State Department’s FY 2014 IT Budget – Funding, Strategies, and Contract Decisions

Published: May 08, 2013

BudgetForecasts and SpendingSTATEStrategic Sourcing

A few years ago during a presidential campaign season I heard a political analyst remark that, regardless of a presidential candidate’s policy positions and platform plans, the vast majority of a president’s time and efforts will be spent responding to unforeseen international events. This has proven to be true for both the Bush and Obama Administrations and, naturally, this has had great implications for the U.S. Department of State and their information technology (IT) infrastructure and management. Much of this is reflected in their fiscal year (FY) 2014 budget submission which provides clues to where they are going and possibly reasons behind recent contract decisions.

State’s IT Budget Highlights
  • The total IT request provides $1.4 billion for State IT spending, up $59 million, or 4.3%, from FY 2013 and $42 million (+3.1%) above FY 2012.
  • At $271 million for FY 2014, State would see a 19% increase ($+43 million) in their Development, Modernization and Enhancement (DME) funding from FY 2013. That is 23% more than FY 2012.
  • Operations and Maintenance (O&M) IT spending at $1.15 billion grows at 1.4% (+$16 million) from FY 2013 but is $8 million (-0.7%) below the FY 2012 O&M level.
Historical Perspective
The State Department’s IT budget has grown significantly over the last decade. The chart below provides their IT budget from FY 2005 through the current FY 2014 budget request. Over this period the State Department’s IT budget has nearly doubled – from just under $800 million in FY 2005 to over $1.4 billion in FY 2014. A pattern appears to emerge around several years of relative stability, followed by a few years of significant growth, and then a flattening and stability at the new spending baseline. Even with some softening since FY 2011 – about 1-2% reductions per year – their budget has been resilient, rebounding in the FY 2014 budget request.
In light of the overall market softening that we have seen over the last several years it is not surprising that the greatest rate of growth came in the first half of the decade, with a compound annual growth rate (CAGR) from FY 2005-2009 of 10%. If Congress approves State’s FY 2014 IT budget request of $1.4 billion then the second half of the decade from FY 2010-2014 would see a CAGR of 5% and an overall FY 2005-2014 CAGR of 7%. That is a fairly strong growth, considering the budgetary environment we have been in.
Development Priorities
Even with fairly stable budgets, continued fiscal pressures mean a greater emphasis on value, economy and focusing resources on key priority programs for new development spending to achieve the core mission. This appears to be the case with the State Department as many of their largest programs that have significant development spending focus on essential infrastructure and core mission support. The following State Department initiatives from their FY 2014 budget submission have some of the largest budgets over the last few years and also include a significant portion of development funding (DME.)
IT Management
In the budget constrained and highly scrutinized atmosphere that we have, one theme that has appeared with increasing frequency is to improve the effectiveness, efficiency and economy of technology spending through more effective IT management. State is no exception in this area. According to their FY 2014 budget submission, State intends to continue strengthening the Chief Information Officer’s (CIO) authorities and increase the oversight and management of information technology projects across the agency. The department is also developing plans to move data centers, bandwidth, enterprise licensing, hardware, project overhead, and other new services or technologies into the Department’s Working Capital Fund to enable more effective and efficient technology management.
The State Department’s focus on enhanced IT management and economy has been a multi-year strategy. This drive for efficiency may be behind their decision to cancel their $2.1 billion Hybrid Information Technology Services for State II (HITSS II) contract and instead issue a small business contract through the General Services Administration’s IT Schedule 70. In this way, State may save money by eliminating the administrative overhead of managing HITSS, even with any GSA administrative fees they incur.
The shift to the Schedule 70 may also reveal a push to keep contractors honest and frugal in their bids and labor rates. Since the Schedule has predetermined rates bidders would need to fall in line with rates that may be lower than what they would have bid under HITSS. There is also a commoditizing effect of using the GSA Schedule that puts further pressure on prices. Increasing price pressure and commoditization are themes we are observing across the federal contracting space and the State Department may be continuing down that road.
For more of Deltek’s analysis of the FY 2014 federal budget submission and what it could mean for the market check out our report FY 2014 Federal Budget Request: Challenges and Opportunities.