The sequester will hurt tech nationally

Federal IT spending will fall, but cutbacks may accelerate shift to cloud.

WASHINGTON - The federal government's automatic budget cuts, due to begin Friday, may accelerate cost savings measures already in place via sharing of services across agencies, IT consolidation, and an increasing reliance of off-the-shelf products and cloud-based services, as opposed to customized development.

However, there will also be damage to IT spending, and a period of uncertainty as the government reacts to the cuts. Known as the sequester, the automatic cuts are expected to hit "full force," and that will impact IT spending, said Andrew Bartels, an analyst at Forrester Research.

In January, Forrester forecasted a 7.5% increase in U.S. tech spending for this year, but that was on the assumption that the sequester would be resolved by Congress. Bartels now expects the federal cuts to reduce the tech spending forecast by about 1%.

In terms of dollars, in January Forrester put U.S. tech spending in 2013 at $820 billion. Its current estimate for business and government purchases of technology goods and services this year is now at about $808 billion, without telecommunications services, which are just over $1 billion. U.S. government purchases represent between about 8% and 10% of that spending.

The overall economic impact of the federal cuts is broader than just what the federal agencies buy. The reduction in grants to local, state government and institutions and employee furloughs contribute to the impact, said Bartels.

The public sector accounts for about 27% of Dell's revenue, according to its financial disclosures. But the company expects IT spending to remain a priority with the government even as budgets are cut, said Paul Christman, vice president of public sector sales and marketing for Dell.

What will change is how that money is spent, said Christman. Federal IT spending will see an increasing shift from hardware to services, he said.

Christman believes Dell is suited for this shift in spending. It has been expanding its services capability, as federal agencies move to cloud and SaaS-based systems. "The sequester is really accelerating things," he said.

This shift to services and new approaches is in place at agencies and institutions. The 31 schools in the University of System of Georgia, for instance, has been consolidating its IT services.

One top project for Curtis Carver, the CIO and vice chancellor of the Board of Regents of the University, is deploying BYOD policies and tools. The use of employee-owned tablets has increased productivity and job satisfaction, and that's something the school system wants to facilitate.

"[The Bring Your Own Device (BYOD) trend] is lowering costs by allowing us to do things in different ways," said Carver. "What we want to do is have appropriate controls so the data is protected, but at the same time empower those employees."

The BYOD policy also reduces the pressure on university system to buy tablets for employees.

But the university makes its bigger gains in its centralization and shared services, such as its learning management system, an online repository and student engagement vehicle, said Carver.

What the sequester is doing is "creating greater pressures for centralization," he said.

The White House hasn't detailed how federal agencies are to respond to the automatic cuts, except to offer general guidelines. The sequester will deliver 9% cuts across non-defense agencies, and 13% to defense agencies, according to a White House memo.

The vendors aren't certain how sequester will impact them, and say the feds have disclosed few details.

"There have been no consistent answers," said Ed McNamara, director of communications and marketing at SHI International, a $4.4 billion reseller with about 2,000 employees.

In the short term, McNamara expects sequester to create a "period of inactivity" among buyers. March, which is usually a busy month because it's at the end of a quarter, may be slow.

Dale Luddeke, who chairs the Industry Advisory Council (IAC), an IT industry group, said he expects to see a shift in government to things with "cost savings attributes," such as open source, and agile development and cloud technology.

Luddeke said he expects to see an emphasis on value, but some things won't be affected, particularly cybersecurity, data analytics and the IT requirements set in health care reform.

"We can adapt, we can figure this out," said Luddeke.

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed. His e-mail address is

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Copyright © 2013 IDG Communications, Inc.

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