Input, a Reston, Va.-based market research firm that released the report Thursday, found that the federal government has tended not to look outside of its IT workforce because of regulatory issues and political pressure.
Language in a fiscal 2006 appropriations law requires outside vendors to prove that they can save 10 percent, or $10 million, in costs over what federal workers could do. But as the aging federal IT workforce nears retirement and budgetary restraints force agencies to reduce costs, the idea of moving some IT projects to the private sector is expected to jump in the coming years.
According to Government Accountability Office reports, 30 percent to 40 percent of federal computer specialists and telecommunications workers are eligible for retirement this year. Half of those are expected to retire.
Input's report forecasts that agency spending on outsourcing will grow at an annual 8 percent rate, to $17.6 billion, through 2010.
"A number of factors have combined to make outsourcing one of the fastest-growing federal market segments over the past several years," Input senior analyst Chris Campbell said in a statement.
The growing deficit, tightened spending and the war in Iraq all will drive the move toward the private sector as a way of reducing costs, streamlining operations or injecting new technologies into the daily operations federal agencies, he noted.
A 1999 statute requires agencies to review their IT workloads and determine whether jobs are inherently governmental or commercial in nature. But that discretion has been left to agency heads. Those agencies that offer competitive sourcing realized a $1.4 billion cost savings in fiscal 2004, according to agency reports to the White House Office of Management and Budget.
Of the defense agencies that outsource some operations, the Navy is the largest spender, according to the report. Meanwhile, Input forecasts the largest growth in outsourcing for the Postal Service. It is expected to expand from $872 million in fiscal 2005 to more than $1.2 billion in fiscal 2010.
The report further identifies six key areas for outsourcing growth, including infrastructure, application and desktop services, network and application management, and business processing.
Overall spending for infrastructure services reached $3.1 billion in fiscal 2005 and is expected to hit $4.3 billion over the next four years. Application services, where vendors manage computer and communications services, represent the largest segment of federal outsourcing. Federal agencies will spend $6.5 billion on them by fiscal 2010.
Despite budgetary restraints and political pressures, federal IT outsourcing is expected to "remain one of the healthiest federal markets," Campbell said.