The growth in federal government spending on computers is slowing -- and the way the money is being spent is changing -- as personal computers take an increasing role in the government's data-processing mix and federal agencies concentrate on making the computer systems they already have work more efficiently.
The slowdown in spending growth following years of sharp increases does not necessarily indicate that the government has throttled back on the automation of federal agencies, analysts and government data-processing executives say.
Rather, it reflects the lower costs of personal computers compared with big mainframe machines, the increasing use of outside consultants for computer systems assembly, operations and programming, and a shift toward the improvement of existing federal computer systems from the installation of new systems.
"I think they're just running out of things to spend it on," said Robert Dornan, vice president of Federal Sources Inc., a Vienna-based computer consulting and sales firm that has tracked the trend. "It's a matter of modernizing programs that have been automated."
"The primary thrust and the primary allocation of dollars now are being made toward bringing the information resource systems now in the government up to par with those that are out in the commercial world," said Jay Jones, a Washington-based analyst for International Data Corp., a computer-industry analysis firm in Framingham, Mass.
According to a study by Federal Sources, government agencies plan to spend $17.1 billion in fiscal 1988 on "information technology," which includes everything from computer hardware and personnel to outside consulting and system-integration services.
That budgeted figure represents a 3.7 percent increase from fiscal 1987, a dramatic slowdown from the average 12.7 percent annual increases in the previous five years.
The slowdown could be even sharper, Dornan said, because actual spending tended to trail budget projections in previous years. "If this number is also overestimated, as it has been in the past, then the actual growth in FY 88 may be flat," Dornan said. Although there are a few large computer-related procurements on the horizon -- such as the huge FTS-2000 telecommunications project -- Dornan expects the flat-to-slow growth trend to continue in the near future.
Actual growth of government computer spending has been slowing since fiscal 1984, when computer spending was up 17.5 percent, Dornan said. The budget increase in 1985 was 12.9 percent, and spending grew only 6.6 percent in 1986. Budget projections indicate 11.9 percent growth in 1987, but Dornan estimates that actual figures could show the growth to be only 6 percent, with 1988's growth even lower than that.
Other analysts say the shift to less-expensive PC-based systems accounts for some of the slowdown. "There has been a significant shift to these multiuser micro-based systems ... that has enabled the government to get more bang for the buck and to get some flattening out of the spending curve," said Ulrich Weil, an analyst who follows federal computer programs for the Gartner Group, a research and consulting firm. Microcomputers, he said, "can do jobs
that maybe 10 years ago you needed a big mainframe for, so on a unit price things have gotten much cheaper."
The PC revolution is by no means over in the federal government. Purchases of microcomputers will only account for about $500 million of the $3.8 billion the federal government will spend to buy and lease all types of computer hardware in fiscal 1988, according to Dornan.
However, the role of the PC in government computing has increased rapidly from virtually zero five years ago. The government's shift to PCs echoes that of the private sector, although it started a little later, Weil said. But he added that, motivated by budget considerations, the government might now be in the lead in the PC revolution. Other experts have estimated that the federal government is the largest purchaser of microcomputers in the nation.
"The federal government, because of its budget-driven needs, has to go for the cheapest solution possible, so they are in the forefront of multiuser micro-based systems," Weil said. "I would have to say the federal government has grasped this technology-based shift to multiuser micro systems better than the private sector has."
Within the overall spending figures compiled by Federal Sources are indications of how federal computer spending patterns are shifting. The amount being spent for computer purchases in fiscal 1988 is expected to be unchanged from 1987, according to the study, while spending on computer leasing will be down. But spending on services that make computers work better together -- both PCs and existing systems -- is rising sharply. Increasingly, federal agencies are looking to outside help for many computer-related services.
According to the Federal Sources study, government agencies will spend more than $2 billion in fiscal 1988 on each of three service categories: operations and maintenance, leased telecommunications services and systems analysis and programming. The total of $7.2 billion on those three categories is more than double the amount spent on them five years ago.
Experts say the increased emphasis on services spending is making profound changes in the kind of companies that are getting government computer contracts. Systems integrators, computer services and programming firms and other outside consultants -- many of them located in the Washington area -- are getting an increased chunk of the government's business, often at the expense of the big computer companies.
"The systems integration trend is the biggest thing in the government market," Weil said.
"The federal agencies are now looking for the total solutions, as opposed to going out and buying boxes -- pieces of hardware," Jones said. "The primary focus now is for the agencies to find somebody to solve their information technology problems."
Part of that shift is a matter of expertise -- many of the best programmers and systems integrators don't work for the government, experts say. "The government is essentially acknowledging that they cannot obtain and retain the kind of people it takes to put these systems together," Dornan said.
"The reduced level of talent within this community causes us to contract out more and more," said Frances McDonough, who oversees computer procurement for the General Services Administration. "I think that trend will continue on for quite a long time."
One indication of the increased willingness to go outside for computer help -- as well as a money-saving tactic -- is the government's increased reliance on commercially available software packages, rather than custom-designed programs. "You certainly see that the tendency now is to go off the shelf with software," Jones said.
That trend is the result of a recent mandate by the Office of Management and Budget that federal agencies move to commercial software where possible. OMB suggested that if agencies can find off-the-shelf software that accomplishes 80 percent or more of their needs, they should buy it rather than contracting out for more expensive custom software packages.
There still is a significant amount of custom programming however, as the rise in programming services spending indicates. Custom software is needed especially when the government moves to link together various kinds of computer equipment in powerful networks. And the vastness of these projects helps keep the custom software costs down somewhat, experts say. "You can afford to have somebody come in and customize software for you, and it's still economical," Weil said. "Since the volumes we're talking about are so big, that can be done very economically."
Experts say the confluence of these various trends is making the federal government's many computer systems more efficient and better able to the jobs for which they are intended, and beginning to put them on par with large corporate computer systems. "I think things are looking pretty good at the moment," McDounough said. "A pretty good foundation has been built, in terms of the equipment resources... . It's a matter of modernizing the software in each and every case where it's needed."
"The mainline governmental functions are well on their way to modernizing all their systems," Dornan said.
"Things aren't quite as obsolete, aren't quite as bad in the government as some earlier studies have suggested."