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But not all is bad news for vendors that sell technology to the US federal government -- After a decade of unprecedented growth in technology spending by the US federal government, growing an average 5-10% year to year, a new report published by independent market analyst firm Datamonitor forecasts that this growth will slow markedly, to a compound annual growth rate of 4% over the coming five years. According to the report, “Finding Opportunities in a Tightening US Federal Market: Five-year Outlook for Vendors,” the impact to technology vendors will not be immediately visible in this market with a projected opportunity of over $46 billion in the government’s fiscal year 2004 (ending in September). However, Datamonitor believes that this slowdown has a silver lining: it heralds greater accountability of how public funds are spent and marks a fundamental shift in how the government views technology purchases. Despite battling with a number of recent challenges, vendors that sell to the US federal government can still take advantage of much leaner sweet-spots in this contracting market. In the report, Datamonitor identifies three solution areas for which opportunities are growing at a rate faster than that of the federal technology market overall. Federal contracting challenges go beyond limited dollars Beyond the overall slowdown in federal technology spending, recent months have brought other challenges to the federal contractor community. Scrutiny of federal contractors has come from two fronts: the role of contractors in the Iraqi prison abuse scandal and whether major government contracts should be doled out to contractors not based in the US. Under the microscope have been contractors such as CACI International, for allegedly supplying Iraqi prison interrogators via an IT services contract, and Accenture, for being based in Bermuda rather than the US – an issue that arose in relation to its coveted win of US-VISIT contract with the Department of Homeland Security. At present, Datamonitor does not expect that CACI will be debarred from competing on future federal contracts, and Accenture has been cleared to proceed with the US-VISIT contract. “Nevertheless,” comments Jocelyn Young, Research Director, Healthcare and Public Sector Technology and author of the study, “shadows have been cast on the federal vendor community through these recent events. And pending legislation – removing a clause that allows non-US-based companies to compete for homeland security deals as long as they were based overseas before the Homeland Security Act of 2002 was passed – may well threaten the ability of some vendors to compete for federal homeland security dollars.” Enterprise focus will drive solutions-based spending Datamonitor expects US federal government spend on technology to grow to $56.5bn by 2009. The report identifies three solution areas for which opportunities are growing at a rate faster than that of the federal technology market overall – Customer/citizen Relationship Management, Enterprise Resource Planning (human capital management and financials), and security. Collectively, Datamonitor estimates they will account for close to $7bn’s worth of total US federal government technology investment in 2009. Other key findings from the report reveal: - The Departments of Defense, Homeland Security, Transportation, Energy, and Treasury account for over 70% of federal ICT dollars in FY2004. - Despite slowing year-to-year increases in expected IT budget appropriations, the portion of total federal IT budgets that is available for vendors to bid on continues to increase. - The software and services opportunity is growing faster than the market overall, while communications and hardware demonstrate slower growth. - The Federal Enterprise Architecture is driving much of the momentum toward the adoption of enterprise-wide systems to reduce intra- and inter-agency duplication.