Pace of information technology spending to slow, report predicts

The years of large annual increases in information technology spending by government agencies could be coming to an end, according to a new report.

The report, issued by Reston, Va.-based IT market research firm INPUT, projects that government technology expenditures will grow to $92 billion in fiscal 2010, up from $71 billion in fiscal 2005. The annual rate of growth in those figures is lower than increases in recent years.

Of the total spending, private-sector contracting will grow from $59 billion to $79 billion, the report predicts.

Efforts by the Office of Management and Budget to rein in the federal deficit by holding agencies to strict spending limits, the consolidation of IT projects and the leveling off of homeland security IT spending are cited in the study as factors in limiting future IT spending. But despite these factors, cybersecurity spending will continue to grow as technologies develop and hackers continue to find new ways to penetrate systems.

The annual study included estimates of spending by executive branch agencies, the intelligence community, legislative branch organizations, and the U.S. Postal Service.

Last year's INPUT report projecting federal IT spending put the 2009 level at $93.6 billion; in this most recent report, that number was revised to $87.9 billion.

"[W]e will not see the frantic spending on these initiatives that we have seen over the past three years," said Payton Smith, INPUT's director of public sector market analysis. "We will then see IT spending return to levels of normalcy as two things happen: homeland security becomes ingrained in each responsible federal agency's mission and OMB exercises more control over IT expenditures."

Private sector contracting for the government's technology needs will continue to grow, according to the report.

In the last five years, IT spending on private sector contracts ranged from 75 to 80 percent. The INPUT report predicts that percentage will grow to as high as 86 percent in fiscal 2010 as the government's IT workforce ages and more federal work is outcourced to the private sector.

Support services, which make up the largest part of government technology spending at nearly 43 percent, will grow the most over the next five years and will reach nearly 45 percent in fiscal 2005, the report predicts. The largest decline will be in the personnel segment, which will drop from 17 percent to less than 15 percent.

Spending on communications and network services will grow from $16.1 billion in fiscal 2005 to $21.4 billion in fiscal 2010. Agencies will spend about $23.5 billion on computer systems in 2010, up from $17.8 billion in fiscal 2005.

Defense Department agencies have four of the top five IT contracting budgets, according to the study. The Homeland Security Department has the largest budget among the civilian agencies, followed by the Energy Department.