Is Public Sector IT Spending In For Tough Sledding?

That's the upshot of EquaTerra's 2Q08 Public Sector IT Business and Mission Support Service Provider Pulse Survey. The Houston-based consulting and research firm predicts that public-sector spending on externally provided IT support services will increase 5 percent annually over the next five years, growing from $66 billion in 2007 to approximately $90 billion in 2013.

The survey includes responses from IT service providers as well as data from the company's client-facing advisers.

Glenn Davidson, EquaTerra's managing director of public-sector practice, acknowledged that states are suffering from declining sales tax and property tax revenues from the mortgage crisis. What's more, he said states, schools and local governments are under mounting pressure to comply with underfunded federal mandates.

The survey also cited the aging public- sector IT workforce. Stan Lepeak, EquaTerra's managing director of research, noted that most public-sector managers are struggling to get the job done with outdated technology, cumbersome business processes and loss of institutional know-how as senior staff retires. He noted that many public-sector managers see outsourcing as the best way to cope.

But Davidson called the growing opportunity for IT outsourcing "countercyclical" to budget constraints, which impact IT infrastructure purchasing.

According to the survey, 46 percent of the service provider respondents said the key driver in public-service outsourcing was cost reduction or avoidance. Project-based work was the preferred means to engage third-party service providers, especially projects that deliver a near-term reduction in operating costs.

Among the hottest emerging services identified by survey respondents included overall IT modernization, such as adoption of a software-as-service model. Davidson, too, said that there is particularly strong demand for financial management and budgeting services, including risk management, accounts payable and general accounting.
—Craig Zarley