State, Local Government Business Expected To Swell

Patient VARs could see somewhat stagnant state and local government business start to swell in a couple of years, with IT spending for that sector expected to grow almost 46 percent by 2010, according to a report released today by Input. But beware: An increasing trend toward performance-based contracting means VARs will be singing for their supper, so to speak, with compensation coming only after a job well done.

More specifically, state and local IT spending is expected to grow from approximately $48 billion in 2005 to $70 billion in 2010, according to Input's "State & Local IT Market Forecast. The growth will be slow to start, with a moderate recovery period this year for IT investments that were stalled or cancelled as a result of the largest gap in Gross Domestic Product (GDP) and tax revenues in more than 30 years. In 2008, however, efforts to upgrade legacy systems, install networks for communication between law enforcement and homeland security agencies, and a trend toward outsourced services that mirrors that in the federal government will result in a 15 percent growth in spending, the Chantilly, Va.-based research firm predicts.

VARs who want to take advantage of emerging contracts should be prepared to not only showcase a stellar track record, but also stomach some scrutiny.

"Performance-based contracting is a trend that's catching interest at the state and local levels," says James Krouse, manager of state and local market analysis at Input, whic dovetails logically with the increasing trend toward outsourcing. "Government officers are handing work to contractors and saying, 'Go ahead; develop a solution. You're the experts. But be wary--up-front, we're telling you that if this is not done and done correctly by a certain date, you are not getting paid. Period.' "