GSA IT Spending Reaches Billions

The GSA Schedule is such an important part of the federal IT market at this point that I am forced to wonder if anyone still remembers when GSA didn't register as even a blip on the federal IT-spending radar?

I do. Back in the days when the Internet was just a fad and coffee was ordered by only one word--coffee--the GSA Schedule was a sleepy little backwater in the world of federal-IT contracting. So it amazes me to see how much it has come to dominate federal IT spending today.

How did it get there? A quick history lesson:
The mid-1990s was a hotbed of procurement reform. (I freely admit that it seems absurd to use the word "hotbed" in association with the term "procurement reform," but if the connection was ever applicable, it would have been during the mid-1990s.) The Federal Acquisition Streamlining Act had been passed in 1994, and the Clinger-Cohen Act, also known as the IT Management Reform Act, was passed in 1996.

The GSA took a look at the initiatives for procurement reform happening around it and decided that it could apply some of the same principles to the management of the Multiple Award Schedule for IT. The most important change was the elimination of the purchase threshold for the schedule contracts. "If you're going to the trouble of awarding a contract, why turn around and tell agencies that they can't spend against it," or so the thinking went.

The GSA also increased the flexibility of vendors to make modifications to the products offered through the contracts--updated pricing, new product additions, etc. This was particularly important for the IT market because the pace of technological development was so great that prices were constantly changing for any given set of products.

The simple fact of the matter was that if a company were locked into setting an annual price for an item of technology, no one would buy it after three months because the market price would have decreased too much. These reforms to GSA Schedule purchasing (and the inclusion of IT services on schedule contracts in 1998) sparked a growth trend that continues to this day. From less than $800 million in fiscal year 1996 to more than $15 billion in fiscal year 2003, purchasing of IT products and services has increased an average of 50 percent per year for the past seven years.

The growth rate has tapered somewhat in the past three years, suggesting that purchasing through the GSA Schedule is approaching a point of equilibrium within the mix of contract vehicles available to federal agencies. A new market, however, looms on the horizon: state and local governments.

A small provision in the E-Government Act of 2002, passed by Congress late in 2002, authorized state and local governments to purchase IT products and services through GSA Schedule contracts. The GSA subsequently released a rule detailing the process in the middle of 2003. To date, state and local government use of the GSA Schedule has been relatively limited. Cooperative purchasing may be authorized as far as the federal government is concerned, but many legislative and regulatory issues must be resolved at the state and, in some cases, local government level before the spending begins in earnest.

Without considering the impact of state and local government spending, Input anticipates purchasing through the GSA IT Schedule will stabilize at roughly 40 percent of a contractor's addressable federal IT budget.

I would, however, also expect that state and local governments will slowly begin utilizing the GSA IT Schedule with a rate of growth that will probably be similar to what we've seen among the federal agencies. In seven years, I'll probably be writing about the GSA again, wondering how on earth we ended up with a $50 billion government IT purchasing vehicle.

Payton Smith ([email protected]) is Input's manager of public-sector market analysis.