1. Deniece Peterson Manager, Industry Analysis April 21, 2010 INPUT State of the Public Sector Copyright © INPUT 2010. All rights reserved.

2. Copyright © by INPUT. All rights reserved. Industry Analysis 2 Upcoming Reports: Federal Technology Strategies for Energy Efficiency (April) Federal IT Market Forecast (June) State of the States 2010 (April) State and Local IT Market Forecast (June) This presentation contains content produced by INPUT as part of the Industry Analysis program. INPUTs Industry Analysis Program includes: INPUT Annual IT Market Forecast Industry Reports On-Site Briefing Research Support Federal IT Forecast Finder Federal IT Budget Finder

3. Copyright © by INPUT. All rights reserved. 3 Budget Environment Trends and Issues Convergence of Obama Policy and Technology Economic Stimulus Health Care Reform IT Policy and Priorities Acquisition Technology Forecast Conclusions and Recommendations Agenda

4. Copyright © by INPUT. All rights reserved. 4 Budget Environment

5. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 5 Outlook of the Federal Deficit Source: Congressional Budget Office, OMB

6. Copyright © by INPUT. All rights reserved. Total FY2011 Discretionary Budget Request 6 FY2011 Presidents Budget Request Agriculture 4%4% Commerce 36 % Defense 3%3% Education 6%6% Environmental Protection Agency 3%3% Housing and Urban Development 5%5% Interior 2%2% Labor 2%2% NASA2% National Science Foundation 7%7% Social Security Administration 9%9% State and Other Intl Programs 16 % Transportation 2%2% Treasury 2%2% Veterans Affairs 7%7% Energy 7%7% General Service Administration 17 % Health and Human Services 1%1% Homeland Security 11 % Justice 12 % Small Business Administration % Change, FY10 - FY11 Source: FY2011 Presidents Budget Request 25 %

7. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 7 FY2011 IT Budget Request Source: FY2011 OMBs Report on Information Technology (Exhibit 53) Total IT Budget Request: $79.4B Overall Percent Change: -1.6% Total IT Budget Request: $79.4B Overall Percent Change: -1.6% +7% -63% +33% +25.4% -5%-2%

8. Copyright © by INPUT. All rights reserved. S&L Fiscal Outlook 8 S&L Government Stability

9. Copyright © by INPUT. All rights reserved. 9 Trends and Issues

10. Copyright © by INPUT. All rights reserved. Obama Policy Priorities and Impact on Technology 10 Expansion of cyber operations Consolidation of networks to improve cybersecurity Expand broadband to underserved and rural areas Utilize electronic health records to reduce costs Expand health care to uninsured Modernize the nations electric grid Reduce energy consumption Energy/ Conservation Cybersecurity Healthcare Broadband

11. Copyright © by INPUT. All rights reserved. 11 Cloud Computing Cloud pilots conducted in 2010 Agencies to consider cloud for all future IT needs Agency inventories due by April 30 th Data Center Consolidation Consolidate 1100+ data centers Reduce energy consumption Reduce the costs of hardware, software, and operations HHS standards development Continued promotion of EHRs Long-term implications for reform Health IT Federal Technology Priorities

12. Copyright © by INPUT. All rights reserved. Top 5 S&L Technology Investments 12 Public Safety Force Multipliers Predictive policing, consolidated dispatch, unified 911 call centers, voice/data/video communications Waste, Fraud, & Abuse Prevention IT Infrastructure Consolidation Decision-Support Tools Community Supervision for Non-Violent Offenders Virtualization, hardware standardization, SOA, information Security Focus moving from recovery to prevention of WFA Performance management driving need for data and BI GPS monitoring, mobile case management, registries

13. Copyright © by INPUT. All rights reserved. Health Care Reform Act – Cost and IT Implications 13 Source: CBO & INPUT IT Implications from: New or Expanded Organizations and Programs New Reporting/Tracking/Business Processes New CMS/MMIS Ramifications Tax Ramifications

14. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 14 ARRA Spending and Costs

