Federal spending woes not hitting state and local markets

September 29, 2013

Executives at government contracting firms typically assume that state, local and education buyers are reliant on federal policies and money.

When they hear bad news about the federal government, they figure these problems are also cascading down to lower levels.

But that’s a serious misconception. In fact, the state and local market is driven by its own demographic, economic, policy and technology factors.

Demographics

Because state and local governments provide a variety of direct services, population growth and demographic changes can alter their missions.

The number of young and oldis set to grow, leaving fewer working-age people to pay for education and health care. These trends are likely to drive efforts to augment school classrooms with technology and use business intelligence to rein in Medicaid costs.

Economics

Financial events can also drive buyer responses. The recent recession, for instance, ushered millions of Americans into unemployment offices and into two- and four-year colleges.

The reaction to the swelling demand caused a whirlwind of procurement activity. States overhauled unemployment insurance and workforce development systems to reduce fraud and improve job matching. Colleges upgraded wireless networks, deployed online curriculum tools and modernized student information systems.

Policy

State and local policies are driven by thousands of elected and appointed leaders who previously looked to Washington for leadership.

But as federal grant money dried up as a result of budget cuts and partisan stalemate, state and local leaders are increasingly ignoring the federal government and forging ahead with their own agendas.

The federal government still retains some clout in areas of significant trickle-down funding, like social services and transportation. However, in other areas of government business, contractors are better off studying governors’ and mayors’ policy agendas.

Technology

Contrary to their reputations as technology backwaters, state and local governments can be very responsive to new technologies.

Virtualization has spread like wildfire through this market, and cloud offerings are gaining traction with leaner post-recession IT departments. Several manufacturers are promising cheap, under-$100 tablets in the near future, putting the promise of one-to-one classroom computing within reach.

With tens of thousands of potential buyers in this market, vendors with the right disruptive technologies and solid partner and reseller networks can surf a wave of adoption to significant profits.

Government IT contractors should recognize that the state and local market can serve as a stabilizer for any public-sector business development portfolio. Aligning their services and solutions with these drivers will allow contractors to make a strong business case to buyers.

Chris Dixon is senior manager on the state and local industry analysis team at Herndon-based Deltek, which conducts research on the government contracting market and can be found at www.deltek.com.

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