Technology spending increasingly pushed to end of fiscal year

Agencies are spending increasingly large chunks of their information technology budgets in the fourth quarter, and the trend could change the way agencies and contractors do business, according to a recent market research report.

The drift toward fourth quarter spending has been occurring for more than a decade, but the Reston, Va.-based research firm INPUT said it is becoming more pronounced. In the late 1990s, the first quarter of each fiscal year was dominant for spending, but as appropriations battles in Congress became more common and delayed passage of spending bills, agencies became accustomed to starting the fiscal year with their appropriations in limbo and stopgap funding measures in place.

In these circumstances, agencies have difficulty moving forward with planned IT acquisitions since they don't know how much money they will have for the year. According to the INPUT report, navigating the appropriations process has left agencies with a "use it or lose it mentality" that makes them feel obligated to spend any money left in the budget by the last quarter of the fiscal year. Agencies feel that if they have money left over, Congress may decide they do not need the level of funding they received and will appropriate less in the next cycle.

INPUT estimated that this fiscal year, agencies will spend a third of their IT budgets, or $20 billion, in the fourth quarter ending Sept. 30. In addition, the "September feeding frenzy" trend is likely to continue, according to the report.

"The phenomenon of agencies spending a disproportionate amount of their IT budget within the last few weeks of the fiscal year shows no sign of abating," the report stated. "In fact, it's likely to grow stronger."

Stan Soloway, president of the Professional Services Council, an Arlington, Va.-based association representing contractors, says vendors are well aware of the trend and plan accordingly.

"For the last several years, this has been true," Soloway said. "Government contractors have expected the fourth quarter to be unusually busy as agencies seek to obligate dollars before they lose them. It is figured into business plans. September is a very busy month in the industry."

With high fourth quarter spending sticking around for the near future, INPUT recommended that agencies adjust their business plans accordingly, spending the first and third quarters building relationships for the periods of higher spending. When agencies need to spend money quickly toward the end of the fiscal year, they will rely on established vendors, INPUT predicted.

Soloway said companies are well aware of the importance of having a good relationship with agencies and recognize that importance year-round.

"Clearly, relationships are important because of established performance capabilities, but I don't think that is necessarily more prevalent in the final quarter than any other time of year," Soloway said. "Demonstrated performance is always important."