How Much Might Agencies Spend on IT in the Fourth Quarter of FY 2024?

More than ever, federal agencies look to commercial information technology (IT) solutions and innovations to meet their operational and efficiency goals, and agencies are willing to spend billions of dollars with contractors and suppliers to acquire these solutions. However, while most agency IT budgets continue to rise, agencies have often faced budget delays and operating under continuing resolutions (CRs) from Congress. Fiscal year (FY) 2024 has been one of those years.

This leads to the question of how all of this has impacted agency contracted spending on IT so far in FY 2024 and what might be some reasonable expectations for the fourth quarter (Q4), when federal agencies traditionally spend a sizable portion of their yearly IT budgets.

Estimating FY 2024 Q4 IT Spending: Methodology, Assumptions and Caveats

While any precise predictions for the near term are inherently precarious, it is possible to make a rough estimate of federal Q4 IT spending by leveraging the contract spending data we have available from the government.

My general “back-of-the-envelope” analysis methodology compares Q1, Q2, and Q3 of FY 2023 and FY 2024 and then applies an assumption that agencies will spend in FY 2024 90% of what they spent in total in FY 2023. (This is an admittedly arbitrary proportion, but hopefully it is cautious enough to guard against overstating the Q4 amounts.) I then can arrive at an approximation of what each agency might have left to spend in Q4 of FY 2024.

To build my case, I took the federal IT contract obligations reported for each federal agency for FY 2023 and FY 2024, quarter by quarter, reported as of July 29, 2024. Even though the third quarter of FY 2024 closed at the end of June, agencies may still be reporting their Q3 contract data, so this analysis is a snapshot in time in the hope that most agencies have submitted their Q3 data within a month of the quarter ending.

To estimate what IT spending might remain for Q4 of FY 2024 I applied my assumption that agencies would spend 90% of what they had spent in FY 2023 again in FY 2024. This may underestimate both the FY 2024 total and Q4 IT spending for some agencies and potentially overestimate it for others.

For each agency, I then applied the relative proportions for each quarter’s obligations in FY 2023 to the corresponding quarters in FY 2024. The approach was to look at how each department spent in each quarter of FY 2023 and then use that proportion to estimate how their spending might occur across the four quarters in FY 2024, again assuming they will spend throughout this fiscal year 90% of what they did in FY 2023.

The highlighted column in the table below provides an estimate of what each of the top 20 federal departments and agencies might spend on IT in Q4 of FY 2024, if they spend at least 90% of what they spent last year, overall. It is not a perfectly predictive methodology, but it is a good faith effort at conservatively estimating what might be in play for this Q4 buying season.

FY 2023 and 2024 Quarterly IT Contract Obligation Levels Compared

The twenty top-spending departments accounted for more than $115B in IT spending in FY 2023, which is 96% of the $120B in total federal IT contract obligations for the year. Both the top twenty and total IT contract obligations amounts for FY 2023 were higher than they were in FY 2022, when the top twenty accounted for $109B of the total $113B in spending for that year. The point: top-line federal IT contracted spending has consistently risen over the last few years.

Looking at quarterly spending in FY 2023, these twenty agencies accounted for $17.4B, $29.7B, $28.7B and $39.7B in Q1, Q2, Q3 and Q4, respectively. This shows that the top twenty agencies spent a disproportional 34% of their FY 2023 IT dollars in Q4, compared to 15%, 26% and 25% for Q1, Q2 and Q3, respectively.

How does FY 2024 compare? For FY 2024 to date, these top twenty departments have reported $17.9B, $24.7B and $18.5B for Q1, Q2 and Q3 respectively, which are noticeably lower for Q2 and Q3 than at those points in the last fiscal year. But this is not without explanation. First, the DoD components can lag in their contract data reporting by up to 90 days, so Q3 for DoD may be largely underreported, and even Q2 data may be understated.

Impacts of Continuing Resolutions on Quarterly Spending

The second factor causing lower Q2 and Q3 FY24 obligation levels may be the effects of delayed congressional appropriations and the length of the continuing resolution (CR) that kept agencies waiting to see what their budgets would be for the year. For FY 2023, Congress passes a final omnibus appropriation in late December 2022, at the end of Q1FY23. However, FY 2024 continued under CR that was not resolved until Congress passed its final FY24 appropriations in March 2024, at the end of Q2FY24.

That additional quarter of operating under CR will usually suppress some spending into future quarters as agencies wait for their final budgets to be approved. This factor is magnified among agencies that got budget increases, which many did. As a result, there may be even more pent-up spending that is pushed into Q4.

Prospects for the Remainder of FY 2024

For the remainder of FY 2024, if these top twenty agencies spend 90% of what they did in all of FY 2023 – and that is likely a conservative outlook – then they will have nearly $43B to spend in Q4 alone. If we factor out the impact of DoD’s the 3-month reporting lag, the civilian portion accounts for nearly $16B of that $43B Q4 estimate.

That could be the spending floor, however, if the trend toward year-over-year growth in contracted IT spending continues to hold, as the data suggests, and my 90% assumption proves conservative. All of this would point to a healthy FY 2024 for the federal IT contracting market, and a substantial portion of the contracted spending will come over the next several weeks. The data shows why Q4 has been dubbed “the federal busy season.”