New Report: Deltek’s Federal Cloud Market Forecast from Fiscal 2023 to Fiscal 2027

Cloud computing has become a key part of federal information technology environments, and the trend toward cloud adoption shows no signs of stopping.

Growth in the market is proceeding at different paces across the civilian and defense sectors. The investment of civilian agencies in cloud-based infrastructure is slowing due to market maturity. This process is still falling into place at the Department of Defense (DOD), however, which is just getting started with task orders related to the new Joint Warfighter Cloud Capability (JWCC).

Conversely, investment in Software-as-a-Service and Platform-as-a-Service are growing strongly across both defense components and civilian agencies. The use of Network-as-a-Service solutions is also growing as well, as federal customers seek ways to simplify the management of their networks

Despite the pace of adoption, challenges remain. Multi-cloud environments are growing in complexity, and faith in the security of cloud-based solutions is being tested by highly-publicized security breaches. Agencies are responding to these developments by building zero trust architectures, taking a hard look at automated IT service management capabilities and relying more heavily on the General Service Administration’s FedRAMP program to identify secure cloud products and services.

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 $15.9B in FY 2023 to $23.5B in FY 2027.

Key Research Findings

• Adopting Zero Trust. The government’s shift to zero trust, mandated by Executive Orders 14028 and the new National Cybersecurity Strategy, is driving investment in cloud-based cybersecurity capabilities, particularly those providing identity and access management.
• Achieving Market Equilibrium. After years of trailing the civilian sector in cloud investment, the DOD’s spending is now growing at roughly the same rate. This trend suggests increasingly rapid defense cloud adoption while civilian sector investment is slowing.
• Engineering Spending Slows. Spending on cloud engineering trended down across all sectors of the government for the first time in years. This suggests that defense cloud engineering slackened due to delays related to the award of the JWCC contracts. At the same time, civilian agencies are now facing “heavier lifts” in modernizing mission-critical legacy systems. These efforts take more time to plan and cost more to execute.
• Mixed Small Business Market Participation. Agencies awarded a record number of small business set-aside cloud contracts in FY 2022. However, federal customers are also spending nearly twice as much per year with mid-sized and large businesses under cloud Special Item Number 518210C than they are with small businesses. The potential for small businesses to increase their participation in the market remains strong, assuming agencies continue to prioritize small business awards.

Data Center Closures Drive Opportunity. Despite the formal end of the Data Center and Cloud Optimization Initiative, agencies still have thousands of data centers to close. This promises to drive opportunity for the next several years, especially at the DOD.

Deltek's Federal Cloud Computing Market, 2023-2027 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.