Bleak IT forecast has bright spots

Despite an overall bleak outlook for federal growth in information technology spending in the next few years, there are some bright spots, said Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources Inc.

Some specific agencies and projects should remain lucrative, and new federal initiatives such as the lines of business will provide new ways to approach opportunities.

Successful companies will be those that migrate or morph to adapt, he told an audience at FSI's annual Market Outlook Conference today.

The areas that FSI projects as having the strongest compound annual growth rates (CAGR) between fiscal years 2005 and 2007 are:

  • Revenue-related projects. The healthy CAGR of 24.2 percent may be offset by the relatively small dollar amount, a projected $120 million in fiscal '07.

  • Homeland security, with a CAGR of 19.6 percent and a fiscal '07 estimate of $2.68 billion.

  • Human resources, with a CAGR of 19.2 percent and an fiscal '07 estimate of $660 million.

FSI projects the top individual projects for fiscal '07 to be:

  • The Defense Department’s Business Transformation Agency, $215.9 million.
  • The Agriculture Department's Financial Management Modernization Initiative, $52.7 million.

  • The Interior Department-National Business Center’s Center of Excellence for the Financial Management Line of Business, $49.1 million.

Alongside the lines of business initiatives, another harbinger of growth Bjorklund identified is the continued emphasis on IT infrastructure consolidation. The infrastructure includes networks, desktops, data centers and telecommunications operations, providing a market opportunity for many types of companies, he said. At least six agencies have consolidation budgets of more than $1 billion, topped by DOD's $14.2 billion.

He encouraged companies to look to chief information officers’ concerns to identify other market opportunities. According FSI's own analysis, the top four concerns are:

  • Aligning IT and agency mission goals.

  • Obtaining adequate funding for IT projects.

  • Building effective relationships with other agency leaders to strengthen IT initiatives.

  • Hiring and keeping skilled professionals.

However, he emphasized that budgets are shrinking while the number of companies competing continues to grow. Another sign of slow growth is the decline in new indefinite-quantity, indefinite-delivery contracts, he said.

The total number of new multiple-award contracts fell from 75 added in fiscal 2004 to 43 added in fiscal '05, he said. The number of actual new contracts awarded to companies also declined, from 2,968 in fiscal 2004 to 1,919 in fiscal '05. The General Services Administration’s IT schedule contract, Schedule 70, accounted for 2,295 of those awards in '04 and 1,432 in '05, he added.


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