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 and had $20 billion lifetime budgets.
The news mirrors cuts in the UK, where the new coalition government has pledged to cut £3 billion from annual spending on IT programmes, consultancy and property. More details are expected to be announced in this autumn's Spending Review.
TechAmerica, a large IT industry group, said that some of the large IT vendors and integrators working on the US 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.
"You are bringing to a screeching halt some very significant programmes," 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.
Federal CIO Vivek Kundra, who will be conducting a review of the financial systems, has long been a critic of the federal IT procurement process, and is openly envious of the private sector's ability to share common platforms across enterprises and to deploy new systems quickly -- whereas the federal government tends to hire contractors who remain "on the payroll indefinitely."
Instead, Kundra has outlined a strategy that has agencies sharing IT resources and cooperating on development. He also said cloud-type environments are an ideal platform for many federal services.
Kundra, for instance, was critical earlier this year of the internal IT operations at the U.S. Patent and Trademark Office. Shortly after he wrote of his concerns in a blog post, the USPTO responded in its own blog post that it would redesign its system and move to a cloud platform .
Some of the financial system projects affected by this action have been on federal watch lists for delays and cost overruns for years, but other IT initiatives could get hit by a similar freeze, such as human resources projects.
"My question is, where will the administration stop? Will they get their fill with the financial systems, or will they keep marching through?" said John Slye, an analyst at Input.