Why Federal IT Contractors and Commercial Tech Firms Need to Align

Gimme 3 — Insight Interview with TBR’s Subject-matter Experts

In TBR’s new blog series, “Gimme 3 — Insight Interview with TBR’s Subject-matter Experts,” Principal Analyst Patrick M. Heffernan discusses our latest and most popular research with our analyst team. This month Patrick chats with TBR Federal IT Services lead and Senior Analyst John Caucis on the U.S. federal IT operations of market newcomers Accenture, CGI and IBM.

Patrick: Let’s start with Accenture Federal Services (AFS). A scenario in the new Accenture Federal Services Vendor Profile details a partnership bringing Leidos into a Centers for Disease Control and Prevention (CDC) engagement as a subcontractor to AFS. How often have you seen this previously, Leidos as a subcontractor to AFS or a similar commercial-centric IT services vendor that happens to do U.S. federal work, too?
John: Commercially focused technology companies are most certainly accelerating their push into the federal IT market and looking to ally more closely with their counterparts in federal IT, which are the traditional federal systems integrators, or to act as subcontractors on big-ticket IT programs. It really comes down to the simple fact that the emerging technologies being adopted by federal agencies to drive true digital transformation have been mostly developed and refined in commercial markets by commercially centric IT vendors. The commercial players have the tech, but the federal systems integrators know the rules of engagement and how to navigate the often onerous federal technology procurement process. So they need each other, in essence.
Commercially centric technology companies with a robust, long-standing or well-established U.S. federal business — for example, Accenture, CGI and increasingly IBM — have an advantage over other commercial tech firms that have the technology but don’t have a federal organization or experience. Google, for instance, just stood up a more formal government-focused organization in mid-2022, Google Public Sector, to target cloud, analytics and security opportunities at the local, state and federal levels in the U.S.
It’s generally more common for a contractor the size of Leidos (the biggest systems integrator, by revenue, tracked in TBR’s Federal IT Services Benchmark research program) to act as a prime contractor on large awards, but Leidos has its share of programs on which it participates as a subcontractor.
What caught my eye about the Leidos-AFS collaboration was not so much that Leidos was acting as a subcontractor to AFS, but that AFS was likely taking the lead as the prime on this award because of its cloud capabilities. AFS has been gaining significant traction in federal IT by leveraging the capabilities, expertise and partner relationships of the Accenture Cloud First business unit. I suspect Leidos was chosen as a key sub on the program due to its leadership in federal health IT and its long-standing relationship with the CDC, which includes bioinformatics-related analytics, data management and high-performance computing.
I also suspect Leidos will be called upon primarily to provide systems integration work (e.g., application services, project planning and management, and some cloud-related services) while AFS defines and maps out the cloud migration pathway.
AFS will also leverage the robust suite of cloud solutions provided by its parent company, including the Velocity accelerator jointly developed by Accenture and Amazon Web Services (AWS); CloudTracker, a comprehensive decision-enablement tool for cloud governance and cloud utilization that is available for Microsoft Azure and AWS; and solutions acquired as part of the 2021 acquisition of Novetta.

Watch Now: The Bull Market in Federal IT Will Continue in 2023


Patrick: Turning to CGI, you described the vendor as having a “natural fit” with ServiceNow as a strategic partner. And you say ServiceNow is on a hiring spree for federally focused tech talent. Any worries these two partners might be directly competing for people in an already frothy talent market?
John: They certainly could be competing for new hires, though the recent wave of layoffs in commercial technology may ease some of that competition as more technology workers become available. Even if these resources are not local to the Washington, D.C., area, the leading federal IT contractors have all been investing to expand internal IT and human resource management capabilities to accommodate an increasingly geographically distributed technology workforce. Offering potential new hires flexibility in work location has become table stakes in federal IT recruiting.
I think the real key with ServiceNow is that it has been more specifically looking to onboard partners in all verticals that bring robust, homegrown intellectual property to the table. CGI certainly fits the bill with its global IP30 initiative to grow revenue generated from its ever-expanding suite of proprietary digital technologies.
Patrick: I know this is supposed to be three questions, but one quick follow-up on CGI: I was struck by how much the new CGI Federal Vendor Profile highlights CGI’s alliances, particularly those with ServiceNow and MuleSoft. Do you see CGI’s ability to bring together ecosystem partners and deliver alliance vendors’ technologies as a differentiator for CGI in the federal space?
John: It will be a near-term differentiator, but that differentiation will be short-lived. The leading federal systems integrators like Leidos and Booz Allen Hamilton have highly refined partnership management structures and strategies, and they have leveraged these assets to establish their market and technology leadership positions in federal IT.
Federal IT contractors with less mature partnership ecosystems have been aggressively working to address this competitive shortcoming over the last few years. General Dynamics IT, for example, has been actively bolstering its partnerships with commercial cloud leaders since 2020 and recently formed a collaboration with five leading commercial technology companies to promote 5G adoption in the federal market.
Patrick: Final question, on IBM. You noted two important acquisitions by IBM over the last 18 months. Do you anticipate the company has more buying to do as a way to expand in the federal space, or do you expect it to focus on assimilating the new talent and technologies?
John: IBM’s federal practice needs to leverage the fiscal resources available to it from the parent company to narrow the revenue and capabilities gap with federal IT peers and win a growing share of work as a prime contractor. The acquisition of Octo Consulting was a forthright move to accomplish this, but IBM Consulting still has more work to do. I fully expect IBM to make additional purchases in the coming 12 to 24 months, particularly if valuations begin to recede and interest rates begin to decline.
Patrick: Thanks, John, and I look forward to seeing your analysis of these vendors in TBR’s quarterly Federal IT Services Benchmark.

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