Defense department to wring savings from its info-tech buys.

• Author: Insinna, Valerie

Although the Defense Department continues to pour funding into information technology initiatives, contractors may find the pool of money shrinking over the next five years.

Defense agencies will only spend $58.6 billion in 2017 on IT products and services from industry, down from $68.4 billion in 2012, according to a report by Deltek, a Herndon, Va.-based enterprise software company.

As the Defense Department tries to balance its growing information technology needs with a budget that is decreasing overall, it will concentrate funding on consolidation, cybersecurity and programs that increase interoperability and efficiency, analysts said.

The budget-conscious atmosphere means companies will have to offer solutions that meet the requirements at the lowest possible cost, said Tim Larkins, a defense market intelligence consultant for immixGroup.

"What they're trying to get here is functional, affordable technology," Larkins said. "if you are not the lowest price, then you have to justify why the government should be purchasing your product or service."

Overall, IT contracts will become smaller because long-term contracts tend to go over budget and become hard to manage, said John Slye, an advisory research analyst at Deltek.

"That increases your competition costs for contractors because you have to submit multiple bids or respond to multiple task orders," he said.

The Pentagon in 2011 laid out a strategy calling for greater consolidation because the complexity of the IT environment "reduces our ability to secure our information systems, hampers our ability to share information, and needlessly consumes the finite resources available to DoD," it said. The hope is that short-term spending in this area will help spur long-term savings.

According to the chief information officer's 10-point plan for IT modernization, the department plans to reduce the number of data centers from 770 to fewer than 100, consolidate network operations centers from 65 to 25 and move the services to a joint enterprise architecture.

This provides contractors with an opportunity to help coordinate, consolidate and migrate the networks, said Slye. Network consolidation is "complex, so it takes time to do it. So there are opportunities for that kind of traditional systems integration and software migration support."

One such program is the Navy's Consolidated Afloat Networks and Enterprise Services (CANES), which will streamline five shipboard networks into one and equip...