Cyber, modernization efforts driving expected growth in IT spending

Jason Miller, executive editor, Federal News Radio on Federal Drive with Tom Temin

Cybersecurity and the need to modernize legacy systems are expected to push federal IT spending higher across both civilian and Defense sectors over the next few years.

“The unclassified spending is just under $80 billion, around $79.5 billion is what we are expected to see,” said Robert Haas, the chairman of the Professional Services Council’s Vision Federal IT Budget Outlook Team in an interview with Federal News Radio. “We’ve seen a dip in the last couple of years. There has been a lot of pressure on the IT spend, along with other federal budgets. But we have optimism that is supported by the interviews we’ve conducted over the vision process that the 2015 numbers will have come in above what was expected as well as the 2016 numbers still look to be very positive, and that trend looks like it will carry forward for the foreseeable future.”

PSC’s Vision teams conducted dozens of interview with federal IT and acquisition executives over the last nine months to come up with the 51st annual forecast.

PSC estimated the civilian agency IT budget will be about $49 billion in 2016 and it’s expected to increase at about the rate of inflation to about $52.4 billion in 2021.

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The Defense Department’s IT budget, which has dipped by about $3 billion over the last few years, is expected to slowly increase to $30.5 billion in 2016 and rising to about $33.5 billion by 2021.

Haas said the optimism of federal executives is a good sign especially since the trend over the last four years has been downward with a compound annual growth rate of negative 1.6 percent. That was much different than the previous five years when the compound growth rate of the IT budget across government was 6.4 percent.

Haas said agencies are under pressure to modernize infrastructure and applications, and the ongoing cybersecurity challenges require an infusion of funding.

“We think there has been a focus on what is the bare minimum that’s needed to keep the agency running,” he said. “The agencies had a lot of challenges changing their existing infrastructure to more of a modern style over the last couple years so they have put off funding some of those initiatives so what we’ve seen is a resurgence of those sorts of transformation activities over the next number of years. One of the biggest drivers we are seeing is around cybersecurity. They are funding cybersecurity projects oftentimes by taking funding from other projects that currently exist. They will cut back on maintenance, they will cut back sometimes on new starts on programs. Conversely, the other area we are starting to see is the replacement of the older systems because in some cases they are able to save money by providing a cheaper, more cost effective solution that is easier to maintain and takes less resources.”

The focus on replacing legacy systems is coming directly from the Office of Management and Budget.
Federal CIO Tony Scott said on Nov. 17 that the problem with the legacy infrastructure is “a crisis bigger than Y2K.”

Haas said that concern and emphasis for the need to change came out during PSC’s interviews.

“The legacy environments are consuming $4 out of every $5 in rough numbers. If you look at the numbers released by the Office of Management and Budget that 77 percent is the operations and maintenance number and the development, modernization and enhancement is about 23 percent. That’s a tough in-balance,” he said. “In fact, when federal Chief Information Officer Tony Scott was speaking at the PSC Tech Forum earlier this year, he cited an ideal or a more of the extremes on the best in class operations on the commercial side which he had seen around 50-50 and that’s a big split. He’d like to definitely move that needle back toward more systems and refresh your environment.”

DoD’s challenges are similar to those in the civilian agencies. Haas said the military services and agencies are spending a considerable amount of money in three main areas: cybersecurity, consolidation and information sharing.

One interesting trend the PSC researchers found was in how DoD is dealing with solicitations. Haas said the military services and agencies are releasing requests for proposals sooner than expected and not renewing option years on existing contracts.

“From an acquisition perspective, if I know that I can buy the same service cheaper and why wouldn’t I think about buying that sooner rather than later?” Haas said. “DoD is rethinking the sourcing activity, rethinking about the volumes they are purchasing on, it’s about consolidating contracts and, in some cases, what they’ve seen by looking at their requirements, some systems are less important than they thought they were so in order to save money, they are going to not support that system. They are going to have to make hard choices.”

Another contracting trend that likely will continue is the use of lowest price, technically acceptable (LPTA) to buy products and services.

Sean Coakley, a vision presenter on DoD IT and networks, said research showed LPTA likely will continue as the budget environment will not dramatically change.

Coakley said interviews with DoD executives showed both industry and the military are starting to see fallout from the over use of LPTA. He said industry is finding it hard to have enough staff based on the rates they bid to the government under LPTA deals, and DoD, specifically the Army, is sending more “cure” notices telling contractors to fix programs that are not meeting requirements.

Haas said there are several takeaways for industry and agencies.

First to industry, he said agency leaders made it clear they are looking for value and performance, and systems that provide for quick capabilities without a huge investment in IT systems.

“If you can combine those features you will probably have a winning system on the government’s eyes,” he said. “We heard from a number of folks we interviewed they partner with the mission owners from an IT perspective to make sure that the IT systems are aligned with the processes they support.”

Haas said the big takeaway agencies are the optimism and predictability of the budget for the next two years will let them begin to focus on long-standing priorities.

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