Bulk of $60 billion in federal IT spending goes to services

Of the $60 billion the federal government spent on information technology in 2002, more than $54 billion went to contracts for technology services, according to an analysis released Friday. The findings underscore the government's growing dependency on the private sector for technology support in the face of a shortage of skilled IT expertise and management in agencies.

Spending on services-which range from outsourcing an agency's entire IT operation to consulting or the development of software-accounted for more than 90 percent of the $60 billion in total federal IT spending, according to the study, which was compiled by research firm INPUT of Chantilly, Va.

That level of dependence has federal officials worried. A recent survey showed widespread concern among chief information officers that they lack enough program managers to oversee the growing legion of contractors maintaining government systems-and, in some cases, working alongside federal employees.

The Information Technology Association of America interviewed 35 CIOs at more than 30 federal agencies and legislative branch organizations who said they are understaffed and underfunded to meet their current responsibilities.

Office of Management and Budget officials agree that a shortage of skilled workers and managers is a major obstacle to the government's effective use of technology. The Bush administration has called for consolidating IT systems across agencies to address the situation while improving electronic services to citizens.

The INPUT analysis shows that outsourcing of technology operations accounted for more than $24 billion in IT spending last year. That figure was driven largely by the cost of technology for the Coast Guard's Deepwater fleet replacement program. Worth $17.2 billion, it accounted for about 98 percent of all outsourcing awards made by the Transportation Department, the Coast Guard's former parent agency. The Coast Guard has now been moved to the Homeland Security Department.

The Commerce and Defense departments also awarded single outsourcing contracts worth several billion dollars, and the analysis said spending on those contracts skewed the outsourcing figure.

However, contracts for other professional services, such as engineering and consulting, software development and systems integration, were more widely distributed across agencies. Those contracts totaled almost $21 billion. In that category, spending on consulting and technology design was proportionately the highest.

Spending on telecommunications and network services totaled $9.5 billion. The category includes local and long distance telephone service, network integration, videoconferencing and wireless communications.

Because of the Deepwater contract, the Transportation Department outspent all other departments and agencies by a hefty margin. It awarded $24.3 billion in IT contracts for goods and services. Commerce followed with $5.7 billion, and the Army, Defense Department and Navy rounded out the top five. The top five organizations spent a total of $44 billion on IT projects.

More than half of all the contract dollars were won by large systems integration firms, which in turn parcel out work to smaller subcontractors.

In keeping with the trend in IT outsourcing, many companies are backing off software and hardware production and are trying to make themselves full-scope technology providers for their clients. That means they not only sell products, but install them and then manage their use.