Internaut: Services shops take on more government IT

Shawn P. McCarthy

The stars seem to be lining up in a way that could push even more business toward the big IT service vendors that already handle so much of the federal government's need for IT.

8The Federal Enterprise Architecture initiative is prompting government agencies to adjust the way they license, manage and access their software. Meanwhile, cost-cutting efforts are encouraging agencies to develop multi-agency applications (example: finance systems) and homeland security needs continue to encourage data sharing across departments (example: the Justice Extensible Markup Language effort).

8Many of these efforts have a big impact on government networks and secure intranets. As employees need access to remotely hosted applications, and as more data needs to traverse multiple networks, the need for more bandwidth, servers and hubs continues to climb.

8Meanwhile, some cities, including New York and Philadelphia, are building citywide wireless systems that could eventually network everything from police cars and maintenance vehicles to traffic lights.

All of this leads to large-scale IT projects that are so complex that the government must increasingly rely on the skills offered by the system engineers and project managers employed at big IT services vendors. And once the jobs are done, agencies don't have to worry about what to do with suddenly idle employees. That becomes the service vendor's problem.

Evidence of this growth is already apparent. According to a recent vendor analysis by my employer, IDC, the two biggest IT service providers to the federal government today are Northrop Grumman Corp. and Lockheed Martin Corp. Both companies are major defense contractors that also provide a wide range of computer services to both defense and civilian agencies. That alone isn't news, as the pair has occupied the top two vendor slots in the IDC survey for some time. But their government IT businesses have grown substantially. For 2003, both saw a gain of about 20 percent over their 2002 government IT revenue. Northrop's IT business alone was $8.3 billion in 2003; Lockheed's was $7.7 billion.

In fact, each of the top three, and eight of the top 15, government IT vendors in 2003 were pure service providers, while others, such as IBM Corp. and Hewlett-Packard Co., received contracts for hardware, software and, increasingly, services.

Government leads the way

In contrast, most of the top IT vendors in the banking industry and the health care field are hardware or software providers. Government seems to be leading the way in the use of IT service providers, in part because of the complexity and scope of its systems, and because the failure rate for such projects tends to be low.

Of course there are exceptions to this success trend. The recent failure of the FBI's Virtual Case File system shows that even projects with top-level IT service providers such as Science Applications International Corp. can have problems. But sometimes the problem is as much a change management issue as it is a project management one. In the case of the VCF, the FBI significantly changed its original requirements. Because of this boondoggle, expect to see vendors establish fairly rigid change management processes for future projects.

Insisting on a tightly controlled change management process is just one example of how the big IT service vendors have become masters at coordinating broad, multiyear service and development contracts. For good or bad, the federal government is increasing its reliance on these vendors.

Shawn P. McCarthy is senior analyst and program manager for government IT opportunities at IDC of Framingham, Mass. E-mail him at

About the Author

Shawn McCarthy, a former writer for GCN, is senior analyst and program manager for government IT opportunities at IDC.

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