15. Copyright © by INPUT. All rights reserved. Availability of Appropriated Funds Varies But Pay Outs are Minimal 15 Stimulus Funds Obligated and Paid Out - Technology, Facilities Modernization/Construction, R&D, and Training 16%62%57%46%57%37%28%19%64%70%56%87%20%24%1%20% Percent of Appropriated Funds Obligated Source: Recovery.gov

16. Copyright © by INPUT. All rights reserved. S&L Impact of Federal Stimulus To-Date 16 2009 funding distribution per INPUT forecast Grants, contracts, and entitlements Paid out slightly slower than forecast Build America Bonds Helped sustain historic borrowing levels Vital to capital/infrastructure projects 2010 remains pivotal year $2.25 billion in stimulus driven S&L IT consumption National health IT and broadband plans due in Q1/2010 Will prop up a flat year for S&L revenues

17. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 17 Federal Acquisition Reform Major Goals Reduce the combined use of no-bid contracts and cost-based contracts on new contract actions by 10% (over FY08 baseline) Strengthen contract management and review Closer oversight of all contract types, particularly sole- source and other non-competitive contracts Goal 1: Save $40B Goal 2: Increase Contracting Effectiveness Goal 3: Insourcing Goal 4: Increase Acquisition Workforce Reduce contractor spending by or 7% (3.5% in 2010 and in 2011) by identifying wasteful, inefficient, or ineffective programs Grow acquisition workforce by 5% and build skills Clarify inherently governmental and consider in- sourcing. Examples in 3/31 guidance: security (including cyber), lead systems integration, strategic planning, acquisition management

18. Copyright © by INPUT. All rights reserved. 18 Rise in Task Order Vehicles at the Expense of GSA GWACS and Schedules Source: INPUT, FPDS There has been a sustained shift in reliance on agency- specific Task Orders……. …at the expense of GSA schedules and GWACs.

19. Copyright © by INPUT. All rights reserved. 19 Technology Forecast

20. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 20 Source: OMB, INPUT FY10 figures are OMB estimates. *Enacted **Assumes 103% of FY11 request. Only once since 1994 has actual IT spending been less than a presidents IT budget request. IT Budget Requests vs. Actual

21. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 21 Addressable IT Forecast Source: OMB, INPUT

22. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 22 Market Segment Forecast Source: INPUT

23. Copyright © by INPUT. All rights reserved. 23 Source: INPUT Addressable S&L IT Market, 2009-2014

24. Copyright © by INPUT. All rights reserved. 24 Conclusions and Recommendations

25. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 25 Federal role in U.S. economy expanding Particularly in social, regulatory and security related programs Budget requests are generally conservative and should be looked at with skepticism Near-term federal technology priorities revolve around : Consolidation Advancing information security Transparency and accountability Long-term federal technology priorities revolve around: Health IT adoption Energy/environment (renewable energy, advanced battery manufacturing, smart grid) INPUTs Take

26. Copyright © by INPUT. All rights reserved. Copyright © INPUT 2010 26 Insourcing is a red herring in most areas of federal contracting Increase in federal task order contracting drives Need for companies to align with agency preferred vehicles Increase in sell through for product companies and subcontracting for small businesses Make big money where S&L governments are making big cuts Automation and mobility for over-burdened civil servants Citizen online self-service SaaS, open source, and COTS for quick implementation Business intelligence (BI) for desperate decision-makers Fewer super-sized S&L opportunities in 2009-2011 Less predictable pipelines; cast your net widely to catch many fish Overfill to compensate for opps. that are withdrawn Extend timelines to account for funding delays INPUTs Take (cont.)

27. Copyright © by INPUT. All rights reserved. 27 Track agencies tech refresh cycles; this is likely target for investments to support cloud computing, virtualization, green electronics, etc. Align with solutions with embedded security features New centralized security/cloud computing certification process in progress Streamline Bid & Proposal (B&P) processes; the increase in task order vehicles and competition require agility Align short-term business development (BD) to governors priorities backed by stimulus funds Transportation Education (Primary/Secondary & Higher) Social Services/Employment Stick to Tangible (not Soft or Speculative) ROI IT investments must produce savings that can be 1) identified, 2) captured, and 3) re-allocated Recommendations

28. Copyright © by INPUT. All rights reserved. 28 Q&A www.input.com