Federal budgets are declining, and the pressure to do more with less is mounting. This means that limited funding has to stretch further than ever before.
Deltek predicts a decline in the federal IT market from $101 billion in fiscal 2014 to $94 billion by fiscal 2019, a negative 1.6 percent compound annual growth rate.
A major driver is strategic sourcing, a contracting approach by which government agencies centralize the acquisition of similar products and services to drive savings and efficiency. The strategy is already having an effect — increasing spending in some areas while inhibiting it in others.
The 2015 budget — especially for infrastructure programs — demonstrates the recent focus on finding cost efficiencies, with many programs being funneled through strategic sourcing initiatives.
Some of these vehicles were created by mandates, while others evolved as contract terms and pricing were negotiated. Many of the initially informal arrangements are now being codified.
Formal strategic sourcing can now be found in both defense and civilian agencies. For example, the State Department is looking to expand strategic sourcing into IT areas such as desktop management tools and services, to drive economies of scale.
The Air Force plans to use the General Services Administration’s One Acquisition Solution for Integrated Services contract to streamline its contracting.
Contracts such as the GSA’s Federal Strategic Sourcing Initiative for wireless services blanket purchase agreements and existing agency wireless contracts allow the streamlining of communications and network services spending. Despite having its own strategic sourcing contract, the Commerce Department has also leveraged the GSA’s blanket purchase agreement for wireless services.
One effect of the strategic sourcing movement is lower spending in some commodity IT areas such as end-user computing devices. New contract options and policies will expand strategic sourcing options for IT hardware purchases, reducing the amount agencies expect to spend on hardware such as desktops or tablets.
At one agency, consolidated purchasing power through strategic sourcing for desktops and laptops continues to deliver savings of between 30 percent and 35 percent for every desktop and laptop purchased.
While the total level of spending is lower as a result of those savings, the cost efficiency helps to preserve ongoing investment.
Once agencies have transitioned to more centralized models for technology buying, they’re likely to continue to examine procurement effectiveness.
One area that’s receiving more attention as a result of those objectives is vendor relationships. More agencies are likely to follow the lead of the Justice Department and Health and Human Services and establish vendor management offices to improve buying practices for IT infrastructure and contractor management.
Another ramification of strategic sourcing is increased potential for analytics. Higher purchasing volume through fewer channels will improve access to contracting data and allow agencies to make data-driven buying decisions. For example, NASA intends to capitalize on lessons learned from past procurements with the next iteration of its Solutions for Enterprise-Wide Procurement program to increase potential for strategic sourcing and cost efficiencies.
Strategic sourcing has implications for large and small businesses alike. Vendors looking to improve their competitive positioning should identify and compete for agencies’ strategic sourcing and preferred contract vehicles. IT spending will be increasingly directed through these contracts as agencies adjust to a new, lower budget baseline.
Kyra Fussell is a senior research analyst at Herndon-based Deltek, which analyzes the government contracting market and can be found at www.deltek.com.