Government MSPs Deal With U.S. Budget Uncertainty
MSPs say they are keeping a close eye on the government sector amid uncertainty over the federal budget. The federal government has been operating under a series of temporary spending measures since last fall, when the September 30 deadline for FY 2011 budget came and went without an agreement. A shutdown of the government seemed imminent, but a budget deal last week will keep the lights on through September. The budget agreement involves about $39 billion in budget cuts. Still, the budget discussion is far from over. Here’s why.
Another debate could arrive as soon as next month when Congress is likely to take up the issue of extending the federal debt ceiling. And while that’s going on, one can expect continued grappling over the fiscal 2012 budget.
Michael Fox, director, Public Sector, at Carpathia Hosting, said the company, which provides managed hosting services for government agencies and commercial enterprises, has been dealing with budget uncertainty for months. “It does drastically affect the way we do business,” he said. “There’s much more focus on the types of programs to go after.”
Don Goodwin, chief revenue officer at Latisys, a colocation, managed hosting, managed service provider, said the company “will be keeping its eye on how the budget uncertainty plays out so it can direct resources in the proper place.” If the government were to shutdown anytime soon, Latisys’ exposure would be limited.
“The government market is an emerging but still relatively small slice of Latisys’ business at present, so a government shutdown would not materially impact its business at the current time,” he said.
In recent years, government has been a source of stability and new business opportunities for MSPs. When commercial business sagged, government IT continued to grow, albeit at a slower pace. Service providers for a few years now have been targeting the federal sector with cloud services. Data centers in the D.C. area been purchased or expanded. Alliances have been struck to pursue government business.
So, will the budget situation dampen federal enthusiasm? Possibly. But that doesn’t seem to be happening quite yet.
Goodwin said Latisys still views the public sector as a high-value growth market. And Fox said the budget pressure may actually generate business. Cutbacks, he said, compel agencies to look at their IT programs for ways to reduce cost and increase efficiency. That search may lead agencies to hire providers who can keep cost in check while delivering better service.
A key part of Carpathia’s current federal strategy consists of focusing on funded IT programs, opposed to early-stage initiatives that haven’t nailed down financial support. When times are good, business development often involves tracking IT efforts before they emerge as full-blown procurements. Learning about an agency’s requirements makes for a better bid down the road, so the thinking goes.
But when time are tighter, the idea is to seek funded projects, Fox said. Some exceptions may be made, however. Carpathia, Fox said, may look into emerging cloud deals before they capture funding, for example.
Overall, Carpathia looks for programs that cut across multiple agencies, Fox noted. Those sorts of programs seek to drive efficiencies and reduce cost. He cited the General Services Administration’s Infrastructure as a Service multiple-award contract as one example. Carpathia participates in that program as a subcontractor.
Fox said multiple agencies can buy off such vehicles or blanket purchase agreements (BPAs) as they are sometimes called. BPAs, which have been around since the 1990s, let agencies consolidate requirements, negotiate volume discounts, and streamline the procurement cycle.
VARs, as well as service providers, have captured government BPAs of late.
Earlier this month, DLT Solutions, a government VAR, captured a $26 million contract to provide Autodesk computer-aided design software to the Air Force.
That contract, with the Air Force’s Office of the Civil Engineer, is DLT Solutions’ biggest Autodesk-related BPA, noted Jim Helou, senior vice president of Autodesk Solutions at DLT Solutions. The company previously secured a BPA for Autodesk software with the Army Corps of Engineers.
Fox, meanwhile, said Carpathia also looks into programs involving public-facing Web sites — candidates for cloud computing — and disaster recovery programs. The company may also go after funded IT programs that have encountered problems, opening opportunities for providers to pitch a more efficient approach.
As for the big picture, Fox cited three trends that bode well for MSPs in government: the federal government’s “cloud first” policy, the ongoing data consolidation push, and budget constraints.
With cloud first, the White House last November made cloud computing the government’s default IT approach. As for data center consolidation, the Federal CIO Council recently kicked off a Data Center Consolidation Task Force that aims to help agencies meet the federal target of closing 800 data centers by 2015.
Fox contends that budget constraints will have cost-minded agencies leaning toward data center outsourcing.
The takeaway for MSPs: keep up with the budget trends pick your spots.