IDC US Stimulus

8/6/2019 IDC US Stimulus

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Filing Information: March 2009, IDC #217404, Volume: 1Worldwide Vertical Markets: Insight

I N S I G H T

B u s i n e s s S t r a t e g y : C a p t u r i n g Yo u r S h a r e o f t h e A m e r i c a nR e c o v e r y a n d R e i n v e s t m e n t A c t

Meredith Whalen Scott LundstromRick Nicholson Teresa Bozzelli

I D C O P I N I O N

The U.S. economic stimulus plan, American Recovery and Reinvestment Act (ARRA),was signed into law in February 2009. The Act includes specific funding for technology in the areas of healthcare and energy as well as government operations.For technology suppliers that are facing a 0.1% 2009 U.S. growth rate (according toIDC), this is welcome news. In more detail:

! We estimate the $788.7 billion spending in the ARRA will stimulate approximately$101.2 billion of technology spending in the energy, healthcare, and governmentsectors. This includes both traditional IT spending and technologies not typicallyconsidered part of IT (e.g., technologies associated with wind and solar power generation). The largest portion of the technology spending ($77.6 billion) will beassociated with the energy sector. Healthcare is expected to see $21.1 billion intechnology spending. And government is expected to receive $2.5 billion intechnology spending for its own internal use. This will be incremental spendingthat will take place between 2009 and 2014, with the heaviest spending takingplace in the later years.

! It is imperative that the IT vendor community be both aggressive and agile in their

strategy to capture this newly addressable market. This once-in-a-lifetime flood of new technology money requires a new way of finding and following opportunities.Due to the aggressive timeline, success will not come from the traditional businessdevelopment via relationships and RFPs. While much of these new monies will beallocated via grants and accelerated acquisitions contracts, there will be new waysof engaging with the government. Government agencies have already identifiedprogram objections, measures of success, and anticipated savings in criticalprograms. IT vendors that can identify additional program innovations and savingsand offer public/private partnerships to capture additional monies saved will havean advantage over competition in this economy.

I N T H I S I N S I G H T

This IDC Insight identifies how much spending on technology in the energy,healthcare, and government sectors we believe there will be as a result of theAmerican Recovery and Reinvestment Act (ARRA), and when this spending is likelyto take place. This Insight also provides advice for technology suppliers looking tocapture a portion of the business that will ultimately come out of the Act.

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The Recovery and Reinvestment Act includes specific funding for technology in theareas of healthcare and energy. For technology suppliers that are facing a 0.1% 2009U.S. growth rate, this is welcome news. This new government money will notnecessarily be identified as such, but as an element of a new and urgent governmentinitiative. Vendors must understand when and how to upsell existing contracts whenexpediency is critical. Vendors must also offer new engagement models to thegovernment, where reward is directly tied to the results achieved against the promiseof the economic recovery designed within the stimulus package.

S I T U AT I O N O V E RV I E W

We estimate the $788.7 billion spending in the ARRA will stimulate approximately$101.2 billion of technology spending in the energy, healthcare, and governmentsectors. This includes both traditional IT spending and technologies not typicallyconsidered part of IT (e.g., technologies associated with wind and solar power generation). The largest portion of the technology spending ($77.6 billion) will beassociated with the energy sector. Healthcare is expected to see $21.1 billion in

technology spending. And government is expected to receive $2.5 billion intechnology spending for its own internal use. This will be incremental spending thatwill take place between 2009 and 2014, with the heaviest spending taking place in thelater years. Given the tech-heavy nature of the spending going into these industries,we have dedicated this document to providing a detailed view of the anticipatedARRA spending associated with the healthcare, energy, and government sectors.However, we should note that an additional $7.2 billion of the money is set aside for the development and implementation of broadband capability throughout the UnitedStates, which is not covered in this document.

The ARRA does not provide detailed information about the exact amount of technology spending nor which technology segments this spending will go toward.These details are to be worked out by industry. However, after extensive review of theAct and discussions with industry technology buyers, Industry Insights analysts havemade estimates about the amount of technology spending and technologies industryis likely to spend the money on and the timing of it. This information is provided in thisdocument to guide IT vendors in capturing this forthcoming opportunity.

F U T U R E O U T L O O K

C a p t u r i n g t h e $ 7 8 B i l l i o n E n e r g y T e c h n o l o g yO p p o r t u n i t y

Many are calling the bill the "green" new deal, which it may be considering it containsa more than $40 billion investment in the energy industry, geared toward clean,efficient, and independent energy for America. The spending is focused onrenewables, energy efficiency, smart grid, and alternate fuels. Out of the $788.7billion in spending associated with the ARRA, we estimate approximately $77.6 billionwill be associated with technology spending by the energy industry. Specifically, thistechnology spending can be categorized into the following: intelligent grid ($8.6billion), renewable energy ($66 billion), and energy efficiency ($3 billion) programs.


