Cloud, budget, M&A will shape the rest of 2018

I recently sat down with Mark Amtower on his "Amtower Off Center" show on Federal News Radio to discuss the big trends in the government IT market. There have certainly been a lot of changes, and going on Amtower’s show forced me to focus. Too often I get caught up in the story of the day and don’t spend enough time thinking about the trends.

So here are three things we talked about on the show that I think are going to shape the market at least through the end of this year and set the stage for next year.

JEDI

Plenty of people disagree with how the Defense Department is moving to the cloud -- through the massive single award "JEDI" contract and possibly a second for email services -- but there is plenty of good news in that they are so wholeheartedly embracing the commercial cloud.

While there are plenty of risks ahead for JEDI in particular, this is a game changer and will lay the groundwork for much more consumption based buying from the government. If you don’t have an “as-a-service” offering now, you better get one.

Budget

Passage of the fiscal year 2018 budget with its increases for most agencies has created the potential for a fourth quarter spending spree unlike anything we’ve seen before.

For many agencies, the final budget created a whiplash effect when you consider that the Trump 2018 budget proposal had many agencies under the knife. There was an expectation that they would see cuts and many agencies were managing that way. Now suddenly, they have a near windfall.

Even for the few agencies that still received cuts, namely the State Department and EPA, the reductions were not as deep or severe.

So now agencies are having to resurrect spending plans because they now have money they weren’t counting on and they need to spend it. No one wants to turn anything back.

Of course there has been talk about a clawback, but it is hard to imagine Congress passing any adjustments.

Look for most of the action to go through established contract vehicles and the GSA schedules.

M&A

The big news so far this year has been the General Dynamics acquisition of CSRA, but close behind it is the closing of the merger of DXC's U.S. public sector business with Vencore and KeyPoint to create a new company in Perspecta.

Will we see another deal on the same scale as these two? I think there is at least one more out there. If it doesn’t happen in 2018, it will in 2019.

But the big deals aren’t the only action in town. Small and mid-tier players are very active and the big players will continue to make bolt-on acquisitions by making deals to add specific capabilities.

A clearer and more predictable budget has given contractors confidence and visibility into government spending. They see growth in areas like cyber, artificial intelligence, cloud, big data, and IT modernization.

We are seeing acquisition activity increase as company try to take advantage of the increased spending.

Long-term bonus trend

Contractor confidence is at a high right now for many of the reasons I just stated. But is it too high? Is this a bubble?

I don’t know, but I worry about the macro-economics and the impact of the increased spending along with the tax cuts. Will the debt and deficits expected over the next decade drag us down? That is one that keeps me up at night.

Another long-term trend: demographics. Will enough millennials want to work in the government market? I just don’t know.

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

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