Study forecasts downturn in IT spending

Agency spending on information technology products and services will fall 10 percent to 25 percent over the next three years, according to a report released Friday by a consulting firm launched the same day.

The report, "Government 2.0," also predicted double-digit growth in dollars going to companies that will directly support or even take over government programs. It was published by Government Futures, a strategy and consulting company founded by a team led by federal market insider Bruce McConnell, and is based in part on a survey of 130 executives in federal agencies and firms selling to government, academics and other observers.

McConnell ran IT technology policy for the Clinton administration and in 2000 formed McConnell International, a Washington-based consultancy advising companies selling to the government.

In the next 36 months, federal buying power is likely to move away from technologists into the hands of program managers, the report stated. It said changes in federal demand will result in a shift away from firms providing IT services such as seat management, software maintenance, hosting and IT staff, and toward companies that manage grants and loans, finances and personnel; answer client queries; handle logistics and investigations; and collect debts and do land management.

"The increase in mission support services will more than make up for the decline in traditional IT spending, but new companies will be in," McConnell said.

Continued pressure from the federal budget deficit and the need to sustain military operations in Iraq and Afghanistan, the growing complexity of federal operations, agencies' increasingly commercial approaches to technology and the drive for measurable results coupled with risk aversion among program managers are among factors driving the market to evolve, McConnell said.

Government Futures aims to be "a predictions company" rather than a traditional consulting firm, he said, by using Internet tools to tap the collective wisdom of buyers and sellers in the federal market and informed observers to prognosticate about events and trends three or more years out. It will involve market players through blogs, focus group surveys and even futures markets, in which participants essentially will bet on the likelihood of future occurrences.

"We're trying to be edgy," McConnell said. "We want the story behind the story."

For example, more than half of those surveyed for "Government 2.0" expect that 30 percent of civil servants will be working in virtual offices by 2008. More than 60 percent think the transition to the upgraded network known as Internet Protocol version 6 is unlikely to be easy. Less than a third believe the Office of Management and Budget's lines of business initiative encouraging agencies to consolidate back-end systems in areas including financial management and human resources will have disappeared by 2010.