For government contractors, the news is not just getting worse, it’s getting old. We’ve been reading about the downturn in government spending for more than two years, and that doesn’t even take into account sequestration — the automatic cuts set for early next year.
But while federal agencies face significant budget challenges, state and local governments are actually about to begin a new wave of buying information technology products and services.
In fact, the state and local IT market could see compound annual growth of 3.1 percent over the next five years.
For federal IT contractors worried about Washington’s budget crunch, the state and local market could be a welcome opportunity.
As tax receipts declined with the recession, many state, county and municipal governments as well as public school systems were forced to stop updating and replacing IT equipment and services.
Now, in most parts of the country, tax receipts have begun returning to pre-recession levels, and budget deficits are shrinking. IT directors may soon be looking to replace aging equipment, much of which has been used past its programmed replacement point.
Additionally, more than 20 states and several major cities in recent years have established streamlining efforts, from consolidating agencies and departments to re-engineering business processes and even outsourcing. All of these efforts require an IT investment.
In response to the recession, state and local governments made far more severe staffing cuts than the federal government. And even today, very few are hiring in significant numbers.
That may create another opening for contractors as states look to automate processes and improve performance without committing to new employees.
The state and local IT market represents about $56.4 billion in business opportunities today and will stand at more than $64.9 billion in five years, Deltek finds.
Selling to decision makers in this market requires a strategic shift from marketing to federal agencies. Talk of cutting-edge technologies, moving to the cloud and mobile technologies may not get their attention. But talk of streamlining, boosting productivity and building more robust networks able to survive a downturn are likely to get the attention of state and local IT buyers — and the same technologies will get them there.
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.