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End-of-year IT spending expected to increase more than in past years

Federal agencies' end-of-fiscal-year spending on information technology is expected to spike higher than the past two years, according to industry observers.

August and September are traditionally the busiest months in government purchasing, a time when agencies rush to spend obligated funds before the end of the fiscal year on Sept. 30, or lose the money.

But the past two years have seen less spending during those months because most agencies were operating under continuing resolutions, which held spending in line with the previous year's budget, said Larry Allen, president of the Coalition for Government Procurement. This year, agencies have their fiscal 2009 IT budgets in hand, and for the most part they are fatter than fiscal 2008 versions.

"The end of this fiscal year is a return to four to five years ago," when the spike in spending was higher, he said. "There's a more defined flurry of activity. In [fiscal] 2007, 2008, there was not really as much of a bump at the end of the year."

Also adding to the jump is the fact that agencies have held on to their IT funds longer than usual this fiscal year, partly because they were distracted by the rush to complete Recovery Act-funded projects and partly because of the uncertainty involved in the transition to the Obama administration. That's built a pent-up demand. "Like the consumer market, [agencies] have just held on to their money to make sure they had something to spend at the end of the year," Allen said.

Procurement specialists did not say how much larger the spike would be, but Shawn McCarthy, research director for IDC Government Insights, estimated agencies have between 15 percent and 20 percent of their IT budgets left to spend.

Upgrading technology hardware seems to be one of the segments where agencies are most interested in spending money, according to McCarthy. He said agencies have used their remaining IT dollars to upgrade aging personal computers and network equipment, because it's often cheaper to buy a new PC or router than to address the security vulnerabilities in older products.

"There's extremely high interest in replacing older desktops with laptops," McCarthy said. "It's not only an energy saver, but also a business continuity issue" since workers can use their laptops elsewhere in the event of a power outage or damage to an office building.

IDC analyzed President Obama's proposed budget for fiscal 2010, which includes a mandate to increase spending on cloud computing, and concluded that the three lines of business likely to see the most activity in the coming fiscal year are the lines of business for information and technology management, health, and defense and national security.

Despite the Obama administration's push for cloud computing, McCarthy said the lines of business and their shared-service centers will remain attractive options for agencies looking to consolidate infrastructures and reduce IT expenses. He said cloud computing and shared-service centers are similar.

"I think the shared-service centers are economically viable as they are," he said. "So some cloud solution would have to offer an incredibly cheap solution to be a threat to them. That's not likely to happen overnight."

Cloud computing more accurately should be viewed as an evolution of shared-service centers and lines of business, rather than as a radically different approach, said Karen Evans, administrator of e-government during the Bush administration. The Obama administration's effort to deploy cloud computing would not be possible without the advances made under the previous administration, she said.

"It's not the newest trend," Evans said. "The whole cloud computing effort is building off the IT infrastructure line of business. Where we were was getting everybody used to the idea of working together, of one federal government and getting them to use enterprise architecture. Now that they think that way, it's a matter of implementing it on out."

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