Kerry vs. Bush: How The Victory of Each Would Affect IT Business

From his office in california--an earthquake-proof, red-brick data center that he shares with the Orange County government--Govplace president Sean Burke has his eye on the upcoming elections. Govplace, the 12th fastest-growing solution provider on the 2004 VARBusiness 500 (No. 442), earns every penny of its $26 million in sales via federal, state and local government contracts by providing storage, security and business-continuity solutions. With only 30 employees, Govplace can't afford to hire analysts to break down the probable race results like its larger rivals do. So Burke scours government reports, industry news and other research resources to get a sense of what to expect after the dust settles on November 2004.

"Half of our job is technical and the other half is political," Burke says. "We have to anticipate what is going to happen, and then understand the priorities of the new elected leaders and their staff. We need to know if the new focus is going to be health care, defense, education or social services, and then see what we can provide there. Here in California, [there's] the federal No Child Left Behind program and other major funding initiatives, [without which] kids wouldn't have money for IT. So we have to look closely and ask, 'Is the next election going to affect that? How should we be planning?'"

What's key: getting to the de facto truth behind the winning candidate's words. "What happens after election day depends upon much more than what is said in the speeches," Burke says. "You really have to dig within their political organizations to get a real sense of what to expect."

Burke is far from alone among VARs: The stakes are high for government channel sales in any election year--especially one in which the next U.S. president will be decided. From the White House to the county clerk's office, the shuffling of elected leaders will play a big role in the future fortunes of those pursuing federal, state and local government contracts. Like Burke, most resellers are trying to read the tea leaves.

History Is the Best Teacher
What? You say you're skeptical that new leaders can have a major impact? That politics is nothing more than a "meet-the-new- boss-same-as-the-old-boss" business-as-usual process? Then think about the state of federal government channel sales before the November 2000 election: Four years ago, the phrase homeland security wasn't the all-encompassing, national buzz phrase that it is now. Heck, we didn't even have a governmental department for it back then. And it wasn't exactly the largest blip on the radar for resellers.Sept. 11, 2001, of course, changed all that, creating a profound shift when it came to IT spending in the reseller/vendor government sales channel. From fiscal years 2002 to 2004, some $13.1 billion in federal grants have gone out to states for public-health and terrorism-preparedness efforts, with much of it trickling down into the local counties and cities where such efforts take shape. In the three fiscal years before that, only $1.2 billion of that funding went to the state and local governments. (The Department of Homeland Security, which has provided $8 billion of that funding since it was established on March 1, 2003, allocates 80 percent of those grants to local governments.)

That boost has mirrored a two-year boom for IT sales during the Bush administration, with a combined 28.5 percent in growth in the fiscal years 2002 and 2003, raising total IT spending to $57.2 billion in 2003, up from $44.5 billion in 2001, according to McLean, Va.-based Federal Sources. This year, the budget has gone back to traditional growth rates of the past 10 years, with a current IT spending picture of $59.3 billion.

Many resellers and vendors interviewed credit this to the staunch, anti-terrorism, pro-defense policies of the Bush administration. Frankly, some are a bit skittish about IT spending prospects should Democratic candidate Sen. John Kerry win. But, if history has taught us anything, it's clear that overall IT spending doesn't change significantly when a new president enters the White House. What changes is how that money is spent.

"The actual overall IT spending picture is not impacted greatly by the party that controls the White House and Congress," says Ray Bjorklund, senior vice president and chief knowledge officer at Fed Sources. "But these factors do have a great impact in terms of how the money is budgeted, as well as the major changes in procurement reform that we've seen in both of the most recent administrations. Both of these most recent administrations have been very supportive of IT. They've been staffed by people who know what technology can do and are quite capable of harnessing it to maximize its value in serving this country."

Former President Clinton and the Congress of the 1990s were determined to open up the historically bureaucratic, stodgy purchasing process, and resellers thrived in that scenario. Thanks to the Clinger-Cohen Act of 1996, agency buyers no longer need to go through the GSA for every single desktop computer or server. An across-the-board, agencywide market was launched, resulting in more competitive packages and quicker acquisitions.President Bush, of course, created the Department of Homeland Security, paving the way for watershed opportunities for resellers to bring to market information-sharing solutions, Internet-centric military devices and public safety/health integration to all levels of government--federal, state and local. And the E-Government Act of 2002 will now allow state and local government customers to purchase IT right off the federal GSA Schedule, further opening up the marketplace.

Who would have predicted that two presidents from the South--one from the red party, another from the blue--would end up fast-forwarding IT initiatives at a rate that eclipsed any presidents before them? This year's choice isn't as obvious as it seems; the positives and negatives of both candidates are as subject to as much interpretation as a Rorschach test. Both Bush and Kerry have hauled in more than $1 million in contributions from the IT industry, according to the Center for Responsive Politics. Both candidates are considered tight with top tech CEOs, who support them both in word and fund-raising deed.

