Outsourcing Changing Dynamics of Fed IT Market

Large outsourcing contracts are changing the dynamics of the federal computer systems market and have implications for the way vendors sell to the federal government according to a new report from Reston, Va.-based research firm Input.

The report says federal government spending on computer systems will increase at a compound annual growth rate of 8 percent from $13.8 billion in fiscal year 2003 to more than $20 billion in FY 2008.

“Vendors must have a partnering strategy to work through outsourcers and service providers to offer computer systems, in addition to traditional direct selling, as more and more agencies look to outsourcing to provide desktop and network services,” said Lauren Jones Shu, senior analyst at Input.

According to Shu federal computer systems spending is driven in part by the level of federal employment, which has increased slightly for the first time in ten years.

Shu states, “Homeland security initiatives are contributing to the increase in federal employment levels in the short term. However, the increasing rate of retirement eligibility among federal employees may mitigate some of those increases over the next five years.”

The report also says, for the first time ever, more than half of federal computer systems were procured through the GSA Schedule, due in large part to procurement reforms in the mid-1990’s.

“Procuring computer systems through the GSA IT Schedule is increasingly becoming the norm for agencies due to the speed and ease of this acquisition vehicle,” said Shu.