Deltek Forecasts the Federal Cloud Market Will Grow to $30.3B by FY 2028

Reaching a new high of $16.5B in FY 2023, federal spending on cloud computing is rising faster than ever as agencies migrate legacy systems or replace them with cloud native capabilities.

But while it has become common for agencies to use cloud-based services, the growing adoption of Software-as-a-Service (SaaS) is generating concerns about the security of government data in the cloud. This is leading agencies to leverage FedRAMP-approved capabilities more often and to scrutinize service level agreements for adequate data protection measures. Meanwhile, mandates from the White House, and attention from Congress, are pushing agencies to invest in cloud-based security capabilities as part of the government-wide transition to zero trust.  

The transition to a market dominated by SaaS consumption is greatly benefitting small businesses unable to provide the heavier computing requirements of Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS). In FY 2021, small businesses earned only 5% of federal spending on cloud. By FY 2023, this total had grown to nearly 21% of cloud-related obligations. Large businesses, for their part, continue to dominate in the provision of IaaS and PaaS, capturing 78% and 70% of federal spending, respectively, in FY 2023.

Totaling $4.6B in FY 2023, an impressive one-quarter of the identifiable market, federal spending on cloud-related engineering also continues to show strength, with that fiscal year being the third in a row when spending topped $4.0B

Forecasting the Federal Cloud Market

Deltek anticipates that federal spending on cloud will grow strongly in the next few years as agencies modernize IT environments and become more comfortable with commercial cloud solutions.

To that end, Deltek forecasts that agency demand for vendor-furnished cloud computing goods and services will grow from $21.8B in FY 2024 to $30.3B in FY 2028.

Key Research Findings

• Defense Cloud Adoption is Outpacing the Civilian Sector. Driven by a combination of growing comfort with the technology, policy mandates, and stability provided by the award of the Joint Warfighting Cloud Capability (JWCC) contracts, spending on cloud computing grew faster across the Department of Defense (DOD) than in the federal civilian sector from FY 2021 to 2023.
• Service Delivery Markets Bifurcate. A handful of large cloud service providers is dominating the delivery of Infrastructure-as-a-Service and Platform-as-a-Service. This has left Software-as-a-Service as the part of the market that is most competitive for small businesses and new market entrants.
• Small Businesses Gain Ground. Although large and mid-sized businesses dominate the market, federal agencies nearly tripled spending on cloud capabilities and services provided by small businesses from FY 2022 to FY 2023.
• Use of Sole Source Contracting Rises. The use of sole source contracts across all sectors of the federal government rose by 55% from FY 2022 to FY 2023. Sole source contract use is growing slightly more aggressively in the DOD as opposed to the civilian sector.
• Securing Data Has Become Paramount. Rising cyber threats are driving agencies to ramp up spending on cloud-based security and leverage more FedRAMP-approved solutions. Failing cloud security FITARA scores may also pressure agencies to increase administrative scrutiny over cloud contracts and/or add security-focused service level agreements.

Deltek's Federal Cloud Computing Market, 2024-2028 report is available now. It offers a 5-year strategic view of the trends, drivers, and challenges shaping federal cloud computing adoption. The report provides insight into the  policies and legislation influencing the cloud market, analyzes agency spending on cloud computing, and identifies opportunities for cloud business development. Spending profiles and forecasts for the top 18 agencies (by spending) using cloud computing solutions are included, as are recommendations to help contractors evaluate the impact of market trends on their business.