Federal IT budget: Look for security, cloud spending in 2018

Industry executives cited an uptick in federal IT procurement activity during the government's fiscal fourth quarter and expected FY 2018 to feature security and cloud investments.

IT solution providers planning to pursue federal government business can take heart: There will be more IT dollars in the budget for fiscal year 2018 compared with 2017.

If they follow the money, track agency priorities and meet federal requirements for the jobs being offered, channel companies could tap into new growth opportunities and take a bigger bite out of the federal IT budget in the next fiscal year (FY), which begins Oct. 1.

That said, as September comes to a close, many systems integrators, cloud providers and managed service providers are taking the time to assess their fourth quarter engagements and have begun evaluating their companies' ability to help federal departments and agencies meet the new set of priorities being implemented by President Donald Trump's administration.

Federal agencies, meanwhile, face complex decisions that include everything from where and how to use cloud computing to what data to select for analytics projects and what vendor's technology will be suitable to protect government information from cyberattacks.

IDC, a market research firm in Framingham, Mass., projects the federal IT budget for FY 2018 at $95.7 billion. While the "official" figures declare an increase of around 1.1% compared with FY 2017's budget of $94.0 billion, a closer look at the numbers reveal that the original FY 2017 budget, set over a year ago, was first tallied at about $89.9 billion. IDC contends the FY 2018 budget actually represents a 6.3% increase over what was originally proposed for FY 2017.

"This could be considered one of the largest year-over-year federal IT spending increases we've seen in recent years," said Shawn McCarthy, research director at IDC Government Insights, in a statement regarding his research for a newly published report.

Spending patterns

Will FY 2017 spending patterns point the way toward what's to come in the next federal IT budget? IDC's analysis highlights several areas of spending in the soon- to-conclude fiscal year. McCarthy said the larger-than-originally planned portion of the FY 2017 budget was spent, in part, on "security improvements, Defense Department (DoD) programs, cloud migration, system upgrades and grants to help states improve their Medicare and Medicaid Management Systems," McCarthy said.

In an interview with SearchITChannel, McCarthy cited IDC estimates identifying DoD as the department that will spend the most on IT in FY 2017, some $30 billion. The U.S. Department of Health and Human Services is in second place at $12 billion and the Department of Homeland Security (DHS) is third, spending approximately $6.5 billion.

He added 60% of IT spending goes toward IT services such as hosting and managing data, upgrading software and hardware, business process support, performing business analytics and hiring programmers to customize technology solutions. The remaining 40% goes toward various types of software to support infrastructure management, hardware and other machines such as mobile devices that attach to the network.

McCarthy identified another growth area that he said will impact federal government IT spending next year: cloud providers that have ecosystems of software developers creating innovative software offerings on cloud platforms.

"These application developers will build solutions that meet the needs of whatever federal agencies want," McCarthy said. "They've become savvy and they are able to offer solutions that meet federal requirements such as the Federal Information Processing Standards and the Federal Information Security Management Act," he added.

Now executives at federal agencies say they have a budget and a lot of people in place and they are really starting to execute.
Greg Kushtosenior director of solutions engineering, Force 3 Inc.

McCarthy said his recent research on spending also indicates activity around the federal government's Data Center Optimization Initiative (DCOI), which requires agencies to report on their data center strategies and transition to more efficient infrastructure such as cloud computing services. Since the start date for meeting DCOI requirements begins this fall, IT solutions providers can expect agency IT directors to be busy on several fronts during FY 2018. Federal data centers "will find themselves being evaluated on key metrics, including power usage effectiveness, effectiveness of their energy metering, level of virtualization, server utilization, facility utilization and more," McCarthy said in a statement.  

He added: "Instead of managing devices, IT directors will move toward managing pools of resources and looking for ever-greater efficiencies. Essentially, DCOI requires a change in core skill sets, and it applies measurement and goals in a way that, frankly, can't always be met by older legacy systems."

Spending stalls, then flows

As IT solution providers adjust to changes in technology requirements, they are also navigating the shifts taking place among executives charged with making budget decisions.

