Federal Contract Spending Down 20 Percent in 2005

Federal contract spending in 2005 saw a 20 percent dip compared to last year, according to Input, a Reston, Va.-based research firm. While the near term could see moderate recovery, long term growth will continue to taper.

The federal government awarded 1,150 contracts in 2005 worth a total of $123 billion; that's compared to $155 billion spent in 2004. More than a third of this year's total, $50 billion, was awarded by a single agency--the Navy.

"There are a lot of reasons for the overall decrease [in contract spending]," said Payton Smith, director of market analysis at Input during the firm's FedFocus conference. "These are surly numbers. Often, a lot of contracts [included] are not strictly IT, but incorporate dollars spent in a lot of other areas. Also, when some contracts span 15 years and others only three, that figures into annual totals differently."

In 2005, 85 percent of awards fell into three categories: $87 billion was spent on professional services, $12 billion on research and development, and $7 billion on outsourcing. Smith advised that industry should continue to focus on providing services, specifically for homeland security, defense transformation and line of business consolidation.

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That said, federal debt will cause the administration to be increasingly conservative with spending. "[The deficit] creates a rolling impact that needs to be addressed," Smith said. "IT spending has long been seen as a way to improve efficiency and save money, [but] we're moving somewhat beyond that [theory]. The IT budget may not be cut, but it won't increase in the long term either."

As for 2006, the approval of supplemental appropriation bills will have a big impact not only on what federal programs get funded, but also when the private sector may expect spending to ramp up. So far, the Senate and the House of Representatives have approved appropriations for agriculture, foreign operations, interior environment, the legislative branch and homeland security. The office of the CIO for homeland security was specifically appropriated $221 million for hardware, software, telecommunications and services. In contrast, the Department of Defense still awaits approval.

"That means new initiatives may be put off until the second quarter [2006], or may not happen at all," Smith said. In general, Input predicts spending in 2006 to reach $15.4 billion in the first quarter, $16.2 billion in the second quarter, $12.5 billion in the third quarter and $19.8 billion in fourth quarter. "Government has been trying to move away from cyclical spending, but it's a difficult issue to address."