Federal IT Trends: Demand Spurred by Covid-19
The top 200 IT contractors reflect on the future of their industry
August 27, 2020
[With $597 billion at play, our analysts have created your guide to the 200 government contractors changing the federal market in fiscal year 2019. Download the full report.]
Buoyed by six straight years of growth, the federal information technology market continues to make strong gains this year, fueled in large part by broader technology needs resulting from Covid-19.
At last count, technology spending stood at roughly $70 billion, according to Bloomberg Government’s BGOV200 Federal Industry Leaders report. The coronavirus pandemic, and greater need for telework access, has escalated IT modernization demands, said Cameron Chehreh, chief technology officer for Dell Technologies Federal.
[Dell landed at No. 61 on the BGOV200 list this year, coming in as tenth among IT contractors.]
While federal agencies have espoused digital transformation for years, “it’s now being embraced in a way that’s accelerating us forward faster than in the last decade,” Chehreh said. This demand will continue for the foreseeable future, experts add.
“Having the ability and sense of security to allow for remote work is going to continue to be a significant area of growth across the federal IT industry in the coming months,” said Susie Adams, chief technology officer for Microsoft’s federal business.
[Microsoft jumped 32 spots from last year to come in at No. 87 on the BGOV200 list this year. Download the full report.]
Critical Infrastructure Investment
Infrastructure investment will also prove critical.
“The Covid-19 pandemic [has driven] enormous need for mobility, increased bandwidth, and enhanced connectivity solutions,” said Xavier Williams, president of AT&T’s public sector unit, whose parent company has invested more than $135 billion in wireless and wireline networks in recent years.
In parallel, federal agencies are “looking for secure cloud innovation that reaches across computing, storage, networking, and data protection,” Chehreh of Dell said. Yet unique challenges remain.
“From a delivery standpoint, one of the biggest is enabling staff to continue to support the mission from a remote location,” said Garriock Firth, director of strategy and partnerships at T-Rex Solutions. This option becomes more difficult, he added, “where security clearances require staff to report to work on [a] client site.”
[T-Rex Solutions joined the BGOV200 list this year at No. 148 after not making the cut last year. Download the full report.]
Similarly, the growing demand for remote work furthers the already pressing need for cybersecurity enhancements.
Beginning in 2020, the Department of Defense became the first agency to require a mandatory cybersecurity certification. The Cybersecurity Maturity Model Certification, as it is known, must be completed by companies in the DoD supply chain by 2026.
Further Innovations Ahead
In addition to secure telework, federal government customers are increasingly demanding data engineering and analytic capabilities, fueled by technologies such as machine learning, natural language processing, artificial intelligence, and even blockchain, Firth of T-Rex noted.
“Government is working with industry to minimize the manual work needed to analyze large data sets and come to clear conclusions, whether for fraud prevention for Centers for Medicare & Medicaid Services and the Internal Revenue Service” or for contact tracing with Covid, Firth said.
Indeed, as reported in Bloomberg Government’s BGOV200 report, “cuts that were planned at Health and Human Services will revert to a surplus as the agency continues to lead the effort of fighting the coronavirus pandemic.”
While federal agencies increasingly turn to commercial technologies to modernize their IT systems, experts advise proceeding with caution.
“There is no true plug-and-play in government, since the mission of each agency is unique and requires specific tailoring to meet the goals and objectives,” said Raj Parameswaran, president of MAXIMUS Federal’s information technology division.
[MAXIMUS jumped two spots to come in at No. 164 on the BGOV200 list this year. Download the full report.]
As a result, he added, it is imperative to adopt a “a 360-degree perspective on program objectives, process knowledge, operations, infrastructure, human capital, and the culture before you [settle] on the technology and approach.”
Small Business, Big Impact
While large contractors garner the lion’s share of federal IT dollars, small and mid-size companies are also generating significant business. Small businesses accounted for $24.3 billion of the overall $70 billion in fiscal 2019 IT spending.
“As a mid-size company,” said Firth of T-Rex, “agility to support client objectives as priorities shift is [a] superpower.”
Recognizing this strength, companies such as Microsoft continue to partner with smaller businesses with established subject matter experts in alternative fields, Adams noted.
$597 Billion at Play
Good news for professionals who are government contractors after an onslaught of challenges in the first half of 2020 – contractor spending is up from last year. Examine the list of the top government contractors.
BIC, OTA Gain Ground
For further competitive advantage, companies continue to utilize best-in-class, or BIC, contracts.
“We are approaching the point that companies ‘must’ have a complement of BIC contracts at their disposal to avoid being shut out of procurements at their existing and target clients,” Firth said.
Beyond BIC contracts, federal agencies’ use of “other transaction authority,” or OTA, grew from $4.4 billion in 2018 to nearly $8 billion in 2019, based on the BGOV200 report. This acquisition method gives federal agencies quicker access to emerging technologies.
M&A Shifts Ahead
Even as growth continues, M&A activity may see a shift.
One of the main drivers for M&A has been to acquire “existing contracts, experienced project teams, and clearances, [which] makes it easier to break into new agencies,” Firth of T-Rex said.
Similarly, target companies were acquired this past year for their government work as many contractors looked to buy access to customers through acquisitions instead of growing organically.
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Yet mergers and acquisitions may now see a more moderate pace of activity because of the coronavirus, experts say. There will be “more selective, tuck-in acquisitions than large-scale ones,” predicts Parameswaran of MAXIMUS Federal.
Even if M&A activity shifts, experts nonetheless anticipate federal IT growth to continue. In many cases, Covid-19 response will be the driver.
With health experts predicting the coronavirus to linger into 2021 and perhaps beyond, demand for telework, large-scale data analytics, and network security will only grow.
“We’re anticipating an additional Covid response package that would provide resources for IT infrastructure and broadband deployment,” Chehreh said. “We are also keeping a close eye on the regular federal funding bills for potential adjustments due to increased IT spending in the Covid response bills – these resources will be important to helping support federal agencies’ long-term IT plans.”