July 01, 2010, 2:38 PM — President Obama's approach to IT spending showed its teeth this week in a decision to end new spending on about 30 financial systems that cost about $3 billion in annual development.
TechAmerica, a large IT industry group, said Wednesday that some of the large IT vendors and integrators working on these projects could stand to take a multibillion-dollar hit as a result and will likely have to redeploy hundreds of IT workers to other projects. The total lifetime cost of the affected IT projects was put at $20 billion by the White House.
"You are bringing to a screeching halt some very significant programs," said Trey Hodgkins, TechAmerica's vice president of national security and procurement policy. If IT contractor personnel are moved to other assignments, restarting the IT modernization work on the financial systems will likely raise the cost of the projects when, or if, this work resumes, he said.
"It's going to cost the federal government, we believe, more money by taking this action then they will actually be saving," Hodgkins said.
But Tim Dowd, the president and CEO of market research firm Input Inc., doesn't see the White House action as an automatic setback for IT vendors, and cites his firm's projection that federal IT spending, which was at $86 billion in 2010, will grow to $112 billion in 2015, at a compound annual growth rate of 5.4%.
Dowd said the action on the financial services systems may be more of pruning or refocusing of federal IT spending by the administration.
"It is probably a fairly prudent decision," Dowd said of the White House freeze, given that "there is probably a lot of redundancy" in financial systems. The government may move some of this money to more important priorities, he said.
Peter Orszag, director of the White House Office of Management and Budget, announced the freeze in a blog post this week. To illustrate the point, he cited some specific system problems, including two at the Department of Veterans Affairs.
The VA "has invested over $300 million in two financial system projects over the past 10 years. The first project ended in failure and no operational capability has been realized with the second," Orszag wrote in a post published on the OMB's Web site.