State and Local Outsourcing to Reach $18 Billion

State and local government spending on IT outsourcing is expected to grow $8 billion in the next five years as agencies look to the private sector to help revamp legacy infrastructures and augment staff, according to a report released by Input, a Reston, Va.-based research firm.

The report says spending on IT outsourcing by state and local government is expected to grow from $10 billion in 2005 to nearly $18 billion by 2010--despite continued arguments to the contrary.

"Various government officials, while they claim to understand the underlying reasons, say 'you might be right, but it won't be us,'" says Jim Krouse, manager of state and local market analysis at Input. "That's fine, so show me one thing you're doing that enables you to not go this route along with everyone else. I don't see it."

Specifically, Input expects agencies to outsource infrastructure needs, such as applications management, platform operations and desktop services. The outsourcing of comprehensive areas, such as business processes won't likely be as prevalent.

"When you talk about these 25-to 30-year-old legacy systems, they may need people to come in and hold it together for a while," Krouse says. "It's going to be about staff augmentation. Bringing in quality skill sets to multitask through to the next level."

Midtier state governments will continue to act as the laboratories for change, Krouse says, with Virginia already taking the lead. At the end of 2005, as part of its IT Transformation Initiative, the state selected Northrop Grumman for its 10-year $2 billion contract to create a commonwealth infrastructure, and CGI-AMS for its seven-year $300 million contract to consolidate and modernize enterprise applications in the executive branch.

"Virginia has been a leader in making sound technology investments, and this is the largest contract to date," Krouse says. "In a lot of cases, state and local governments are like lemmings--they see a leader climb and it removes the risk. All the more reason to jump in and stay on the bleeding edge."