Federal IT Market: 2013 Was Tough, But It's A New Year

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The past year has left solution providers, vendors and more struggling to get even a shaky foothold in the federal IT marketplace, as contracting dollars have continued to disappear and government agencies have remained hesitant to spend, if they were open to it at all. From the sequestration and shutdown to increased regulations and botched system rollouts, 2013 proved to be a tough year for the public sector.

Each of the events hit home for different businesses in different ways, with companies giving varying accounts of which 2013 federal event had the biggest effect on their bottom lines.

At the start of 2013, the sequester that took effect at the beginning of March slashed around $1 trillion from the federal budget across the board. For contractors, this meant increased competition for dollars and a growing uncertainty in the federal marketplace.

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"There wasn't enough work to go around for many of the current providers. ... They are trying to keep and sustain some of the existing partnerships and organizations. It makes it a lot harder to get into certain areas, which really was a byproduct of the budgeting and impacts to the agencies," Steve Halligan, COO of n2Grate Government Technology Solutions, said.

The sequester forced companies to re-evaluate their portfolios, Dan Hushon, CTO of CSC told CRN. He said it was the biggest hit he saw of the year, but the scary part is that, unlike other federal events this year, it doesn't have a definitive end date and doesn't paint an optimistic future for government spend in years to come.

"It's more the sequestration. I think that's what's happening is that we've had really smart CIOs that realize this year is not a one off. Maybe the worst times haven't happened yet -- as scary as that sounds," Hushon said.

Regulations ramped up for health care as increased HIPAA compliance standards came into effect in September. The new regulations strengthened privacy regulations and security standards on patient medical records, with hefty fines for companies that didn't comply.

The federal market closed out the year in style with the massive government shutdown, which put more than 800,000 federal workers on furlough, froze contracts and blocked access for many of those looking to continue support.

While the sequester hit hard, Halligan said that the government shutdown had the most noteworthy effect on his business. He said that it hurt his business on multiple levels, from on-site staff to human resources processes. While he said he was able to fill in with overhead and other work to keep his employees busy, it wasn't easy.

"The reality is the government contracting community [got it] harder than ... federal employees. While they were all paid, we had overtime and work to makeup in certain windows; there are many people who weren't paid through some of that. There's a whole slew of contracts that really weren't paid and didn't have the opportunity to make that up," Halligan said.

Halligan said that he is starting to see business rebound after being put on hold during the shutdown, but he said he knows that is not the case for everyone.

"That downstream really hurt commerce and business more than it hurt the government employee. We are going to work through that, but I know there are some stories, if you ask around, of people who are still recovering from that," Halligan said.

NEXT: It's Been Tough, But What Can A VAR Do About It?

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