New Year Could Bring Change for Government IT Industry
The 2013 landscape is shaping up to be a mix of good and bad news for the IT industry, analysts said. There will be new business opportunities in the $80 billion federal IT market. But shifting government needs and revisions to procurement policies could shake up the industry, and create new haves and have-nots.
The Pentagon, which spends the preponderance of government IT dollars — about $37 billion a year — is studying ways to overhaul the way it buys information systems. The Defense Department by law must develop a new procurement plan for IT acquisitions. The 2010 National Defense Authorization Act mandated the change following a string of failed IT procurements. The debate is whether the Pentagon should buy IT under the same arcane rules that govern the procurement of weapons. As a result, it can take up to five years to acquire a system that, over that period, becomes technologically obsolete.
Reforms, however, have been slow and difficult, industry insiders said. “The current IT delivery process hinders our ability to take advantage of new commercial technology,” said a Pentagon report. Other problems that plague defense IT systems are limited interoperability and cybersecurity vulnerabilities.
A senior defense official who spoke recently to an industry audience said the Pentagon is considering a simplified process for IT acquisitions, but it could take months for different fiefdoms within the building to come to an agreement before a final proposal is sent to Congress. The Defense Department is under pressure to turn IT acquisitions around, particularly in the wake of the cancellation last month of the Air Force Expeditionary Combat Support System. After seven years and more than a billion dollars sunk into its development, the Pentagon decided to terminate the program when it became clear it would never achieve its intended goals. Industry consultant Ron Giuntini said the ECSS is one of the worst cases of wasteful spending he has seen in enterprise software procurements.
Other reforms could affect contractors that provide IT systems and services to any federal agency. ADec. 5 memo by Jeffrey D. Zients, deputy director of the Office of Management and Budget, asked procurement managers to make purchasing more efficient via “strategic sourcing.” That would require each agency to reduce the number of IT programs and suppliers in order to save money across the federal government. The goal is to “maximize the return on IT investments by consolidating the acquisition and management of commodity IT goods and services and increasing the use of shared-service delivery models,” the memo said.
Analysts predict this policy could be detrimental to small businesses that do not get selected to participate. Industry groups and small business advocates plan to push back over the coming months. A group of federal contractors and lawmakers have called for a more level-playing field between large and small firms that are competing in the federal IT market. One proposal is to standardize the definition of a small business to one employing less than 1,500 workers. Small business groups contend that current policies that seek to simplify contracting, gain efficiencies, reduce costs, and consolidate IT services favor large contractors.
Meanwhile, 2013 also could see a shift in the products and services that agencies buy, says Mark Cohn, chief technology officer of Unisys Federal Systems.
Federal IT systems integrators increasingly will become “cloud brokers,” said Cohn. Agencies quickly are moving applications and data to the cloud. But commercial cloud providers don’t appear to satisfy government needs, Cohn said. Issues such as liability, service agreement and security have become bones of contention in the cloud computing business. “Commercial models don’t work well for federal agencies,” he said. Many IT firms will be jumping into cloud brokerage work. They will serve as intermediaries between commercial cloud providers and government agencies. “It’s a model that will be growing,” said Cohn. “You are not going to see the government going directly to Google or Amazon so much.”
Another wild card in the IT industry is cybersecurity. Companies had expected that spending would have soared over the past several years, but the government has taken longer than planned in developing a cybersecurity strategy. The Pentagon, with a cybersecurity budget last year of $3.4 billion, is the 800-pound gorilla. Defense and intelligence officials have hinted there will major new investments in “private clouds” that could lead to big-money opportunities for industry.
“There is no question the intelligence community has plans to implement commercial cloud technology in a privately managed facility,” Cohn said. “This is to get the performance advantage of virtualization but without running risk that data will be compromised.”
Civilian agencies would not be likely candidates for private clouds because of their high cost, he said. “There aren’t very many customers that can afford this.”
Another potential industry bonanza in 2013 could be mobile devices. “There will be a convergence of desktop and mobile devices,” he said. “Phones will be increasingly used to do things previously done on PCs, and new software for PCs will allow them to act more like phones.” Pentagon contractors eye new opportunities here because the military looks at wireless and mobility differently than civilians. Deployed military personnel, particularly, will seek “controlled platforms with limited configurations that may even have non-commercial wireless capabilities,” said Cohn. “It remains to be seen what spectrum will be used and how the military will deploy its tactical wireless networks.”
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