U.S. government IT spending on the rise, according to report

The U.S. government will spend close to US$22 billion on IT projects by the end of September, as agencies rush to spend their budgets by the end of the fiscal year, says a report from Input, an analyst focused on government contracts.

Input expects U.S. government agencies to spend 33 per cent of their IT budgets in the quarter that ends Sept. 30, Input said in a report released this week. In the last 10 years, agency IT spending has increasingly shifted to the fourth quarter of the government’s fiscal year as agencies scramble to use up budgets, the Input report said.

“Agencies are instilled with a use-it-or-lose-it mentality that drives them to spend their remaining budgets before the end of the year,” said report author John Slye, manager of federal industry analysis for Input.

About $17 billion of the projected $22 billion in IT spending will come from 10 large agencies, Input said. The Army, Air Force and Navy will each spend more than $2.2 billion this quarter, while the Department of Health and Human Services will spend $1.9 billion and the Department of Homeland Security will spend $1.7 billion, according to Input’s projections.

In addition, Congress has been increasingly unable to approve agency budgets by the start of the new fiscal year, and agencies have operated under temporary spending authority called continuing resolutions, the report said. “Operating under a [continuing resolution], if even briefly, limits the ability of these agencies to move forward on their planned IT investments,” the report said.

Bill Vass, president and chief operating officer of Sun Microsystems Federal Inc., agreed that the slow budgeting process causes delays. “A lot of them don’t know what their budgets will be,” he said. “You have to be able to execute really quickly when they finally get the money.”

From 1997 to 2000, agencies spent about 28 per cent of their IT budgets in their fourth quarter, and in 2005 and 2006, they spent 34 per cent, said the report. Input didn’t have spending numbers available for past years, but the trend toward delaying spending and growing IT budgets could mean this will be a record quarter for government IT spending, Slye said.

The first and third quarters of the U.S. government’s fiscal year are becoming slower periods for federal IT spending, Slye said. In 2005 and 2006, agencies spent just over 20 per cent of their IT budgets in each of those quarters, the Input report said.

Smart IT vendors are already aware of the government’s spending cycles, Slye said. Some vendors have government purchasing agents working around the clock in August and September, he said. “The vendor community has been servicing the need,” he said.

Sun Microsystems Federal works especially hard to close government deals in August and September, Vass said.

“We do business calls on Sunday,” he said. “We jump through hoops on weekends and holidays…to get deals signed and help the government work it through their bureaucracy.”

In addition to working long hours at the end of the government’s fiscal year, Sun employees focus on selling products that help agencies consolidate hardware or run systems through virtualization technology, Vass said. Those types of deals can help government agencies with tight budgets save operating costs and pour the savings into new IT projects, he said.

Input advised vendors to focus on building relationships with government agencies during the slow first and third quarters. Vendors should adjust their sales projections to compensate for the cyclic government spending, and they should target agencies that can use their products during the fourth quarter, Input said.

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