The Forecast for IT Spending at the Defense Agencies
Published: July 10, 2013
Budget uncertainty, an evolving culture of austerity, and technology change is prompting Defense agencies to reduce spending on IT products and services. FIA's forecast for the next 5 years reflects these trends, showing a negative CAGR for IT spending in these agencies.
- Fiscal austerity is driving the department to increase the use of strategic sourcing for commodity IT products. This is resulting in the award of contracts like Microsoft’s Joint Enterprise Licensing Agreement. The JELA is great for Microsoft and for DoD, but in general it contributes to reducing the DoD’s spending on software, precisely as intended.
- The struggle to reduce spending on IT services is leading to increased executive oversight of services contracts, including the review of service contract portfolios. These reviews are targeting services contracts for wholesale elimination. Those contracts that cannot be eliminated are likely to be consolidated into other contracts, or broken into smaller pieces and competed as lower value task orders. Competing for multiple task orders raises vendor bid and proposal costs and winning a $20 million task order is a lot less profitable than capturing a larger $100 million, longer-term contract.
- Defense agencies are turning toward enterprise services. Enhancing the cyber security posture of each agency is a major reason given for incorporating greater use of enterprise IT services, like those provided by the Defense Information Systems Agency (DISA). However, agencies like the Defense Logistics Agency are also hoping that the use of DISA-provided enterprise services will reduce overall operating costs by $14 billion over the next five years. This is a lot of money and it will have an impact on the vendor community.
I could provide more examples and reasons, including Sequestration, but that would be beating a dead horse. The list above offers a few powerful factors affecting IT spending at the Defense agencies. The news is not all bad, however, as the DoD will continue to have significant technology requirements. It will also continue to spend billions of dollars fulfilling them. These requirements are factors we took into account that continue to prop up Defense agency IT spending. As one of my colleagues likes to say, “flat is the new up” these days. Everyone might as well get used to it.