"There has been a lot of political rhetoric on both sides of the aisle," says Shiv Krishnan, president and CEO of Indus, a Vienna, Va.-based IT services integrator/reseller. "But it's clear that both sides 'get it' when it comes to IT spending issues."

Ultimately, however, who should resellers vote for? In the end, those with a dog in the hunt would prefer that the current GOP-dominant landscape remain as such. But consider the following four scenarios to get a better sense of the potential outcomesand issues:

Scenario 1: Bush wins, GOP takes Congress
Happy days are here again, most industry players say. Keep those Department of Defense and intelligence contracts coming and competitive sourcing for projects will be maintained, encouraging the open competition policies of the past decade, which are good for resellers looking to enter or grow into the market."This is the kind of election outcome that will ensure that government IT work will continue to be a boom to government IT VARs," says Valerie W. Perlowitz, president and CEO of Reliable Integration Services, a Vienna, Va.-based integrator/reseller.

And count on a continued, aggressive Bush/GOP push to open up network information sharing among agencies, further fueling opportunities for resellers. Despite the push for information sharing in the past four years, agencies are still essentially acting as silos because of the pattern of past IT purchases.

"Transportation organizations, for example, are migrating from multiple, disparate communications environments to single, intelligent networks," says Gregory N. Akers, senior vice president and CTO for global government solutions at San Jose, Calif.-based Internet infrastructure vendor Cisco Systems. "The government will need further integration of digital video surveillance and access control systems," he continues. "It will need technologies that help optimize the movement of cargo by tracking containers and vehicles. It will need wired and wireless communications to enable security personnel to communicate rapidly with passengers, airlines, government and first-responders, and cybersecurity tools such as network perimeter security."

Scenario 2: Kerry wins, GOP takes Congress
Not a bad situation, despite what's perceived as Kerry's dubious record on defense and intelligence. Kerry has obvious military credentials and won't exactly get elected by going soft on America's enemies, so that means continued if uncertain defense and intelligence spending. He has called for a swift adoption of the 9/11 Commission panel recommendations, which include the creation of a national intelligence czar. It also calls for a national counterterrorism center to replace agencies that appear to have redundant duties. What this means as far as spending, however, is subject to interpretation. But, to be sure, the establishment of new leaders and government officers presents new opportunities for resellers to explore, even as old business avenues shut down.

Another bright side? First responders should be well taken care of. (You don't win over voters by taking police off the streets and closing down firehouses, now do you? Don't forget that the national crime rate decreased dramatically during the Clinton administration.)"Kerry plans to enhance homeland security by supplying all first responders with broadband connections by the end of 2006," says Christopher Faulkner, president and CEO of C I Host, a Bedford, Texas-based reseller that specializes in value-added Web-hosting solutions, serving government clients such as the federal Occupational Safety and Health Administration. "He has also proposed a $30 million package of tax incentives for tech investments in start-ups, research and development and broadband networks for rural areas and inner cities. This will certainly increase IT opportunities in that sector."

Scenario 3: Bush wins, Democratstake Congress

A Democratic-controlled Congress could slow down the rush of homeland security/defense spending, industry executives say, calling into question much of what Bush has preached for the past four years. But all election forecasts consider the GOP domination of the House to continue, so Bush isn't likely to lose complete control here. Besides, Congress could only do so much to slow things down.

"At the federal level, it is clear that there are going to be ongoing, continued needs to integrate, share and collaborate," says Michael Corcoran, chief communications officer for Information Builders, a New York-based vendor.

Scenario 4: Kerry wins, Democratstake Congress
The good times could get stalled here, what with the sentiment to pull back on defense spending, deal with that pesky ol' deficit, health care and, oh, the Social Security thing. And there will be more cuts than simply defense and intelligence spending.

"He'll push for increased environmental regulations, thus reducing opportunities for IT services companies that rely on government-related fossil-fuel projects," Faulkner says. "But it's always wise to see where opportunities surface when others slide. Kerry will increase research opportunities into generic drugs, as well as solar, wind and biomass. This could be a key growth area for resellers in government IT."Well, OK. But solar and wind-powered gewgaws andwidgets don't exactly make up for those fine, billion-dollar contracts to build Web-enabled combat weapons, do they? Most IT industry leaders contacted by GovernmentVAR perceive this scenario as the most potentially negative for government sales and resellers. After all, defense and intelligence are mighty large pieces of a pie. If Kerry wins and the Democrats take the Senate, also look for competitive sourcing to be reduced significantly.

"Government union employees will have an upper hand to keep the IT work inside the government," Perlowitz says.

Talk about party poopers.

Dennis McCafferty ([email protected]) is a freelance writer based in Herndon, Va.