Piling Up

Deficits, budget cuts. No matter what, technology spending keeps on growing.

Federal deficits and Office of Management and Budget tightfistedness threaten to diminish the information technology market boom that lately has made Northern Virginia such a happy place. But there's little reason to worry.

Congress, for all its huffing and puffing, generally allows IT spending to grow faster than inflation. Many of the market drivers that helped sustain the boom past the spike days of Y2K remain in place-military and homeland security demand principal among them. New ones have arisen, too, cybersecurity in particular. In fact, market analysis firm INPUT in Reston, Va., predicts a compound annual growth rate of 4.4 percent through fiscal 2011, topping out at $93.4 billion. Admittedly, that's less than the firm's projection last year of 5.5 percent through fiscal 2010. But nobody expects actual reductions in IT spending, just a little less exuberant growth.

Of course, what's really fun about the federal IT budget is that nobody really knows how big it is. Supplemental spending manages to boost it, most people can only guess what the intelligence community spends on it (INPUT estimates $10.4 billion this fiscal year), and the Defense Department doesn't break out IT embedded in weapons systems. Earlier this year, a Defense spokesman said it would be virtually impossible to extract that information, given the degree to which IT has become a basic component of weapon design.

Indeed, everywhere in the federal government, IT is deeply entrenched in daily operations. "Simple old IT, down in the bowels of the agency-that's not the case anymore," says Robert McFarland, until recently the chief information officer of the Veterans Affairs Department. Including estimates of all the known unknowns, INPUT pegs total fiscal 2006 IT spending at $75.4 billion.

The extent to which ubiquity now makes software, hardware and IT services a simple commodity is an ongoing debate, thanks largely to OMB's lines of business initiatives. Three more lines of business task forces (studying geospatial systems, IT infrastructure, and budget formulation and execution) are due to report recommendations in late August. If true to their predecessors, they'll likely recommend some degree of centralization, consolidation and standardization of those IT areas.

IT infrastructure consolidation in particular could become a penny-pincher's dream come true if OMB projections of 10-year savings of between $18 billion and $29 billion come to pass. Skeptics note the initiatives still have unanswered governance and operations issues. Plus, "Washington lives on the fear that if I become a client of [other] agencies, and if there's a crunch, those agencies that I'm dependent on will take care of their needs before they take care of my needs," says a federal IT manager speaking on condition of anonymity.

Still, lines of business efforts fit into a larger trend of purchasing IT as a service managed using performance metrics. Rather than buy its own human resources management system, for example, the Transportation Security Administration signed in 2002 a contract with consulting firm Accenture to handle routine HR tasks.

That brings up the question of whether such a contract should be debited against the IT or human resources budget, notes Mark Forman, former OMB administrator for e-government and IT and now a KPMG LLP principal. If the government ends up owning no new hardware or software and hiring no IT personnel to manage the contract, is it still really information technology? Says Forman: "The jury's out on that."

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