Cloud Contracting and Spending Trends in the Federal Market, FY 2017-2019
Published: July 22, 2020
Federal spending on cloud computing hit a new high in FY 2019.
Deltek’s GovWin produces an annual report on the federal cloud computing market. This report, which is currently scheduled to appear at the end of August, is based on a database of contracts that the Federal Market Analysis (FMA) team verifies are either pure cloud (i.e., “aaS”) services or professional service and engineering efforts related to cloud computing. FMA updates the database annually in two phases. Phase one entails adding new contract numbers and their awarded ceiling values for the fiscal year that has just passed. Phase two involves calculating the dollars spent on the identified contracts. Phase one gives us an idea of the size of the market based on the value of the contracts awarded, what we call Total Contract Value (TCV). Phase two confirms what was spent against that TCV.
FMA recently completed the phase one and two updates of its cloud market database. Here are how the cloud TCV and spending trends shook out for the period from fiscal 2017 to 2019.
Total Cloud Market
Agency spending on cloud grew strongly over the three years covered by the data. This was particularly the case from FY 2017 to FY 2018, when federal cloud spending grew by $1.7B. Growth then slowed from FY 2018 to 2019, rising $743M vs. the previous year. This kind of spending action can be common during years that follow strong growth as agencies take stock of their investments.
The data around cloud TCV shows a similar pattern, only in a more pronounced fashion. After rising nearly $2.0B from FY 2017 to 2018, the TCV of cloud contracts awarded fell by $3.6B from FY 2018 to 2019. In a market as small as federal cloud currently is the award of one or two very large, high ceiling value contracts can shift things dramatically in one direction or the other.
Civilian Sector Cloud Market
Overall, spending and TCV in the Civilian sector continues to lead the federal cloud market.
Civilian spending and TCV closely track the larger trend discussed above, even paralleling the drop in TCV from FY 2018-2019. Cloud investment at Veterans Affairs led the Civilian sector in both total spending and TCV, with $2.1B in the former and $4.2B in the latter, respectively. Homeland Security, an early and aggressive adopter of cloud computing, followed VA by spending $1.2B over the same three-year period. DHS’ TCV also came in strongly at $1.6B. Commerce’s total spending ($1.0B) and TCV ($1.2B) on cloud came next. Of special note is the General Services Administration, which awarded cloud contracts valued at $2.9B.
Defense Sector Cloud Market
Spending and TCV on cloud show slightly different patterns than in the Civilian sector.
DOD’s spending on cloud doubled from FY 2017 to FY 2018, but then it slowed to a bit over $400M the following fiscal year. TCV, meanwhile, has been up and down, but even though FY 2018 can in as the lowest year the total value of cloud contracts awarded remained well above $2.0B and in FY 2019 it rebounded strongly toward the $3.0B mark.
In terms of market leadership, the Air Force held that distinction in both spending ($1.6B total) and TCV ($3.6B) over the three-year period. Army spent the next highest amount ($942M) while awarding cloud contracts valued at $1.26B. Agencies with the 4th Estate, particularly the Defense Information Systems Agency followed Army with $864M in spending and $2.7B in TCV. Navy, meanwhile, spent $385M and recorded a TCV of $626M.
Federal agency consumption of cloud services and related hardware continues to grow. Nevertheless, cloud remains a small portion of the overall federal technology market. Both the Civilian and Defense sectors of the market are adopting cloud technology at a steady pace, with some pauses in between years of strong investment. Deltek expects this trend will continue, particularly given the ongoing COVID-19 crisis that is forcing large numbers of Feds and contracting personnel to telework. This is why FMA is currently forecasting that total federal cloud spending in FY 2021 will reach $6.5B. This follows our estimate of $5.3B for FY 2019, which came in very close to the actual total of identifiable spending.