How Much Might Agencies Spend on IT in the Fourth Quarter of FY 2018?
Published: July 26, 2018
With the close of the 2018 fiscal year approaching, agencies may spend more than $35 billion on information technology in the fourth quarter.
The Trump Administration’s information technology (IT) policy and management agenda has increasingly evolved and come into focus in FY 2018, the first full fiscal year of the Trump presidency. Priorities like cybersecurity, infrastructure modernization, shared services, gaining efficiencies and others have come to the forefront as agency IT leaders work to direct their IT agendas accordingly.
This leads to the question of how all of this has impacted agency contracted spending on IT so far in FY 2018 and what might be reasonable expectations for the fourth quarter (Q4), when federal agencies traditionally spend a significant portion of their IT budgets.
While any precise predictions for the near term future are debatable, it may be possible to make a ballpark estimate of federal Q4 IT spending using the contract spending data we have available from the government.
Methodology and Caveats
My overall “back of envelope” analysis compares Q1, Q2, and Q3 of FY 2017 and FY 2018 and then applies a (hopefully cautious) assumption that agencies will spend 90% of what they spent in FY 2017 in all of FY 2018 in order to arrive at an estimate of what might be left to spend in Q4 of FY 2018.
I took the federal IT contract obligations reported for each federal agency for FY 2017 and FY 2018, quarter by quarter, reported as of July 25, 2018. Note: The third quarter of FY 2018 closed at the end of June, but agencies may still be reporting contract data so this analysis is a snapshot in time.
To take a cautious approach to estimating what IT spending might remain for Q4 of FY 2018 I made an arbitrary assumption that for all of FY 2018 agencies would spend 90% of what they did in FY 2017. This may underestimate both total and Q4 IT spending for some agencies and overestimate it for others.
For each agency I then applied the relative proportions for each quarter’s obligations in FY 2017 – quarter by quarter – to the corresponding quarters in FY 2018. The goal was to look at how each department spent in each quarter of FY 2017 and then use that to estimate how spending might shake out across the four quarters in FY 2018, again assuming they will spend 90% of what they did in FY 2017.
The final column in the table below provides an estimate of what agencies *might* have left to spend in Q4 of FY 2018 if they spend at least 90% of what they spent last year. It is not a perfect predictive methodology, but it’s a good faith effort at conservatively estimating what might be in store for Q4. (See table below.)
Quarterly IT Contract Obligation Levels Compared
For Information Technology spending in FY 2017, the twenty top-spending departments accounted for more than $81 billion or 97%, of the total $83.5 billion in total federal IT contract obligations. Both the top twenty and total IT contract obligations amounts for FY 2017 are higher than they were in FY 2016, when the top twenty accounted for $75 billion of a total 77.4 billion in spending for the year. The FY 2017 figures are also well above the $69.8 billion of a total $72.1 billion that the top twenty reported for FY 2015. Observation: federal IT contracted spending has been consistently rising at the top-line level over the last few years.
Going a bit deeper, these twenty agencies accounted for $12.6 billion, $19.3 billion and $17.8 billion in FY 2017 Q1, Q2 and Q3 obligations respectively, (up from $11.2 billion, $18.3 billion and $17.1 billion respectively for FY 2016.) For comparison, these twenty departments reported $31.5 billion in IT contract obligations for Q4 FY 2017, (compared to $29.4 billion in Q4 FY 2016 and $27.0 billion for Q4 FY 2015). Again, the historical trend appears to be positive over the last several years.
In FY 2018 to date, these top twenty departments have reported $13.1 billion, $15.5 billion and $8.3 billion for Q1, Q2 and Q3 respectively, which are higher amounts than at this same point in the fiscal year last year. The DoD components lag in their contract data reporting by up to 90 days so Q3 for DoD is largely yet to be reported and even Q2 data may be understated.
Prospects for the Rest of FY 2018
Looking forward to the remainder of FY 2018, IF these top agencies spend 90% of what they did in all of FY 2017 then they will have more than $36 billion to spend in the remaining quarter of FY 2018. Granted, the 3-month lag in DoD reporting significantly impacts this outlook. But factoring out the DoD, the civilian portion of this estimate accounts for $13.7 billion of that $36 billion Q4 estimate.
If the trend toward year-over-year growth in top-line contracted IT that is revealed in the data continues to hold pace, then FY 2018 may turn out to be a good year for the federal IT contracting market. Of course, this doesn’t necessarily mean that every agency will see growth from FY 2017 or that agencies will spend in the exact same quarterly pattern that they have in the past. But it does point to a reasonably optimistic outlook for the year and a consistently strong Q4. Clearly, it has earned the moniker “federal busy season” for a reason.