Federal IT Busy Season, Pt. 2 – September Rules!
Published: July 31, 2013
Traditionally, August is a slower time in Washington with the summer temperatures at their highest and many people taking vacations. But for some, August is when they get busy ramping up for the close-out of the federal fiscal year (FY) at the end of September. This is especially true for IT procurements where in the overall game of yearly spending, September brings the lion’s share.
In my previous entry, I noted the historical trend of a growing percentage of IT obligations being reported in the fourth quarter of the fiscal year, resulting in what we have come to reguard as the federal IT busy season. That could shape up to be around $28 billion in IT spend in Q4 of FY 2013, even if we see a 5% reduction in spending from last year.
This week I want to drill down into Q4 a bit more. I took the total IT contract obligations for the past five completed fiscal years, 2008-2012, and looked at the average percentage of these obligations that were reported in Q4. I then broke out the average percentaged of these obligations that came in September.
The data is telling. Of the $380 billion in reported IT obligation over the last 5 years from FY 2008 through FY 2012, nearly 40% has come in Q4 and 23% has come in September alone. That translates into an average of over $29 billion in IT in each Q4 and and average of more than $17 billion in IT obligations in each September. (See table below.)
To get a sense of which departments are the top prospects for IT buying in Q4 I looked at the top 20 departments by aggregate 5-year obligations and broke down the percentages of their spending that fell in Q4 and in September in particular. This too was interesting. The data shows that several departments obligate more than 40% of their IT dollars in Q4, on average. These include the State Department, SSA, HHS, Energy, Interior, DHS and Justice. In addition, several departments obligate more than 25% of their IT spend in September, on average, including State, SSA, HHS, Interior, DHS and Justice. (See chart below.)
So what do these average percentages mean for potential contracts in last few weeks of the fiscal year? Looking at the departments with the highest average level of obligations for September and the overall quarter gives us a sense of who has spent how much in recent history. These departments account for nearly $17 billion in September obligations. (See table below.) The remaining 35 reporting agencies account for less than $500 million in September obligations by comparison.
All of this underscores what many in the industry have experienced for many years. The fourth quarter is huge in federal IT and when it comes to closing business in Q4 it all comes down to September.
Granted, it is difficult to conclude with absolute certainty that the spending patterns we have seen over the last 5 years will hold true this year as well – especially at the same levels. Delays and reductions related to sequestration and operational risks introduced by the furlough of acquisition staff introduce some of the greatest unknowns into the picture that we have seen. Further, ongoing budget pressures and appropriations delays may be taking their toll. In FY 2012, total IT obligations were $3.5 billion less than in FY 2011 and Q4 obligations were down about 10% over Q4 FY 2011.
So while Q4 of FY 2013 will be big – barring a total change in the “use it or lose it” mentality that has permeated the federal culture for so long – we’ll just have to wait and see just how big it really is.