After a decade of unprecedented growth in technology spending by the US federal government, growing an average 5-10% year to year, this growth is now expected to slow markedly, to a compound annual growth rate of 4% over the coming five years. However, Jocelyn Young, Datamonitor research director of healthcare and public sector technology, argues that it’s not all bad news for vendors…
The impact of the slowdown will not be immediately visible to technology vendors in this market, with a projected opportunity of over $46 billion in the government’s fiscal year 2004 (ending in September).
Furthermore, this slowdown seems to have a silver lining: it heralds greater accountability of how public funds are spent and marks a fundamental shift in how the government views technology purchases. Despite battling with a number of recent challenges, vendors that sell to the US federal government can still take advantage of much leaner sweet-spots in this contracting market.
Enterprise focus will drive solutions-based spending
There are three solution areas for which opportunities are growing at a rate faster than that of the federal technology market overall – Customer/citizen Relationship Management, Enterprise Resource Planning (human capital management and financials), and security. Collectively, Datamonitor estimates they will account for close to $7 billion of total US federal government technology investment in 2009.
Overall, Datamonitor expects US federal government spend on technology to grow to $56.5 billion by 2009.
Federal contracting challenges go beyond limited dollars
Beyond the overall slowdown in federal technology spending, recent months have brought other challenges to the federal contractor community. Scrutiny of federal contractors has come from two fronts: the role of contractors in the Iraqi prison abuse scandal and whether major government contracts should be doled out to contractors not based in the US.
Under the microscope have been contractors such as CACI International, for allegedly supplying Iraqi prison interrogators via an IT services contract, and Accenture, for being based in Bermuda rather than the US – an issue that arose in relation to its coveted win of the US-VISIT contract with the Department of Homeland Security.
At present, it does not look likely that CACI will be debarred from competing on future federal contracts, and Accenture has been cleared to proceed with the US-VISIT contract. Nevertheless, shadows have been cast on the federal vendor community through these recent events. And pending legislation – removing a clause that allows non-US-based companies to compete for homeland security deals as long as they were based overseas before the Homeland Security Act of 2002 was passed – may well threaten the ability of some vendors to compete for federal homeland security dollars.