Cloudy Outlook

View charts of top 50 technology contractors for 2000-2009.

The impact of Obama IT initiatives like a shift to Web-based services is as yet unknown.

The buzzword in federal information technology spending this year is "cloud computing" - the outsourcing of IT services to software and hardware providers.

But that migration will have to wait for future budget cycles. The fiscal 2009 budget was conceived in the final year of the Bush administration before President Obama formulated the idea to experiment with Web-based services.

Obama, heralded as the "technology president," is learning that innovative applications take time to make their way through regulatory and budget cycles and into practice. Any cost savings or efficiencies from cloud computing might not be evident until 2012, because it takes a long time to deploy a new platform at even one agency, says Ray Bjorklund, senior vice president at FedSources, a market research firm.

The president's fiscal 2010 budget proposal to shift to Web-based services seems to recognize the slow pace of IT program overhauls. "Of the investments that will involve upfront costs to be recouped in out-year savings, cloud computing is a prime case in point," the budget states. "Initial pilots conducted in collaboration with federal agencies will serve as test beds to demonstrate capabilities, including appropriate security and privacy protection. . . . Expected savings in the out years, as more agencies reduce their costs of hosting systems in their own data centers, should be many times the original investment in this area."

Aside from a slight bump in spending due to stimulus funding, fiscal 2009 will look a lot like 2008 in terms of IT programs. The government's 2009 IT budget is $70.7 billion, up from $66.4 billion in fiscal 2008, according to the Office of Management and Budget. Most of the 7 percent increase represents the same natural growth seen between 2007 and 2008 as a result of expanded programs, additional reporting requirements and cost overruns.

The Obama administration, for now, is executing a holdover IT initiative from the Bush administration, known as lines of business. The approach aims to save money by consolidating systems for routine operations such as financial management and human resources. Mark Forman, former administrator of e-government and IT at OMB, introduced the initiative about midway through the Bush administration, "and it took a little while to get some ground speed," Bjorklund says.

First quarter 2009 spending on IT services was about the same as in the first quarter of 2008, says Stan Soloway, president and chief executive officer of the Professional Services Council, a contractor trade group. "IT spending has been strong and almost by definition must continue to be strong based on the policies Obama has put forth," including governmentwide cybersecurity initiatives, new energy infrastructures and nationwide implementation of health information technology, he says.

As for Obama's plan for Web-based services, it could take IT managers time to wrap their heads around the concept of government as a platform - the term federal Chief Information Officer Vivek Kundra uses to describe cloud computing. "If you were to ask most of the people who are in federal IT, they would say, 'Yeah, it sure is cloudy out,' " jokes Larry Allen, president of the Coalition for Government Procurement, an industry group, referring to the tendency of government to be one of the last adopters of breakthrough technologies.

Even if agencies do move to cloud computing in the near future, it might not result in less spending. "That might mean less need for servers - but it doesn't speak to all the other aspects of IT and network support," Soloway says.

View charts of top 50 technology contractors for 2000-2009.