Forecasting the Navy’s Contracted IT Spend for the Next Five Years
Published: July 10, 2013
The combined forces of persistent budget pressure, threat of sequestration, multiple government mandates, and rapidly advancing technologies are challenging agencies to stretch their IT dollars and realign their technology investment strategies. There are few places where this is more pronounced that at the Navy and this makes the outlook for contracted IT over the next few years especially challenging.
Since the government released its FY 2014 budget request Deltek’s Federal Industry Analysis Team has poured through mounds of budgetary and procurement data juxtaposed with government-wide and agency strategic plans and policies as well as key initiatives and programs to develop our annual IT forecast estimates for the next five years. We recently published the results in our Federal Information Technology Market, 2013-2018 forecast report.
In a previous post I noted how Navy officials have been touting their efforts at cutting their IT budget by billions of dollars and that these efforts will continue. Among the four defense branches, Navy has pursued some of the most aggressive cost-cutting measures. This is a big reason why our estimate of the Navy’s contracted IT spending over the next five years will come in at around a -4.5% compound annual growth rate (CAGR), decreasing from $18.7 billion in FY 2013 to $15.3 billion in FY 2018. (These projections include IT spending that is embedded within non-IT programs or major defense programs or is otherwise typically not reported as pure IT through the Office of Management and Budget.
Some of the assumptions informing our projections include:
- Cost-cutting as Acquisition Strategy – The Navy pursuit of savings is driving not only their technology choices, but also their acquisition policies and timelines. For example, the award of NGEN was delayed in part because the Navy wanted to drive cost out of the program through the use of a "lowest price technically acceptable" (LPTA) approach to the contract. This cost-conscious mindset is also driving the Navy’s hesitancy in adopting DISA cloud services due to cost, compared to commercial cloud solutions.
- Concentrated Spending – Navy IT spending is concentrated into a small number of major program investments. NGEN makes up almost 50% of Navy's major IT investment (Exhibit 300) dollars and almost 25% of Navy's total IT budget for FY 2014. The top 5 IT programs account for 40% of Navy IT. These large, multi-year programs present limited new opportunities. Further, cost-cutting efforts within these programs add additional downward pressure.
- Continued Software Economies – The Enterprise Licensing Agreement (ELA) program that was made mandatory last year and encompassed Microsoft software has now added Oracle software to the fold. Ongoing inventory reductions will likely result in addition enterprise software licensing agreements.
- Curbing New Development – Looking at their IT budget, overall Navy sees the largest percentage of Development/Modernization/Enhancement (DME) spending reduction among the four defense branches, from 28% of total IT to 24% of total IT for FY 2014, an FY 2013-14 decrease of $524 million. Not to be left out, Operation and Maintenance (O&M) spending is essentially flat over the last several years. We expect DME spending will continue to erode.
As the Navy continues to look to lower costs, increase efficiencies and juggle priorities IT will still play a large part in supporting their mission priorities and as an enabler of productivity and broader cost savings. These parallel objectives will create limited pockets of opportunity in the areas of cloud computing, data center consolidation, information security, data management and analytics, and mobility.