News & Events

The Emergence of Civilian IT

By Jon Yim

For years the Department of Defense (“DoD”) grabbed the headlines when it came to discussion around the U.S. Federal Budget.  While DoD spending remains the largest portion of the budget, Civilian agencies have recently begun to emerge from the DoD’s shadow, particularly as it relates to IT spending.

Dating all the way back to 2001, Federal IT spending has been geared more towards DoD; however, a majority shift towards Civilian agencies began in the 2014 Government Fiscal Year (“GFY”).  The decrease in DoD IT spending and increase in Civilian IT spending are the result of a multitude of factors.  While the DoD winds down operations in the Middle East and focuses on operating more efficiently, the Civilian agencies are experiencing sustained investments.  With that said, certain Civilian agencies have experienced much greater increases in their IT spending than others, and are expected to continue to fare better moving forward.  For example, the Department of Health and Human Services’ (“HHS”) IT budget for GFY2015 totaled $12.6 billion, representing ~30% of Civilian IT spending in GFY2015.  This amount is up from $6.3 billion in GFY2010 HHS IT spending and accounts for a 14% compound annual growth rate over the five-year period.  The amount of IT funding HHS is receiving is indicative of the importance and focus on healthcare related initiatives.

Civilian agencies are also well-positioned and aligned with the emerging technology trends in the Federal space.  Per a Deltek survey, both the Federal Government and Industry participants identified the following mission areas as the major drivers of IT investments over the next few years: cybersecurity, cloud computing, virtualization, big data / data mining, mobility, and health IT.  While incorporating new technologies into IT environments without disruption has proven challenging for the Federal government, Civilian agencies appear to be more nimble in adopting newer technologies, partially because they handle less classified information that requires higher levels of security before migration to new technologies.  As a result, Civilian agencies have been leading the charge in leveraging new technologies.  For example with cloud computing, NASA was one of the first FedRAMP accredited agencies, while the Social Security Administration, Department of Treasury, and Department of Justice represent the top three Federal agencies in cloud computing spending during the GFY2013-2015 time period, per Deltek.

Recognizing these trends in Federal IT spending is one thing, but what does it mean for government contractors?  For one, it means that supporting Civilian IT projects is becoming an increasingly attractive business proposition, particularly if a company is aligned with Federal government priorities such as healthcare, cybersecurity, cloud computing, and other efficiency-type solutions.  These turnkey solutions that address big data, security, and cost reductions, amongst other initiatives, are critical to the future operating model of the Federal government.  As such, it is important for IT service providers and systems integrators to be up to date on the latest industry trends and prepared to offer innovative solutions to its end customers.  And as Civilian agencies become increasingly desirable end-customers, contractors supporting such customer sets are consequently becoming attractive acquisition targets.  This is evident from several deals completed over the past couple months, including Maximus’ acquisition of Acentia, a provider of technology and management solutions to Federal civilian and health agencies (e.g., HHS, SEC, Departments of Commerce, Agriculture, and Labor), and NCI’s acquisition of Computech, a provider of IT and professional services and solutions to Federal civilian customers (e.g., FCC, IRS, Executive Office of the President, House of Representatives, International Trade Commission).

With the continued emergence of Federal IT spending in the Civilian space, government contractors, more than ever, are presented with opportunities to expand their businesses and carve out an attractive role within the space.