Federal IT spending decreasing by billions

Federal IT spending is declining dramatically, from a peak of $80 billion in 2010 to $70 billion in the 2014 fiscal year.

The decreases in spending may be racing ahead of the ability of federal agencies to cut costs through shared services, cloud migrations and data center migration, says TechAmerica Foundation.

The research arm of industry trade group TechAmerica says the main strategy of federal agencies today is to try contain costs by seeking the lowest price contracts possible and give-backs on existing contracts.

The decline is federal spending is being driven by a number of things, including sequestration or automatic spending cuts, and the failure of Congress to adopt a budget.

The federal sector cost-cutting is in contrast to commercial sector, where Gartner expects IT spendingto rise 3.6% globally next year as businesses increasingly move to digital technologies.

The immediate problem for government IT operations is the federal government shutdown, said Trey Hodgkins, vice president of global public affairs at TechAmerica.

With that, IT vendors that sell products to government agencies are facing issues of liquidity, workforce retention and lost earnings, said Hodgkins. A vendor may accumulate 1% to 2% of earnings every week, and in many instances that's the margin of profit for the year.

For some IT firms, "the opportunity to make a profit for the year is gone; everything else is just revenues to try to keep the doors open," said Hodgkins.

Tech workforce retention, both in government and among IT vendors, are likely a long-term problem, said Hodgkins.

Federal employees haven't gotten pay raises in three years, and some contract workers are being forced to take vacations during the shutdown. The trend could lead to accelerating rates of retirement, and convince tech workers with sought-after IT skills not to enter government, he said.

Federal IT spending will hit its low point this fiscal year, which began Oct. 1, and then increase in actual dollars, but stay relatively flat through 2019 when adjusted for inflation.

The impact of the shutdown on IT vendors will vary.

Steven Glapa, CMO at AirTight Networks, which sells cloud-based WiFi and wireless intrusion prevention systems federal and commercial clients, said that since the shutdown began early in the quarter, a quick resolution should assure little impact on quarterly financial results.

However, he added, "the bigger" and "more threatening" issue is the risk of default, and the impact that could have the economy.

The impact of the shutdown is turning up in multiple ways.

Lamar Bailey, director of security research and development at Tripwire, said that since the start of the shutdown, government worker attendance "has been almost non-existent at security conferences. While that may not seem like a big deal, a lot of information sharing goes on at security conferences."

Government workers will return to their jobs with "a knowledge deficit that will take time to recover from," Bailey added.

This chart shows the federal IT spending forecast in billions of dollars. Red line indicates constant dollars. (Chart: TechAmerica Foundation)

Patrick Thibodeau covers SaaS 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 email address is pthibodeau@computerworld.com.

Read more about government it in Computerworld's Government IT Topic Center.

Copyright © 2013 IDG Communications, Inc.

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