Any solution provider who thinks selling IT to the government represents a safe haven from the budget pressures facing the commercial sector better think again. Given the downturn in overall IT spending, Gartner's lead public sector analyst expects federal IT spending to drop by more than $4 billion in 2009—and growth won't return until 2012.
It was a stunning revelation by Rishi Sood, Gartner research vice president, who was speaking at Everything Channel's IT Channel Vision Government Summit. He said he was "unofficially" providing a federal IT spending forecast to the crowd as a means of gathering feedback from the key vendors and IT consultants gathered. Sood said he revised his forecast for 2009 federal IT spending to $68.2 billion from $72.1 billion because of Gartner's revision of overall IT spending. Gartner recently slashed earlier estimates, stating that overall IT spending will grow by only 2 percent over the next two years, down from nearly 6 percent.
As a result, Sood trimmed his 2010 forecast by $7 billion and took his 2011 spending estimate down by more than $9 billion. By 2011, he expects federal government IT spending to return to 2008 levels. So expect a long, bumpy ride with sales cycles growing. Gartner expects sales cycles for federal deals to grow to 2 to 2.5 years from their current 12 to 18 months, a notion longtime public sector consultant Leslie Anne McIndoe of AAC, Vienna, Va., agreed with.
Many others at the Summit also agreed with the assessment. Some, like Sean Burke, president of GovPlace, said he expects the public sector market to deteriorate even more if Uncle Sam is forced to extend the scope of its $700 billion TARP bailout program to businesses. On that point, Sood said, "Economic environments and government intervention are putting downward forces on large-scale government tech spending."
Furthermore, Sood said he does not believe the technology focus of the Barack Obama presidential campaign will translate into more technology spending by the overall federal government. "It won't happen," he said. "The Obama administration will bring great importance to IT issues, but structural forces will contain short-term growth," he said.
While public sector IT spending overall will suffer, there are pockets of promise for IT consultants and integrators who focus on the sector. He expects growth to come from accelerated spending by the Veteran's Administration, Homeland Security and the Health and Human Services Department, which operates the largest civilian IT budget. Sood said he also expects to see IT spending by Treasury and Energy departments along with the EPA. While those departments issue large IT contracts, many small IT consultants provide key services as part of set-asides required by the government.
However, Sood did cast doubt on speculation by industry observers that the Defense Department will reduce IT spending under a Democrat-controlled administration and Congress. Defense Department spending today totals 43 percent of overall IT buys. "There won't be a massive shift," he said, adding that a worst-case scenario could have Defense Department spending dip to 35 percent of overall spending for a short period.
He warned solution providers not to "hibernate" during this period of transition in the administration and budgets. "Invest in new areas of growth, maintain your position with current clients and right-size your organization," he said. Solution providers serving the public sector must adjust to clients who are focused more than ever on cost containment and reduction. Gone are projects that helped agencies transform or connect with other agencies. Gartner showed research that the No. 1 priority among government IT buyers and CIOs was to reduce operating costs, followed by program accountability.
Based on just-completed Gartner research, Sood said the top five technologies federal government CIOs are focused on in order of importance are: security, especially cybersecurity; ERP; business intelligence; biometrics; and VoIP.
For solution providers who want to focus on the long term, Sood said there is an opportunity to help federal CIOs understand and prepare for the impacts of cloud computing, SaaS, remote hosting and SOA. However, IT consultants helping their clients in those emerging technology areas will not see a payoff in the near future but will be positioned well when the market rebounds in four years and such initiatives get funding.