With sequestration looming, and 2013 federal IT spending requests having have dropped $1 billion over fiscal year 2012 levels, contracting dollars especially for IT are expected to come under intense scrutiny, and in many cases get shuffled to meet changing needs next year.

Those who follow federal IT spending are already aware that the fiscal 2013 federal IT budget request is approximately $78.9 billion, down from the prior year’s $79.7 billion. However, Congress’ continuing resolution and potential sequestration are likely to lower IT spending to between $73 to $74 billion.

Federal buying trends will inevitably reflect this renewed emphasis on cost savings, as agencies emphasize mobility and cloud-related technology to comply with the Digital Government Strategy from Federal CIO Steven VanRoekel. Technology will have to demonstrate value through improving processes and operations and eliminating redundancy.

But it’s a sign of the financial times that agencies must also prepare for the potential impact of sequestration. The measure, if allowed to stand, will cap discretionary spending levels between 2013 and 2021 and means overall spending cuts of $1.2 trillion.

Contracting dollars are likely to be first on the chopping block. According to immixGroup’s market intelligence analysts, some $38.5 billion will be cut in FY13, of which $8.9 billion will come from contract dollars. That will be felt the most by large programs and contractor spending. IT development will focus more on incremental progress and agile development practices to squeeze more value out of every dollar spent.

On the civilian side, the clear drivers are the Digital Government Strategy and cloud computing Digital Government is prompting agencies to become more information-centric, shifting from managing “documents” to managing discrete pieces of data and content. Emphasis on shared platforms will reduce costs, streamline development, standardize practices, and ensure consistency resulting in a more customer-centric environment where end-users can shape, share, and consume information as they want.

Of course, all this also will introduce security and privacy issues, and contractors have taken steps to be ready for this. In a recent analysis of 66 cyber security deals, federal contractors are strategically buying companies that can add to their offerings in continuous monitoring, secure cloud computing, and mobile application security.

Cloud computing is likewise gaining momentum. Federal agencies are implementing policies and contracting procedures to help move services such as email, data storage, and customer analytics to the cloud. It’s a good thing, too, as the Office of Management and Budget is making agencies itemize their cloud computing initiatives in fiscal 2014 budget plans.

Data center consolidation is another hot button for budgeting. The Federal Data Center Consolidation Initiative memorandum of 2011 set a schedule of deliverables to help meet a goal of consolidating at least 800 data centers by 2015. As one example, the Department of Treasury has hiked its budget request to $3.5 billion, up from $3.2 billion in 2012, to support its goal of having half of its servers virtualized by 2015.

On the Department of Defense (DoD) side, interoperability and infrastructure consolidation are driving the direction of IT budgets. The DoD is looking to reduce data centers from 770 to fewer than 100, and network operations centers from 65 to 25. The Joint Information Environment (JIE) initiative being promoted throughout DoD is expected to improve interoperability, share secure information, and lower costs across the department.

Most service branches are seeing at least a small cut in their IT budget requests. The Army’s FY 2013 budget request has shrunk by one percent over last year. Even so, it remains the largest IT budget of all federal agencies. Programs supporting tactical communications and special operations will most likely be safe from budget cuts.

One notable exception to this overall decrease is The Defense Information Systems Agency (DISA), which is seeing its IT budget rise by approximately 2%, up to $5.13 billion. This is partly due to redistribution of funds from the military service branches to DISA as the DoD shifts increasingly toward enterprise and hosted services.

Because reduced spending is a clear theme across both defense and civilian agencies, both sides will have to take a hard look at unobligated dollars for potential cuts. Existing programs are more likely to see continued funding and new initiatives may be stalled or fail to get off the ground entirely.

And the upshot for the technology community?

Product vendors and solution providers have to consider how their products serve existing programs – and whether they may be able to deliver a cloud-based offering. The federal government is buying. But the buyers want to hear how the sellers will help them do more with less.

Readers can find additional details from immixGroup’s Federal IT Budget Briefing via on-demand webcasts for civilian agencies and for the defense sector.

Allan Rubin is Vice President of Marketing for immixGroup, Inc. which helps technology companies do business with government. He can be reached at [email protected]