Greg Kushto, senior director of solutions engineering at Force 3 Inc.Greg Kushto

Greg Kushto, senior director of solutions engineering at Force 3 Inc., a network security and data center technology company headquartered in Crofton, Md., noted earlier this year when the new administration took office there was a slowdown in the decision-making process that stalled many projects. Agencies had been holding onto money allocated to them in the FY 2017 budget due to the uncertainty around the presidential election. But since spring, when budgets, allocations and Q4 procurement got sorted out, agencies have been spending money, Kushto said.

"Now executives at federal agencies say they have a budget and a lot of people in place and they are really starting to execute," Kushto said.

Acumen Solutions Inc., a McLean, Va., business and technology consulting firm focused on cloud transformation projects, works on a variety of document management engagements for DoD, DHS and the Department of State.

Saurabh Verma, managing director at Acumen SolutionsSaurabh Verma

According to Saurabh Verma, managing director at Acumen Solutions, one trend he has observed in Q4 is that federal agencies have begun to modernize and improve government operations and service delivery by building modern citizen-facing digital services. At the same time, those agencies are investing in software-as-a-service and platform-as-a-service infrastructure in Q4 to support initiatives they want to implement in 2018. 

"Some agencies that want to do a cloud-based document management platform next year started to build their prototypes in Q4 so that they can generate new funding for next year's projects," Verma said.

Federal IT budget: Security top priority

Kushto said he expects federal spending in FY 2018 to focus primarily on software to prevent cyberattacks. He added that security-oriented IT providers can gain business if they augment and supplement DHS' Continuous Diagnostics and Mitigation program, which provides federal departments and agencies with tools and resources for identifying cybersecurity risks on an ongoing basis.

After security, Kushto believes business analytics will attract the second highest amount of spending at federal agencies with pilot projects around cloud solutions in third place.

Kushto also expects greater procurement activity around the "everything as a service" model in which the government contracts with IT providers to manage their on-premises operations.

"The government is very excited about the as-a-service model where they're handing outside entities the task to maintain a storage system or a data center for them that is still in-house," Kushto said. "It's still physical. It's still a secure network. The federal government is basically paying the contractor to take care of everything, whether it is ordering the equipment, providing resources, or doing upgrades and installation. That is something that we have seen a lot of interest around."

Gary Wootten, vice president of SpringCM's public sectorGary Wootten

Gary Wootten, vice president of SpringCM's public sector, a Chicago provider of document management software that markets through channel partners, believes companies pursuing cloud computing business with federal agencies will have an easier time winning contracts if they attain Federal Risk and Authorization Management Program (FedRAMP) authorization. The FedRAMP authorization process provides a mechanism for assessing the security of cloud-based offerings. Cloud providers can obtain that status if they implement FedRAMP security controls and hire an independent assessor to evaluate their implementation.

Wootten said SpringCM has seen more federal contract opportunities since achieving FedRAMP authorization in August 2017.

"Until you can say yes, we have achieved FedRAMP authorization, conversations often come to a halt with federal agencies," Wootten said. "Once we received authorization, discussions about projects became actionable, and the federal government's Q4 became an extremely busy time for us."

Wootten cited document management as one growth area in the federal IT budget.

"It seems that almost every federal agency has budget for some type of document management or contract lifecycle management project," he said. "In fact, we are tracking close to 50 such projects, some of these are near-term and others are longer-term projects"

Educating customers

As the federal government's FY 2018 begins, Kushto predicts that channel companies will increasingly educate and reassure customers about the IT products and services they'll buy. This will become an important part of a channel company's role, especially because of changes in the way IT is delivered, the way IT has changed workflows, and the speed with which new technology applications are coming to market.

"The IT industry is always changing, but the past several years have seen an evolutionary leap forward from where we have been over the past several decades," Kushto explained, noting that the latest technology developments will help agencies execute against their missions in ways never seen before.

"We have to reassure federal agency executives that while the technology we are introducing is outrageously different than anything they've consumed before, they must trust that this is the way of the future, it works, and they don't have a choice -- there is no going back."

Next Steps

Learn how to sell IT services in the government sector

Find out how state procurement reform could affect channel partners

Take a look back at how cybersecurity tech fared in the 2016 federal IT budget

Dig Deeper on MSP sales and marketing

Cloud Computing
Data Management
Business Analytics