Outsourcing is fastest growing federal tech segment

Outsourcing is the fastest growing technology segment in the federal government, according to a report released Friday by research firm Input Inc.

In an announcement, Input said federal spending on outsourcing will increase 13 percent per year between fiscal 2003 and fiscal 2008, rising from US$8.5 billion to $15.5 billion during that five-year period.

It’s indicative of the trend that outsourcing in the federal government is expected to move forward,” said Lauren Jones Shu, an analyst at Reston, Va.-based Input. Shu said that trend is expected to continue, despite recent disagreements over federal outsourcing between the Bush administration and Congress.

“We think that hurdle will be overcome,” she said.

Part of the reason is that a large number of federal IT workers are nearing retirement, which means federal agencies will be forced to look to outsourcing to meet the technology needs of initiatives such as e-government and information sharing for national security, she said.

Shu said the U.S. Department of Homeland Security (DHS) is one of the agencies driving the increase.

The DHS, like other federal agencies, is looking to outsource some or all of its business process, Shu said. For example, she said the DHS wants to outsource travel services, payments to retirees and annuities recipients, and support services.

In addition, Shu noted that the Transportation Security Administration has outsourced its entire IT infrastructure to Unisys Corp. in Blue Bell, Pa.

Raymond Bjorklund, an analyst at Federal Sources Inc. in McLean, Va., said he believes the 13 percent growth rate projected by Input over the next five years is too aggressive. He estimated that the annual increase will be closer to 10 percent, which means federal outsourcing would reach $15 billion in fiscal 2008.

Part of (Input’s) rationale about the retiring workforce presupposes that the government won’t hire new people,” he said. “It also presupposes that you will not achieve any efficiencies from investments in IT initiatives like e-government or from more standardized kinds of business systems.”