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MARKET FORECAST Federal Profession Services Market FY 1996-FY 2001 Federal Market Analysis Program 19 9 7 Federal Professional Services Market FY1996-FY2001 INPUT Frankfurt • London • New York • Paris • San Francisco • Tokyo • Washington D.C. Researched and Published by INPUT Suite 250 1921 Gallows Road Vienna, VA 22182-3900 United States ofAmerica Federal IT Market Analysis Program Federal Professional Services Market, FY1996-FY2001 Copyright © 1997 by INPUT. All rights reserved. Printed in the United States of America. No part of the publication may be reproduced or distributed in any form, or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. The information provided in this report is proprietary to INPUT. The client agrees to hold as confidential all such information, and control access to the information to prevent unauthorized disclosure. The information shall be used only by the employees of and within the current corporate structure ofthe client, and will not be disclosed to any other organization or person including parent, subsidiary, or affiliated organization without priorwritten consent of INPUT. INPUT exercises its best efforts in preparation of the information provided in this report and believes the information contained herein to be accurate. However, INPUT shall have no liability for any loss or expense that may result from incompleteness or inaccuracy of the information provided. MM12 • 777 • 1997 FEDERAL PROFESSIONAL SERVICES MARKET, FY 1996-FY 2000 INPUT Abstract According to this report, Federal Professional Services Market, FY 1996- FY2001, the federal market demand for vendor-furnished professional services will increase from $5.6 billion in FY 1997 to $7.5 billion in FY 2001 at a compound annual growth rate of 6%. The most significant change in the fiscal year 1997 budget was an increase in commercial services, indicating a strong continuing signal that the federal government will be contracting out more and more ofits professional services. Professional services represent major contract commitments, but application development will be reduced in favor of commercial solutions. Government end-users will continue to be faced with declining personnel levels, tightened federal funding and the need to increase the efficiency of information resources over the next several years, all ofwhich will drive the growth rate of the professional services market above the projected growth of the total federal IT market. The current and projected need for contractor assistance makes the federal government the largest potential user group for professional services in the U.S. At $3.9 billion, civilian agencies accounted for 71% of the total professional services market in FY 1996, with DoD accounting for the remaining 29%. Based on projected growth rates, civilian agencies are expected to command approximately 75%, or $5.8 billion, of the total professional services market in FY 2001. The professional servi—ces market is commonly conceptualized as three basic delivery modes software development, design and consulting and education and training. In this report, INPUT also analyzes professional services as they pertain to systems integration and outsourcing requirements within the federal government. MM12 © 1997byINPUT ReproductionProhibited. FEDERAL PROFESSIONAL SERVICES MARKET, FY 1996-FY 2001 INPUT INPUT forecasts information technology budgets by agency based on spending in obligations as reported to the Office of Management and Budget. To estimate current and potential future agency spending by specific professional services delivery modes, INPUT analyzes historical spending patterns by agency and considers existing and projected market trends that may affect spending on professional services. Based on these analyses, comprehensive forecasts and program trends are provided for — — those agencies both civilian and Defense with leading expenditures on total professional services and specific professional services submarkets. To develop a picture of the major players in the federal professional services market, INPUT examined net contract obligations compiled by GSA to show the top 10 vendors in terms of total professional services obligations reported during fiscal year 1996. INPUT provides an m overview of the competitive arena the federal professional services market, as well as a more in-depth analysis of the leading players among professional services contractors. In this report, INPUT also looks at the agency perceptions of the advantages and disadvantages ofvendor-provided professional services along with preferred vendor characteristics, including vendor type, vendor qualifications and vendor performance. In addition, INPUT reports on the agency suggestions on what vendors could do to make their services more valuable. This report analyzes trends, issues, agency perceptions and the competitive environment, and it gives recommendations that will help vendors maintain the competitive edge that will propel them into the twenty-first century. This report contains 166 pages, including 92 exhibits. © 1997byINPUT ReproductionProhibited. MM12 1111 FEDERAL PROFESSIONAL SERVICES MARKET, FY 