Top 3 Predictions for Federal IT Services in 2022

Where the money flows, IT services follow

Federal spending priorities shifting to favor civilian agencies

In three areas, the Biden administration’s pivot from defense spending to shoring up civilian agencies will have immediate effects on the federally focused IT services vendors. First, accelerated cloud adoption and new spending bringing cloud to civilian agencies will create partnerships and acquisition opportunities, as well as additional revenue streams. Second, IT services vendors well positioned for that pivot will increase their market share. Third, increased AI, analytics and cybersecurity deployments, supported by new federal dollars flowing to civilian agencies, will further separate federally focused IT services vendors that have built capabilities and talent during the last several years.

Civilian sector IT spending has recovered vigorously from the COVID-19 trough in 2020, thanks to civilian agencies’ ongoing drive to digitize their IT infrastructures, and the shifting budget objectives of the Biden administration will further accelerate civilian IT outlays. Health IT is emerging as a major growth driver on the civilian side, owing to ongoing COVID-19 response initiatives, electronic health record modernization, and IT projects to enhance the interoperability of health IT environments in the federal, state and local government sectors. Even amid the expected deceleration in defense spending, the Pentagon will leverage cloud infrastructures to connect IT platforms for combat operations across service branches, while cloud computing will become essential to transmitting, sorting and analyzing mission data.

Federal systems integrators also have an eye on the transformative technologies and methodologies that are becoming commonplace in the digital modernization of federal IT infrastructures. For example, federal IT services vendors will increasingly utilize low code as they execute cloud implementations, enabling the rapid development and scale-up of cloud-based software tools. Federal IT contractors are also pondering the effects of 5G and quantum on cybersecurity, while upgrading existing mobile and IT communications systems into more open and interoperable networks embedded with AI and analytics technologies.

2022 federal IT services predictions

• Increased U.S. federal cloud spending upends the IT services market
• Vendors prepared for flattening defense budgets and accelerated civilian spend will see early gains
• Investment in advanced digital technologies will accelerate across all federal sectors

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Telecom Business Research’s 2022 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices, data center, and services & digital.