Did COVID-19 Actually Cut Federal Cloud Spending?

Key Takeaways

• Federal agencies spent $7.7B on cloud computing in FY 2020.
• Obligations related to COVID-19 response accounted for $206M of total cloud spending in FY 2020.
• Moving to 100% telework reduced spending on cloud-related engineering services.

Thanks to the impact of the novel coronavirus on federal agency work processes, and the continued implementation of Cloud Smart-based strategies, one often hears statements about fiscal 2020 being the “year of the cloud.” Yet more often than not claims about agencies accelerating their migration to cloud-based commercial services are not backed-up by hard data. We here on Deltek/GovWin’s Federal Market Analysis (FMA) team have just completed a preliminary analysis of the available data concerning federal cloud investment in FY 2020. What we found suggests the federal government’s response to COVID-19 might not have generated an outsized migration to the cloud after all.

Total Federal Cloud Market By Spending

Leveraging our database of verified cloud contracts, FMA found that federal agencies spent a new record high total of $7.7B on cloud computing in fiscal 2020. This number includes both cloud-based services (i.e., aaS), professional services such as training and engineering, and related computing/network hardware.

As the data above shows, spending growth in the federal cloud market averaged $1.75B per year from fiscal 2016 to fiscal 2019. From fiscal 2019 to 2020, however, that growth dropped to $630M.

Explaining the Decline

The decline in spending took us by surprise. So, what was behind this change in trend? Ironically, it might be the public health crisis itself.

COVID-19 response prompted spending on cheaper SaaS solutions while investments in more expensive IaaS slowed. The identifiable COVID-related spending is clear on this point. Of the $206M spent on COVID-19 related cloud acquisitions, agencies obligated roughly $120M for SaaS and PaaS. By contrast, they allocated only $8M to new IaaS investment. This leaves approximately $78M spent on cloud that we cannot classify by service delivery type, i.e., engineering, professional services, etc.

Could it be, then, that COVID-19 actually stunted spending on cloud computing because the federal workforce went primarily to remote work status? This explanation would make sense given the on-site engineering work required in connection with cloud-enabling and/or migrating legacy systems. When COVID-19 hit, this work either stopped, or slowed considerably, and the spending data reflects that impact.

In addition, many agencies that had aggressively moved to the cloud in the years prior to FY 2020 required little to no additional investment to enable a remote workforce. Agriculture and Transportation come to mind in this context, with representatives from both stating publicly that their previous investments made it easy for them to switch to 100% telework.

Summing up, then, it appears that contrary to expectations, the spread of COVID-19 and move to 100% remote work actually cut federal cloud spending by roughly two-thirds compared to previous years. Digging into the numbers makes this clear. Spending on cloud solutions of all types (i.e., all aaS) rose by $208M from FY 2018 to FY 2019 and $423M from FY 2019 to FY 2020. By contrast, spending on cloud engineering, typically the strongest category in Deltek’s data set, rose by $682M from FY 2018 to FY 2019, but fell to $266M from FY 2019 to FY 2020; and this counts only the work we can verify. Going remote in response to COVID-19 appears to have cut the legs out from under the engineering portion of the federal cloud market.