Demand for IT and Mission-Support Services in Public-Sector Expected to Grow Five Percent Annually Through 2013

It's estimated that total U.S. public-sector spending on externally provided information technology (IT) and mission-support services will grow roughly five percent in the next five years, up from $66 billion in 2007 to approximately $90 billion in 2013. The increase reflects the public-sector's efforts to grapple with constrained budgets, under-funded mandates and the brain drain associated with the coming wave of retiring baby boomers.

While the U.S. public sector is collectively the second largest consumer of externally provided IT and mission-support services -- following the U.S. financial services industry -- certain segments such as state and local governments have lagged in the adoption of alternative service delivery models such as outsourcing. But times are changing and public-sector entities will have to change with them to meet mounting challenges, according to EquaTerra's 2Q08 Public Sector Information Technology (IT), Business and Mission Support Service Provider Pulse Survey, a survey of leading service providers and its own client-facing advisors. It's the first survey the business advisory firm has conducted focusing on all segments of the U.S. public-sector industry, including civilian, defense, healthcare, education and non-profit.

"Outsourcing is a broad term that covers a variety of options," said Glenn Davidson, managing director of EquaTerra's public-sector practice. "For example, several federal agencies already provide the day-to-day HR, financial management and IT services used by other governmental agencies. Sometimes similar services are provided via a public-private partnership and then there is direct outsourcing to third parties. No matter what the flavor, outsourcing can often provide fast, affordable access to much needed technology upgrades and business process improvements."

Taking a closer look at alternative ways to deliver core services is warranted because adhering to legacy operating models -- where all the work is performed internally on a unit-by-unit basis -- is costly, inefficient and rapidly becoming untenable, according to Stan Lepeak, managing director of research for EquaTerra. "Most public-sector managers are struggling to get the job done with outdated technology, cumbersome business processes and loss of institutional know-how as senior staff retires. Many see outsourcing as the most viable way to cope."