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OMB Scrutinizes IT Proposals

The federal government's budget for IT has traditionally been off the mark, with actual spending between 1997 and 2002 exceeding the amount requested by an average of 13 percent per year. But thanks to a major crackdown by the Office of Management and Budget (OMB), that is likely to change, resulting in an expected $20 billion increase in contracted IT spending by 2010.

The federal government's budget for IT has traditionally been off the mark, with actual spending between 1997 and 2002 exceeding the amount requested by an average of 13 percent per year. But thanks to a major crackdown by the Office of Management and Budget (OMB), that is likely to change, resulting in an expected $20 billion increase in contracted IT spending by 2010, and newfound competition for government projects between VARs and the agencies themselves.

According to a market forecast report released by Reston, Va.-based research firm Input, the next five years will generally be more of the same in terms of how federal IT dollars are spent. Integration of agencies' back-office processes will continue, primarily through the OMB's five defined lines of business (financial management, federal health programs, case management, human resources management and grants management). Security, too, will remain a focus, particularly of the cybervariety, given the numerous vulnerabilities in government Web applications.

"We see some slight changes in where federal money is going, but the overall drivers haven't changed that much," says Chris Campbell, senior analyst of federal market analysis at Input.

Federal IT spending is expected to increase from $71 billion in 2005 to $92 billion during the next five years, Input predicts, with $79 billion filtering to the private sector. More generally, Input forecasts federal spending on each of the three major budget components--telecommunications, computer systems and commercial services--to grow 6 percent by 2010, with support services accounting for 45 percent of the total IT budget.

"Overall spending is actually going to more closely reflect the requested budget because of pressure from the OMB," which continues to intensify scrutiny of program proposals and implement stricter reporting guidelines, Campbell says. Actual spending in 2004 was $759 million less than what was requested the year prior, but such frugality was short-lived. In 2005, actual spending exceeded the amount requested by $1 billion.

Therefore, to control budgets, agencies are being forced to return their focus to their core missions--and IT is not among them. "Keeping systems running without any lag time in development is going to fall on the vendors' shoulders," Campbell says, causing the amount of IT dollars contracted out to increase to 86 percent by 2010.

That said, agencies aren't going to give up lucrative IT dollars to the private sector without a fight. As was the case for governmentwide financial-management and human-resources IT initiatives, agencies are saying they want the opportunity to bid on contracts--in essence, competing with VARs. Of course, agencies can't go it alone; even those that win contracts will require hardware and possible supplementary services. VARs poised to win are those willing to fill in such holes.

"It's going to become increasingly important for contractors to team with agencies," Campbell says. "That's a change from the past when vendors focused on teaming with other vendors to get these larger contracts, but agencies want to make money, too." *

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