With a compound annual growth rate of 13%, outsourcing is the fastest growing technology segment within the federal government according to a report released by INPUT, the essential market intelligence resource for companies doing business with government.
U.S. Federal Government spending on outsourcing will increase from $8.5 billion in fiscal year 2003 to over $15.5 billion in FY 2008. "Despite Administration and Congressional battles recently over revised A-76 competitive outsourcing regulations, outsourcing is still projected to be the fastest growing technology segments within the federal government in the next five years," says Lauren Jones Shu, Senior Analyst of Federal Market Analysis at INPUT. Shu explains, "A huge percentage of the federal IT workforce is reaching retirement age within the next five years giving federal agencies little choice but to pursue outsourcing to meet the technology needs of initiatives like e-government and information sharing in defense of the homeland."
According to the report, the military services spend more on outsourcing, but civilian agencies are catching up, more assertively experimenting with and adopting outsourcing under the Bush Administration's Management priority to hold sourcing competitions. "The new Department of Homeland Security is driving this increase with its utilization of outsourcing as a way to quickly ramp up to fulfill their mandate," states Shu. The report cites the example of the Transportation Security Administration which is already breaking new ground by outsourcing their entire IT infrastructure to Unisys in a deal potentially valued at more than $1 billion.
According to the report, Business Process Outsourcing (BPO) is the fastest growing type of outsourcing arrangement, growing at a rate of almost 19% over the five year forecast horizon. With BPO, an entire business process or function, such as claims processing or a call center, is provided by a private sector contractor. An example of this is the Department of Homeland Security seeking to outsource travel services, as well as retiree and annuitant payment and support services.