Growth in technology spending expected to continue

Despite the economic downturn and the recent passage of a $700 billion financial rescue package, there are ample business opportunities for federal information technology contractors, according to forecasters with the research firm INPUT.

The Reston, Va., company projects a 3.9 percent increase in government IT spending during the next five years. While significantly lower than the 1998 to 2003 growth of 11.9 percent, that figure could expand as the next administration begins to implement its top priorities, said Kevin Plexico, INPUT's senior vice president of operations.

Plexico and other research analysts addressed market trends, as well as preparations for the upcoming presidential transition, during INPUT's annual FedFocus conference on Tuesday in Falls Church, Va.

While the Wall Street rescue package and growing federal deficit will no doubt create tightness in spending on noncritical IT projects, Plexico predicted that neither will be a "game-changer."

The best opportunities for growth, he said, are in multiple award and task order contracts, a growing trend with federal agencies looking to tighten their belts by creating more competition for individual delivery orders.

INPUT forecasts more than $105 billion in multiple-award spending in fiscal 2009, particularly in the areas of defense, military construction, veterans' affairs and homeland security, each of which is slated for a funding boost in fiscal 2009. Other agencies will see their budgets remain stagnant under the continuing resolution that will fund them until March.

Other opportunities for growth include contract consolidations ($62.9 billion in projected spending) and agreements that are recompeted ($54.5 billion).

One of the challenges the contracting community faces is the timing of the fiscal 2010 federal budget. Typically, the White House submits its budget in February, but this timeline would give the new president just a few weeks to outline his spending priorities.

INPUT analysts said the White House's 2010 budget submission could be pushed back by a month or two, and the group cautioned not to expect major program growth right away. The more likely increase in IT spending for the next administration would not appear until the fiscal 2011 budget, Plexico said.

The distribution of IT spending, at least in the short-term, likely will vary depending on the outcome of the election, said Deniece Peterson, a principal analyst with INPUT.

Sen. John McCain of Arizona, the Republican nominee, has threatened to freeze discretionary spending and make significant cuts to the Defense Department budget, including to several major acquisition projects. Sen. Barack Obama of Illinois, the Democratic nominee, has said he would go through the budget line by line and use a "scalpel" to trim wasteful spending and inefficient programs.

"There will be smarter spending, but spending will happen," Peterson said. "Even during a recession, governments still spend on technology."

Another problem for contractors is the exodus of top Bush administration management officials that already has started.

Paul Light, a professor of public service at New York University, said the nation's diversity of challenges -- the economic crisis, two wars and an underfunded Medicare program -- likely will make the upcoming transition the most difficult since Abraham Lincoln took office.

Complicating matters even further, Light said, will be the roughly 3,000 full-time political appointees that the next president will select, 500 of whom will require Senate confirmation.

The appointee process can be interminably slow and held up for a number of reasons, including FBI background checks and Senate holds, Light said. If the next president does not take these selections seriously and exercise sound judgment, he said, it could result in significant embarrassment and the loss of political momentum.

The professor said the next president could cut in half the number of political appointees, moving those positions to the career side, and still see productivity go up.

Addressing the roomful of anxious contractors and consultants, Light offered a word of advice. "Be patient," he said. "We'll get back to the positions that you care about. The question is, 'Will the people [answering your questions] know what they are talking about?' "