Opportunity and peril. Familiar yet unclear. Cautious optimism. The business outlook for systems integrators in 2005 is a contradiction.
Federal spending on information technology remains a robust $61.6 billion, with nearly 80 percent going to contractors. Opportunities are growing for contractors as the government looks to increase outsourcing, modernize its systems and rely on IT as a tool for becoming more efficient. However, the primary engines for growth — homeland security and defense — are diverting funds from civilian agencies. And spending on defense, especially the war in Iraq, is contributing to a deficit that many fear will undermine economic growth and put the brakes on spending.
Other government initiatives also present contractors with a double-edged sword. By consolidating work into large contracts, agencies are creating big prizes for contractors. But this development also means fewer opportunities — and tough luck for the losers.
Similarly, White House officials are expected to accelerate initiatives aimed at disciplining government.
The Congressional Budget Office is projecting the fiscal 2005 budget deficit to be $348 billion, down from $413 billion in 2004. Bush administration officials are confident their policies of tax cuts and deregulation have laid the groundwork for growing the economy and neutralizing the deficit.
"While the deficit is unwelcome, if we stick with the president's plan of economic growth and spending discipline, we will continue to see improvements, and we will cut the deficit in half in five years," said Joshua Bolten, director of the Office of Management and Budget, in October when the 2004 budget outlays report was released.
HOT AGENCIES
Contractors that serve the Pentagon and Homeland Security Department are best positioned for growth. DHS spending on IT goods and services is expected to grow 8.1 percent. The Justice Department, with its strong homeland security mission, could see IT spending grow 6 percent, according to Federal Sources Inc., a McLean, Va., market research firm.
The two agencies and the Treasury Department are cooperating on one of the big prizes for 2005: the $10 billion Integrated Wireless Network Infrastructure. The project will create a secure, nationwide, wireless communication network for law enforcement, homeland security and disaster response.
At the Defense Department, the Air Force is the big winner with 12 percent growth in its IT budget. The Army and Navy are experiencing slight bumps downward, but the overall defense budget is expected to grow from $28.7 billion in 2004 to $29.2 billion in 2005, according to FSI.
The civilian budget is growing just slightly, rising from $32.3 billion in 2004 to $32.4 billion in 2005, but these numbers are bolstered by the increased spending for DHS and Justice. Otherwise, overall spending by civil agencies will decline.
FISCAL AUSTERITY
Bolten's emphasis on "spending discipline" is the key phrase for contractors and agencies to focus on.
From early in the Bush administration, there has been a push to tie budget outlays to performance. That ethic was very much at the heart of the President's Management Agenda, the federal enterprise architecture and the e-government initiatives.
The idea is relatively straightforward: If an agency can't show how spending helps it accomplish its mission, it will lose that spending.
And while Mitch Daniels, Mark Forman and other early champions of these undertakings have left the federal government, their replacements — including Bolten, Karen Evans, administrator for electronic government and information technology, and Clay Johnson, OMB's deputy director for management -- have institutionalized many of the initiatives.
The so-called PART, or Program Assessment Rating Tool, is now a standard part of the budget process, as are the quarterly score cards that give agencies a red, yellow or green grade for their performance on the five components of the President's Management Agenda: managing human capital, competitive sourcing, improved financial performance, e-government and budget and performance integration.
The impact of these initiatives began to show during 2004. The growth rate of overall spending dropped to 6.2 percent, compared to 7.4 percent in 2003.
For contractors, there are opportunities and pitfalls.
Huge contract opportunities are in the works as agencies moved to ever larger consolidated contracts as a way of controlling costs and gaining efficiencies.
OMB also is pushing for more cross-agency initiatives. Driving this key component of the White House's e-gov strategy is the move to use technology to eliminate redundant systems.
In 2004, one of the first cross-agency initiatives debuted. Three companies eventually won E-Travel: Northrop Grumman Corp., EDS Corp. and Carson Wagonlit Government Travel Services Inc. All 24 major government agencies are required to pick one of the companies to provide travel services.
These three companies have a great opportunity — worth $450 million over 10 years — but the losers are potentially shut out of this line of business. That pattern is likely to repeat itself in 2005, and has intensified the competition for these large contracts. One result is that companies are more willing to protest agency decisions.
But the government isn't just trying to get more efficient and save money by consolidating contracts. Different methods of buying also began to emerge in 2004 and are poised for more growth in 2005.
Most notable is SmartBuy, the procurement program in which the General Services Administration negotiates governmentwide software licensing agreements.
The program got off to a slow start in 2004, but ended on a high note when GSA signed an agreement with IBM Corp. IBM is the third largest supplier of software to the government, behind only Microsoft Corp. and Oracle Corp., according to GSA.
"This is a good deal for the government and the contractor," said Ray Bjorklund, senior vice president and chief knowledge officer for Federal Sources. "The vendor gets a sense of the potential market, and the deal creates a much easier way for agencies to order at a lower price."
More SmartBuy agreements are in the works, including one for antivirus software, according GSA officials.
While 2005 will be a continuation of sorts of 2004, it also may be a year in which the strategies and planning of the past several years will bear fruit.
Autor: Nick Wakeman
Quelle: Washington Technology, 10.01.2005
