Despite overall cuts, defense IT spending expected to grow

While major cuts are inevitable for the Defense Department, the defense-industrial base – especially companies providing IT services – can still expect a healthy level of spending in fiscal 2012, even if it’s not the same level as earlier in the decade, according to an industry outlook.

“We rode through most of the earlier part of the decade with unprecedented growth, especially in the IT segment. We were looking at 11 [percent] to 12 percent year-over-year growth,” said Brian Haney, vice president for client services at Deltek. “For the last two years we’ve been relatively flat ... we’re seeing about two to three years of flat spending. That said, we still are seeing the spending of significant dollars in this particular space. IT is still a healthy market. “

He spoke at Deltek’s FedFocus 2012 conference Nov. 3 in Falls Church, Va. Haney said the fact that money is being spent on IT in new and unique ways means there are still market opportunities.

“Even though overall discretionary spending is flat, growth in IT spending is outpacing the overall average as IT is looked to as an enabler,” Haney said.

He also pointed out that though there will be significant budget cuts to come, military drawdowns in the past have meant even steeper decreases in spending than what the U.S. is currently facing.

The difference between the current drawdown and those following the World War II is that in the past the U.S. largely faced one enemy that the military focused on; now there are many enemies and a virtual threat as well as a physical threat.

“This drawdown is different because we have to remember that we need a multi-faceted approach,” Haney said.

That diverse approach will at least partially drive some of DOD’s key spending in 2012, including the areas of mobile communications, tactical and airborne capabilities, standardization for a common operating environment, cybersecurity and modular acquisition, Haney predicted.

Nonetheless, there are a number of factors that could inhibit spending, Haney noted. Fiscal constrains will impose reductions in military spending and force structure; acquisition reform will result in smaller programs and an increased sensitivity to getting returns on investments; and joint portfolio development and increased enterprise focus will mean aligned services across the military that shave down the number of contract opportunities.

Haney said industry can meet these challenges by understanding the new fiscal landscape and acquisition processes, emphasizing cost efficiencies and returns on investments and leveraging strategic investments, especially when it comes to the increasing use of indefinite delivery-indefinite quantity contracts.