Are Feds Throwing IT Money Around?

It isn't much of a secret that the federal government spends a large portion of its information technology budget in the fourth quarter of the federal fiscal year (July through September). But what may not be so evident is that the fourth quarter, known in federal parlance as "the buying season," is becoming more of a buying frenzy, according to a report released today by the federal market research firm INPUT.

From fiscal 1997 to fiscal 2000, the federal government spent 28 percent of its total IT budget in the fourth quarter, with IT spending fairly even for the rest of the year, according to the INPUT report (purchase required). That percentage increased to 31 percent in fiscal 2001 to 2004, and then increased again to 34 percent in the fiscal 2005 and 2006 period. In fiscal 2007, INPUT projects the federal government will spend one-third of its IT budget in the fourth quarter, equaling 2005-06.

What's happening? INPUT gives two reasons. First, agencies have a spend-it-or-lose-it mentality. Agencies are fearful that Congress may reduce their IT budgets if they do not spend the entire budget before the end of the fiscal year. That means money hanging around at the end of the fiscal year, which typically is a fairly large portion of the budget, must be spent -- and spent quickly.

Second, an increase in continuing resolutions (because Congress can’t pass spending bills on time) means more IT budgets are frozen at levels equal to the previous fiscal year. That means IT spending stays flat. It is frequently months into a new fiscal year before Congress passes the budget for that fiscal year. Because the IT budgets typically increase from year to year, this creates a pent-up demand for IT spending for the fourth quarter. (It would be similar to receiving your annual raise five or six months into the year. All of a sudden, you're flush with money.)

"Operating under a CR, if even briefly, limits the ability of these agencies to move forward on their planned IT investments and often stalls them until the second quarter," according to the INPUT report. "In FY 2007 only the Department of Defense and Homeland Security had their appropriations bills passed by Congress â€" all other agencies are operating under a year-long joint funding resolution that sets their budgets at 2006 levels with a few exceptions. The full impact of this will not come to light until well into 2008. The current round of 2008 appropriations bills is on a rocky road and may fare no better."

The question that INPUT's research now raises is this: Does the spending spree have any effect on agencies' buying judgment and the value these agencies receive from their purchases? In an email, John Slye, manager of INPUT's federal industry analysis, said, “That’s a great question,” and he tried to answer it this way:

It would stand to reason that when people are up against a deadline that they have less time to weigh value options, although there's probably a point where they would balk at an obviously unreasonable option. Off the top of my head I'm unaware of any studies that explore this, but yeah, if the primary objective is to exhaust the resources, then that probably has a negative impact of value pressure. One thing to consider though is that some buyers may have researched their buy in advance, possibly even lining up proposals with the hopes of getting a green light for the purchase at quarter's end. It's probably fair to say that some of these last minute purchases come as agencies look at their "must-haves" and "nice-to-haves" along side what money they have left at the end of the year.