Industries Technology

With shrinking budgets, federal agencies expect IT vendors to get more creative

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Print this page by Tim Loughran

York County purchasing agent T.W. Sawyer says on the county’s website that his “nerdy” spirit and desire to use technology “to improve the way things work in government” led him to form a Google Groups application to help the region’s municipalities share information. Primarily, he wanted to leverage the untapped power of Virginia’s “cooperative purchasing” legislation. It allows one or more government entities to piggyback on the same terms of any contract signed by another.

“In order to benefit from this procurement policy, we needed a better way to share information among jurisdictions,” Sawyer says on the website. “The information sat with each individual agency and was not transparent to others.”

Now, more than a dozen Virginia cities and counties share contract information and purchase items and services cooperatively. “We simply send out an email to the group, and everyone gets the notice,” says Sawyer.

Like York County, federal agencies in Washington, D.C., are under fire to balance voter demands for lower taxes and a higher level of government service. These agencies are asking IT vendors, many of them located across the Northern Virginia suburbs, for the same type of efficient, low-cost products that their customers — the taxpayers — have come to expect from private companies like Google, Apple, Microsoft, Facebook, AT&T, Verizon and T-Mobile.

Tom Woteki, senior vice president and chief architect of strategy and solutions at Falls Church-based Acentia, calls it “the consumerization of government technology.” It’s a trend that aims to meet the Obama administration’s call for more “digital government,” or the increased electronic delivery of government services to citizens regardless of where they live or work.

“These expectations will drive government to deliver services more digitally,” Woteki says. ‘There will be an increasing delivery of services over mobile devices and the use of video to deliver those services … Clearly, one of the trends will be the greater use of video and with it a greater degree of interactivity between citizens and online government services.”

“There are a zillion commercial apps out there, a lot of them very specialized,” Woteki adds.  “In my conversations with federal agencies … it’s clear they are interested in app stores of one type or another.” To illustrate what he means, Woteki, a resident of the District of Columbia, explained that it took him “about 57 clicks” to pay a recent real estate tax bill online through
. “But wouldn’t it be interesting to download an app that will make it that much quicker and faster to pay your real estate taxes,” he asks. “It’s not that you can’t do a lot of that online now, but now it’s often very difficult to know where you are on these websites.”

Federal IT market will contract

Creating new products and services for customers who have less to spend is a test many businesses have failed since the beginning of the Great Recession and the anemic recovery that’s followed. In the federal IT market, the slowdown is expected to continue for several more years at least, according to analysts at the Deltek business consultancy based in Herndon.

The company said in its most recent Federal Information Technology Report that federal IT spending will shrink by almost 7 percent to $113 billion a year by fiscal 2017 from the $121 billion federal agencies spent in fiscal 2012, which ended Sept. 30. The report is based on a survey of 193 industry executives and 46 federal IT managers, according to Deniece Peterson, one of the authors.
Deltek’s analysts project that, even if Congress postpones or cancels the $1 billion in automatic “sequestration” cuts to the next nine years of federal spending scheduled to kick in Jan. 2, federal agencies such as the Department of Defense will continue to keep a lid on IT spending. “Uncertainty around future budgets and the strain of current funding levels will drive agencies to reprioritize, rescope, cancel or delay programs,” the company said.

On the other hand, Deltek analysts say business opportunities will exist for certain IT specialties, “including information security, data center consolidation, business system modernization, cloud computing, mobility.” Another possible niche: the ability to help agencies analyze, manage, manipulate and store securely the mountains of so-called “big data” they’ve accumulated over the last few decades.

The report also says that even as overall IT spending declines, qualified, outside experts in cyber security, cloud computing and program management will continue to be hired to complement the “skill gaps” in these areas that continue to afflict the federal IT work force.

While federal IT spending will drop, Peterson cautions that most (but not all) high-tech companies that have found ways to survive shouldn’t be too fearful of the future. “I think there’s a lot more panic than might be necessary,” Peterson says. “If we look back 20 years, IT budgets were increasing and increasing every year. That’s not the case anymore, but we’re still talking about billions upon billions of dollars.”

The Office of Management and Budget puts the figure at $79 billion, in terms of annual federal investments in IT, and that doesn’t reflect the spending of the entire federal government, including 58 independent executive branch agencies. 

Based on Deltek’s last five annual surveys of federal IT spending, Peterson says “there used to be 11 to 12 percent compound annual growth rates … The administration would ask for a certain amount and Congress would appropriate more than what the White House asked for … For a lot of companies in this market, [these spending cuts] are just unprecedented.”

“To survive, you have to be smarter, faster and more strategic,” warns Peterson. “Companies that insist on selling what they’ve always sold will be in for a rude awakening.”

According to her, companies that don’t already have the in-house talent to provide the products and services federal agencies want are on the prowl for acquisitions. At Acentia, for example, CEO Todd Stottlemyer says his company hopes to grow its health-care solutions practice from 65 percent of total annual revenues to as much as 85 percent in the next three to four years.

To do that, the firm plans to spend about $500 million in the next three to five years buying other companies that have expertise in specific areas of health care.  “We’re looking for companies with a strong health-care focus … that can help us integrate the business side of health care with the clinical side,” says Stottlemyer. “We want to enhance our capabilities, especially when it comes to mobile applications that can be used on multiple devices and multiple platforms.”

Brad Antle, CEO of Salient Federal Solutions (SFS) in Fairfax, agrees that companies focusing on federal health-care dollars won’t regret it, even if the Republicans sweep this month’s elections and follow through on their promise to scrap the Affordable Care Act (ACA). Health care remains a very fractured industry. There’s not a lot of commonality in its delivery, either in the commercial arena or by the government.  Still, it’s a growth area in the foreseeable future, says Antle. “If the state health-care exchanges go forward, they will be a cottage industry in every state … not to mention the fact that 10,000 Baby Boomers hit age 65 every day.”

But Antle says SFS’ acquisition strategy is customer-driven and broader than health care. “Big data, cyber security and health care will take us a long way,” he observes.  “We’re looking to round out our capabilities …  and we’ll continue to look at what’s important from a customer perspective. We’ve been buying what we think is important, like ‘agile’ software development companies. We’ve made some investments in cyber ... If we see a good opportunity in health care, we’ll look at that, but we’re also looking at areas like law enforcement and other activities the government can’t stop doing regardless of the budget.” 

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