Is GSA About to Shake Up the Cloud Market?

Readers may have noticed a recent spate of stories in the federal IT trade media about a new series of letters sent from the General Services Administration (GSA) to nine additional companies concerning consulting services. The letters follow a first wave of missives sent in February to ten of the largest consulting firms in government IT. According to one of these articles, the GSA “is looking at spending under NAICS codes that consulting work generally falls under.” These include numbers 541330, 541511, 541512, 541611, 541690, and 541990, as identified in a Washington Technology data analysis. A lot of work on federal cloud projects falls under these NAICS codes, leading me to wonder what the data shows about related spending and how the GSA’s determination to drive down prices might affect the overall market.

As a caveat, I am not defining consulting services. The analysis below is based on the NAICS codes listed by WashTech.

Spending Under Consulting NAICS, FY 2022-2024

Identifiable spending on cloud-related work under the six NAICS codes listed above has averaged $5.4B per year over the last three fiscal years. This equates to roughly 33.5% of identifiable federal cloud spending per year, which a sizeable chunk of the market.

Contracting officers assign 541512 –  Computer Systems Design Services to cloud-related work more than any other code. The trend is also the same across every sector of the federal government that we track here at Federal Market Analysis (FMA)

Spending by Market Sector

Here is the data for the Department of Defense (DOD). It aligns with the total market data shown above.

The data for the Civilian sector, by comparison, shows slight variations. Spending remains the highest under 541512 and 541511 – Custom Computer Programming, but is significantly lower under 541330 – Engineering Services when compared to the DOD. Civilian agencies spend less than DOD under 541990 – All Other Professional, Scientific, and Technical Services as well, but a bit more under 541611 – Administrative Management and General Management Consulting Services. The only NAICS code that explicitly uses the term “consulting” is one of the codes under which the least amount of cloud-related spending occurs.

Another interesting observation concerns the types of work each of the nine named companies do. Wash Tech points out with justification that “companies such as Minburn and FCN fall into the reseller category,” and not the consulting category. The NAICS data that FMA compiles reflects this as well, showing that federal agencies spend an average of $1.36B per year for Cloud Capabilities under NAICS 541512 and another $1.67B per year for Cloud Engineering services. Cloud Capabilities are simply cloud-based solutions for any given task. These numbers reflect FMA’s definitions of what cloud engineering (i.e., work implementing) vs. cloud capability (i.e., application provided) efforts are and inconsistency in the assignment of NAICS codes by contracting officers.

The data suggests that GSA’s reviews will include cloud-related work performed under 541512 more than any other NAICS code, given the level of spending under that code. GSA’s intent is to drive down costs, so it seems like a sure thing that the review of work under 541512 will affect the federal cloud market. Just how deep that impact will go remains to be seen.