or were eliminated.

Deltek’s own database of verified cloud opportunities confirmed the falling spending trend identified in the OMB-reported data, with spending in the total market falling from $974M in fiscal 2015 to $741M in fiscal 2016. Despite the temporary downturn, Deltek forecasts that cloud spending will grow to $4.6B in fiscal 2018.

Market-Shaping Trends

Several important trends are afoot that Deltek believes will have a significant beneficial impact on agency cloud adoption in years to come.

Legislation

Congress and the White House are proposing new funding mechanisms that will free up capital for investment in cloud. In the Presidential Budget Request for FY 2018, the Trump Administration outlined plans for a Technology Modernization Fund of $500M administered by the Technology Transformation Service at the General Services Administration. This fund would provide $250M per year in FY 2018 and FY 2019 that agencies could draw on to make investments modernizing their IT infrastructure, particularly cloud computing and shared services.

Given that the President’s Request has not yet passed Congress, this funding may not appear, but if a compromise budget passes and the TMF measure is retained, agencies will find themselves with a flexible funding mechanism for tackling some projects immediately. In addition, agencies could be allowed to use Working Capital Funds to buy cloud services as a utility if the Modernizing Government Technology (MGT) Act passes as an amendment to the FY 2018 National Defense Authorization Act (NDAA).

Policy Changes

The Department of Defense is enacting policies making cloud adoption a priority. The Defense Information Systems Agency is said to be developing “Project Accounts” drawn from Defense Working Capital Funds that will allow defense customers to purchase cloud services as a utility through DISA. DOD leadership also showed a new sense of urgency in September 2017 when the Deputy Secretary of Defense established a new Cloud Executive Steering Group (CESG) headed by Ellen Lord, the Under Secretary of Defense for Acquisition, Technology, and Logistics to oversee the aggressive adoption of commercial cloud services. Leadership buy-in is often considered a critical factor in driving cloud adoption and the DOD now seems to have it. Combine this with a host of other developments, including the growing number of cloud brokers, evolving military department cloud strategies, and the awarding of new contract vehicles and Deltek believes DOD cloud spending in fiscal 2018 and especially in FY 2019 is set to take off.

Other Factors

Several developments in the market have the potential to give federal cloud adoption a real boost. These include the creation of interoperability standards by the National Institute of Standards and Technology, the development of cloud acquisition best practices by the GSA and Office of American Innovation, standing up a Cloud Center of Excellence at GSA, and multiple improvements to the FedRAMP program.

Deltek concludes that all of these factors, along with many others, will contribute to a federal cloud market that will grow to a total of $6.6B by FY 2022 at a Compound Annual Growth Rate of 12%.

Please click on the following link to purchase a copy of Deltek’s Federal Priorities Spotlight: Cloud Computing report or ask your client services representative if your company has access.