Where are the silver linings in the 2013 federal IT budget?

The proposed budget adheres to legislated constraints but also offers contractors opportunities if they know where to look and how to go after them.

President Barack Obama’s $3.8 trillion federal budget for 2013 includes $78.9 billion for IT. Depending how the numbers are crunched, that’s a slight decrease of between 1 percent and 1.2 percent from the $79.8 billion allocated for IT in the 2012 budget.

Federal CIO Steven VanRoekel told reporters earlier this week that the administration remains determined to push IT innovation in a fiscally responsible way.

“Overall the budget adheres to the spending constraints that were set up by the Budget Control Act,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council.

“Spending is down. I expect procurement spending to be lower this year as it has been the last couple [of years],” he said.

Nevertheless, experts say, the government will continue to implement programs put in place by former federal CIO Vivek Kundra, including the 25-point plan for IT management, the Cloud First policy and data center consolidation.

Data center consolidation will account for the lion’s share of the IT budget reduction, Chvotkin said, as agencies already have completed about 180 consolidations toward their targets.

For example, increased spending at the State Department and USAID for cybersecurity and other critical needs will be offset by the savings achieved in data center consolidation and some strategic sourcing, he said.

“So if you look at it that way, spending on new technology is going to be up,” he added. “For new IT spending, that’s a good news story from that budget.”

Deniece Peterson, senior manager of federal industry analysis at Deltek Information Solutions, said the 3.6 percent decline in the Defense Department’s IT budget drags down the year-over-year percentage – $37.2 billion for fiscal 2013, compared to $38.6 billion in 2012.

“That [decline] is not that unexpected,” Peterson said, given all the attention being paid to planned large-scale reductions in DOD spending.

But civilian agency IT spending, although relatively flat at $41.7 billion in the 2013 budget, is about $500 million more than the $41.2 billion in the 2012 budget.

Rich Rector, chairman of the U.S. government practice at global law firm DLA Piper, said that although there may be significant long-term declines in the DOD budget, there are going to be sustained increases in areas such as special operations, counter-terrorism, cyber, and science and technology funding.

Analysts have been weighing in with what the budget numbers mean for agency projects underway and for those scheduled to begin during the next several years. But what do those figures mean to the contracting industry?

“Even in a declining overall market, there are still good opportunities out there for the right company and the right technologies,” Rector said. “One of the challenges for contractors is to look at where there’s going to be continued growth and figure out how they can play in those areas.”

“The struggle is to figure out how to integrate evolving technologies into programs in a smart way and within some constraints that haven’t been there in the past 10 years,” he said.

As a result, Rector added, contractors are stepping up their search for contract opportunities through increased merger and acquisition activity.

“If I had to bet my money on which budget category would pass [Congress] closest to what it looks like now, I would say IT versus discretionary spending for sure,” Peterson said, “because it’s generally accepted that IT is an enabler of cost savings and efficiency.”

There will have to be some kind of upfront investment to drive the savings agencies want in the long term, she added.

Chvotkin noted that although the president’s budget includes about a 15 percent reduction in services contracts, it is consistent with the Office of Management and Budget directive of about a year and a half ago to reduce spending on certain types of services contracts.

Which agency services contracts will be affected isn’t known yet, but Chvotkin added that the PSC is “pleased to see the administration support the acquisition workforce across the government.”

Trey Hodgkins III, senior vice president for national security and procurement policy at the industry group TechAmerica, said, “From our perspective, [the flat IT budget] was the best we could anticipate or expect.”

With a large portion of the federal IT budget devoted to contracts for continuing operations and maintenance, Hodgkins said contractors and government need to think differently.

Contractors need to realize that agencies are going to be looking at new contracts that can deliver innovation, enhanced capabilities and that will drive savings; government needs to look at new ways to buy IT more effectively.

“Generally there’s a lack of ability to look at IT investments in the government horizontally so that you could get economies of scale for such things as e-mail, which everybody uses,” Hodgkins said, adding that such reform could also benefit how money is spent on cybersecurity, networks and financial systems.

“You see some activities departmentwide but it’s very difficult, given the appropriations process, to look at those kinds of capabilities across the federal government and really realize governmentwide enterprise IT investment savings,” he said.

Although the Small Business Administration would see a 3 percent increase in funding, up to $949 million, most of it would go to help small businesses repay their government-guaranteed loans.

However, the SBA’s budget also includes an 8 percent reduction in technical assistance programs and would eliminate the Micro-Entrepreneurs Technical Assistance program that teaches small business owners how to grow their business.

Guy Timberlake, CEO and chief visionary of The American Small Business Coalition, said even though there probably will be fewer contract opportunities overall, he doubted that the SBA budget would require small contractors to make any big changes in their go-to-market strategies.

“It’s going to be a continuing challenge for small companies to not only do business in the government sector as prime contractors but also as sub contractors,” Timberlake said, because as agencies are forced to reduce spending “the obvious trickle down [effect] is subcontractors aren’t as necessary.”

He said small contractors need to become smarter and better at developing industry relationships and gleaning information about upcoming opportunities.

When the government tightens its belt, it applies more efficient acquisition methods and favors companies with existing contracts such as the GSA Schedule, BPAs or IDIQs, Timberlake said.

So small businesses “need to be more focused and more than anything else they need to be a lot more selective about how they pursue opportunities, how they align with partners and generally how they spend their time doing business,” he added.