1996-FY 2001 INPUT Table of Contents Introduction I-l A. Scope 1-2 B. Methodology 1-3 C. Report Organization 1-5 D. Related INPUT Reports 1-6 Executive Summary II- II I A. Market Trends ^- II- B. Market Forecast II-3 C. Agency Forecast and Trends II-6 D. Vendor Analysis 11-11 E. Conclusions and Recommendations 11-13 Market Trends III-l A. Federal Market Overview III-l 1. Economic Factors III-l a. FY 1997 Federal Budget III-2 b. Reinventing Government III-3 2. Information Technology Budgets and Trends III-4 a. Total IT Expenditures III-4 b. IT Budget Trends III-5 B. Application and Technology Trends III-11 C. Major Issues and Driving Forces III-13 1. Major Issues III-13 2. Driving Forces III-15 D. Conclusions III-17 jY Market Forecast IV- I A. Federal IT Market Overview IV- B. Professional Services Market Overview IV-3 C. Basic Professional Services IV-7 MM12 ©1997byINPUT, ReproductionProhibited. i 1 FEDERAL PROFESSIONAL SERVICES MARKET, FY 1996-FY 2001 INPUT 1. Software Development - ' IV-8 2. Design and Consulting Services IV-10 3. Education and Training IV-10 D. Systems Integration Professional Services IV-11 E. Outsourcing Professional Services IV-15 1. Government-Owned, Contractor-Operated IV-16 2. Contractor-Owned, Contractor-Operated IV-17 Agency Forecast and Trends V-1 A. Agency Overview V-1 , B. Leading Professional Services Agencies V-3 1. Office of the Secretary of Defense V-5 2. National Aeronautics and Space Administration V-7 3. Department of Energy V-8 4. Department of Health and Human Services V-10 5. Department ofthe Navy V-11 6. Department ofJustice V-13 7. Department ofthe Army * V-15 8. Department of the Air Force V-16 9. Department of the Treasury V-18 10. Department of Education V-20 C. Agency Market Segments V-21 < 1. Basic Professional Services V-22 a. Software Development V-24 b. Design and Consulting V-24 c. Education and Training V-24 2. Systems Integration Professional Services V-25 3. Outsourcing Professional Services V-27 a. Government-Owned, Contractor-Operated V-29 b. Contractor-Owned, Contractor-Operated V-29 Vendor Analysis VI-1 A. Vendor Overview Vt- B. Leading Professional Services Vendors VI-6 1. Lockheed Martin Corporation VI-6 2. Raytheon Company (E-Systems) VI-10 3. Computer Sciences Corporation VI-12 4. Science Applications International Corporation VI-14 5. Logicon, Inc. VI-17 6. The Boeing Company VI-19 7. TRW, Inc. VI-21 ii © 1997byINPUT ReproductionProhibited MM12 111 FEDERAL PROFESSIONAL SERVICES MARKET, FY 1996-FY 2001 INPUT 8. McDonnell Douglas Corporation VI-23 BDM 9. International, Inc. VI-25 10. Rockwell International Corporation VI-28 yjj Conclusions and Recommendations VII- A. General Observations VII- B. Agency Perceptions VII-3 1. Advantages/Benefits of Professional Services VII-3 2. Disadvantages/Liabilities of Professional Services VII-4 3. Vendor Characteristics VII-5 a. Vendor Type VlI-5 b. Vendor Qualifications VII-6 c. Vendor Performance VII-7 d. Agency Suggestions VII-8 C. Recommendations VII-9 D. Closing Remarks VII-12 A Definitions A-1 A. Overall Definitions and Analytical Framework A- B. Industry Structure and Delivery Modes A-4 1. Service Categories A-4 2. Processing Services A-6 3. Systems Operations A-6 4. Systems Integration (SI) A-7 5. Basic Professional Services A-8 6. Network Services A-9 g Glossary of Federal Acronyms B-1 I A. Federal Agency Acronyms B-1 B. General and Industry Acronyms B-20 GSA c Schedule Service Providers C-1 MM12 © 1997byINPUT. ReproductionProhibited. iii FEDERAL PROFESSIONAL SERVICES MARKET, FY 1996-FY 2001 INPUT Exhibits -1 1996 GDP and Inflation Growth Rate 1-3 -2 Methodology 1-5 -1 Information Technology Budget Categories, FY 1997 II-2 -2 Information Technology Contracting Trends, FY 1986-FY 2001 II-3 -3 Total Professional Services Budget, FY 1996-FY 2001 II-4 -4 Professional Services Market, All Segments, FY 1996-FY 2001 II-5 -5 Professional Services Market Segment Distribution, FY 1996 II-6 -6 Professional Services Share ofTotal IT Budget by Agency, FY 1996 II-7 -7 Total Professional Services Spending by Agency, FY 1996 II-9 -8 Professional Services Market Share by Agency, FY 1996 11-10 -9 Top Ten Professional Services Vendors, FY 1996 11-11 -10 Existing Professional Services Contracts by Vendor and Agency 11-12 -11 Advantages/Benefits of Professional Services 11-14 -12 Disadvantages/Liabilities of Professional Services 11-15 -1 Expected Savings From Five Reinvented Agencies III-3 -2 Total Federal IT Expenditures, FY 1991-FY 2001 III-4 -3 Information Technology Budget by Category, FY 1997 III-5 -4 Federal IT Budget Trends by Category, FY 1987-FY 2001 III-5 -5 Federal IT Personnel Trends, FY 1992-FY 2001 III-6 -6 Federal IT Budget Progression, FY 1988-FY 1996 III-7 -7 Comparisonof Industry Trends, FY 1996-FY 2001 III-8 -8 Defense Agency Budget Trends, FY 1987-FY 2001 III-8 -9 >$1 Billion Agency Budget Trends, FY 1991-FY 1997 III-9 -10 $500 Million-$l Billion Agency Budget Trends, FY 1991-FY 1997 III-9 -11 $100 Million-$500 Million Agency Budget Trends, FY 1991-FY 1997 III-10 -12 <$100 Million Agency Budget Trends, FY 1991-FY 1997 III-10 -13 Technological Issues Affecting Federal Government Programs III-11 IV © 1997byINPUT ReproductionProhibited MM12