Challenges Calculating Defense Cloud Spending

Every August, GovWin’s Federal Market Analysis (FMA) team publishes a report on the federal cloud computing market. This report contains calculations of federal cloud spending for the last three fiscal years and a forecast for where that spending might be going over the next five fiscal years.

Year to year changes in the forecast numbers are to be expected because fluctuations in market conditions force a rethink of assumptions. Changes in reported cloud spending also feed into the forecast numbers. For example, sudden jumps in market growth may surpass the previous year’s forecast. This forces us to develop a new baseline the new forecast.

The spending data we use comes from the U.S. government’s Federal Data Procurement System-Next Generation (FPDS-NG). Once FMA identifies a contract that fulfills a cloud requirement, we add it to our database and track the spending related to it through the contract’s lifecycle. Some market watchers assume that once it is reported, this data remains consistent. When it isn’t consistent, questions come in asking why there are big changes.

The changes come from volatility in the government’s reporting and that volatility applies to the IT market as a whole even though today’s post focuses only on cloud spending at the Department of Defense (DOD).

Let’s move to some examples. Here is a chart showing defense cloud spending from last year’s cloud report. It shows obligations from FY 2020 to 2022.

Compare that chart to this one showing defense cloud spending from FY 2021 to 2023.

Notice how the spending for FY 2021 is $336M higher in the newest data set than it was in last year’s set. FY 2022 shows a similar pattern, being $363M higher in the new set vs. the old set. The new totals come from a variety of inputs, including the addition of newly identified contracts, but they are also influenced by changes in the data reported by the DOD. This is because contracting officials regularly alter what they report to FPDS-NG, with the result that sometimes the total for a contract action goes up and sometimes it goes down.

Ongoing audit efforts also have an impact, as confirmed by a recent Government Accountability Office snapshot on DOD Financial Management. The emphasis in bold print is mine: “Audits have improved DOD’s oversight and efficiency in processing financial transactions. For example, in FY 2022, the Air Force identified and corrected approximately $5.2 billion worth of discrepancies in its accounts.”

Here's another one: “Audits have led to better management of funding obligations. For example, DOD identified $43 million in contract deobligations in 2022, allowing it to reprogram the funds for more immediate needs.”

Neither of these statements has to do specifically with cloud computing, but the principle is the same – reported contract spending is constantly changing and those changes are in some cases monumental. The Air Force corrected $5.2 BILLION (my emphasis) in FY 2022 discrepancies? That is a lot of money, particularly when it is compared to the roughly $16B federal cloud market. These types of changes make our job as analysts a bit more complicated, but we do the best we can with what we are given.