Federal Budget Promises Stable IT Spending – Unless Politics Interferes

Just when the U.S. federal budget situation seemed about to settle down — it didn’t.

With tens of billions of dollars at stake, federal acquisition managers and the IT vendors who support government agencies were breathing a sigh of relief when Congress and the White House agreed to a two-year government spending program last month. The agreement was a positive development in the frequently rocky federal financing and procurement process.

“Bringing some measure of fiscal certainty to the federal marketplace is good news for federal technology and IT projects,” said Trey Hodgkins, senior vice president, public sector, at theInformation Technology Alliance for Public Sector.

“We’re hopeful this agreement will remove an obstacle to Congress and the president passing and enacting a fiscal 2016 National Defense Authorization Act with the acquisition reforms we have advocated,” he said, referring to linkage between the budget agreement and the NDAA in which the defense measure needed to be in conformity with budget requirements.

Such an alignment “would allow federal agencies to better plan a path forward for their IT innovations and modernizations over the next two years that wasn’t an option under a continuing resolution,” Hodgkins added.

The NDAA includes federal IT management measures the vendor community supports.

Then the wheels started to come loose — although they haven’t fallen off just yet.

President Obama vetoed a proposed NDAA largely because it didn’t conform with the proposed budget agreement. The House and Senate quickly approved a revised NDAA that resolved the linkage issue, and the president signed it last month.

Political Factors Affect Process

A funding appropriations bill necessary to implement the budget agreement needs to be enacted by Dec. 11, when a stopgap continuing resolution, or CR, expires.

Congress is proceeding with a catch-all omnibus appropriations bill essentially covering the entire government. Should that falter, the likely fallback would be another continuing resolution — and another period of unsettled budgeting. Such are the politics and perils of federal finances.

“We are operating under the assumption that the omnibus appropriations bill will prevail instead of another CR,” said Lloyd McCoy, consultant for market intelligence atimmixGroup.

“Our sense is that it will be the preferred path here,” he told the E-Commerce Times.

At the immixGroup Government Sales Summit Conference last month, company presenters based their outlook on the 2016 appropriations request.

“The omnibus approach is much better in that it provides more resources for IT innovations and modernization, versus a CR which just holds levels steady with the prior year,” McCoy said.

“The omnibus appropriation process is a huge advantage for both government agencies and vendors to have a stable federal budget environment and much better than the boom-and-bust pattern of a series of short-term budget fixes,” said Robert Haas, federal IT budget outlook team chair for theProfessional Services Council.

PSC held its 2016 Vision conference on the federal IT budget in mid-November.

Riders Pose Challenges to Funding

Omnibus bills invariably invite numerous single-interest riders that have the potential of drawing veto threats or otherwise scuttling the legislation.

One possible complication could be a rider designed to halt funding associated with accommodating Syrian refugees, although newly elected House Speaker Paul Ryan, R-Wis., is trying to isolate the Syrian refugee issue as a separate matter. He will allow other riders to be proposed and voted on, he has said — leading to the potential that some controversial issue could frustrate enactment of the omnibus proposal.

Still, the budget agreement is a positive development, according to John Slye, an advisory research analyst atDeltek who follows IT and technology issues.

First, the budget program is now law and sets a top-line funding level for agencies “and removes sequestration from the table for the next two years,” he told the E-Commerce Times.

“The greater impact of the latest two-year deal for agencies and contractors alike is a greater degree of certainty, especially with respect to the specter of impending sequestration impacts. Agencies are finalizing their fiscal 2017 budget submissions, and having a better sense of their top lines allows them to plan more effectively,” Slye said.

“It also allows agencies to move procurement plans forward rather than dealing with delays and ripple effects that uncertainty entails. This will have positive downstream impacts for the contractors competing for the work as they are looking for signs that help them anticipate staffing and product inventory needs to meet the demand,” he said.

Emerging Acquisition Trends

The PSC analysis, in constant dollars, shows federal IT spending at $80 billion in 2016, of which $49 billion is allocated to civilian agencies and nearly $31 billion for defense. Those levels will remain virtually flat through 2021.

While a more reliable funding environment will be a significant change in the federal IT acquisition environment, other changes also will be important for vendors to observe.

For example, in research related to its 2016 outlook, PSC found that category management has become a significant element in federal IT procurement, Haas told the E-Commerce Times.

Under the CM approach, IT procurement will be simplified to standard category configurations of products.

TheOffice of Management and Budget recently issued a directive limiting procurement of desktops to just three standard configurations and just two for laptops.

In the past, agencies have ordered multiple PC configurations at widely differing prices for similar equipment, OMB said. Much of the past procurement was achieved through2,400 separate contract s versus consolidated money-saving bulk purchase vehicles.

“We think you’ll see more of a CM approach for other IT equipment and acquisitions,” PCS’ Haas said.

Agencies are gradually but definitively moving to more agile approaches to IT procurement with shorter-term incremental acquisitions versus expensive multiyear “one-shot” arrangements, he said.

Another emerging and significant change in federal IT procurement is a shift in procurement authority from program operations personnel and mission specialists to more centralized control from upper-level staff CIOs in conformity with provisions of the Federal Information Technology Acquisition Reform Act, enacted last year.

“What we are seeing is more power rolling under component CIOs and away from mission owners,” Chris Wiedemann, a senior analyst at immixGroup, told vendors attending the company’s conference last month.

“That means in a lot of cases your customer base is going to change. People who today are decision-makers will, over time, become influence makers,” he said.

Also, feedback from federal agencies contacted for the PSC outlook indicated an increasingly positive attitude for engaging vendors and the private sector in assisting agencies in solving problems and not just supplying IT equipment or services.

“I think the agencies are seeing a symbiotic factor between government and the vendor community and we see this trend continuing,” Haas reported.

As for funding, members of Congress and the Obama administration will be scurrying to wrap up the appropriations process by Dec. 11.