As federal agencies pursue improvements in effectiveness — without increasing their costs — contractor-supplied technology services will remain in demand. But the long-term market outlook suggests spending on these services will be flat or decline slightly in coming years.
According to a new Deltek report, federal spending on vendor-furnished IT services is projected to decrease to $60.4 billion in 2017, down from $60.9 billion in 2012.
Federal IT services cover a wide range of work, including program management, systems integration, software development and technology training, as well as IT outsourcing of federal systems, applications and infrastructure.
While some areas of federal technology spending could see sharp declines, Deltek forecasts a flat IT services market, driven by agencies’ efforts to consolidate data centers, shift to cloud computing, make use of “big data” and satisfy cybersecurity needs.
Deltek is predicting some growth over the next year, before spending slows and then levels off.
Still, federal agencies’ work on these key initiatives, from cybersecurity to data center consolidation, provide select short-term growth opportunities within IT services. These boosts should help keep the industry stable as funding is cut for other, lower-priority areas.
In the longer term, some of the new trends could eventually lead to softening in overall demand. As cloud computing, for instance, gains wider adoption and agencies move to an IT-as-a-service model, demand for customized solutions and integration services are likely to decline.
Further, federal policies could put more pressure on labor rates, making the competitive landscape even fiercer.
Angela Petty is senior principal research analyst at Herndon-based Deltek, which conducts research on the government contracting market and can be found at www.deltek.com.