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Table 1 summarizes the key provisions in the ARRA and the technologies we expectto see an uptick as a result.

T A B L E 1

E n e r g y Te c h n o l o g y O p p o r t u n i t i e s

Provision in ARRAAmount of Money Likely toGo Toward Technology

Technologies Expected toReceive a Boost

Years Significant Spending onTechnology Is Likely to TakePlace

Intelligent grid $8.6 billion IT and communicationshardware, smart meters andother intelligent devices,applications software used tooperate the grid and enableactive energy management byconsumers, software to managehuge amounts of meter and griddata, advanced energy storagesystems, and grid-connecteddistributed generation resources

Late 20092014

Renewable energy $66 billion Wind, solar (thermal andphotovoltaic), biomass,geothermal, and other renewable generation capitalequipment (not includingtransmission lines)

Mid-20092012

Energy efficiency $3 billion Efficiency technologies notgenerally used in existing utilityprograms or technologies thatwere not previously costeffective (e.g., in-home displays,programmable communicatingthermostats, and moresophisticated building energymanagement systems)

Late 20092014

Note: This includes traditional IT and non-IT technologies.

Source: Energy Insights, 2009

The $8.6 Billion Intelligent Grid Technology Opportunity

We estimate $8.6 billion will go to funding specifically for "smart grid" technologyinvestment. We believe this level of funding will significantly accelerate investment ina wide range of intelligent grid technologies by U.S. electric utilities. The majority of

spending will fund two key sections of Title XIII of the Energy Independence andSecurity Act of 2007:

! Section 1304 (Smart Grid Technology Research, Development, andDemonstration), which is focused on demonstration projects that use advancedtechnologies such as energy storage, wide area measurement and controlnetworks, high-performance computing and analytics and other emerging highlydistributed technologies as well as advanced techniques to achieve peak loadreduction, energy efficiency savings, and improved system reliability


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! Section 1306 (Federal Matching Fund for Smart Grid Investment Costs), which isfocused on deployment of smart appliances and other smart end-use equipment,smart transmission and distribution equipment, smart meters, electric or hybridelectric vehicles that are integrated with the smart grid, and supporting softwareand communications networks

While the ARRA specifically states it will provide $4.3 billion in grants to support smartgrid, this money is offered as a matching effort to a utility's own intelligent gridinvestment. Therefore, we expect the real dollars that will go into the economyassociated with intelligent grid technology to be double the $4.3 billion in grants $8.6 billion.

However, the timing of this spending by utilities and the distribution of investmentsacross different types of intelligent grid projects will depend on factors such as theefficiency of the federal grant application and approval process, the role of statepublic utility commissions (PUCs) in approving the projects, and the ability of utilitiesto organize the required processes and resources.

The $66 Billion Renewable Energy Technology Opportunity

The Act includes, among other things, a number of subsidies, loan guarantees,bonds, and new accounting rules intended to reignite growth in the renewable energy(RE) and distributed energy (DE) segments. The stimulus package provides for some$20 billion in direct DE/RE spending and opens the door for tens of billions more (inthe form of loan guarantees and ITC grants). While the Act does not call outtechnology grants specifically, we believe the effect of the loan guarantees and thetax credits will be to generate $133 billion in renewable projects. Assuming the typicalproject will have about 65% of its spend associated with technology and subtractingout transmission projects to serve renewable resources, we estimate the $20 billion of renewable stimulus spend in the Act will result in $66 billion in spending on renewable

energy technology.

We expect technologies such as wind, solar (both thermal and photovoltaic),biomass, geothermal, and energy storage will receive a boost. Investments in thesetechnologies should see an uptick starting in mid-2009 and continue heavily through2012.

While the Act looks likely to improve the outlook for DE/RE financing over the nexttwo years, the bill isn't an open-ended, permanent subsidy to DE/RE production. Italone isn't going to transform the United States into an emissions-free, renewableenergy powerhouse. Instead, it should be viewed as a stopgap measure for financiallysupporting the DE/RE sectors during one of the worst economic recessions on

record.

The $3 Billion Energy Efficiency Technology Opportunity

ARRA supports an unprecedented investment in helping residential, commercial, andindustrial utility customers make energy efficiency investments. A number of theprovisions within the stimulus package promote energy efficiency in residential andcommercial buildings for both new buildings and renovations to existing buildings.


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In all, approximately $13.2 billion is provided specifically for energy efficiencyimprovements to homes and businesses. Unlike the renewable energy projects, webelieve a relatively small percentage of the spending on energy efficiency projects(23%) will go toward new technology. The $3 billion in new technology spending willbe related to technology not generally used in existing utility programs or technologiesthat were not previously cost effective.

These new technologies will include both active and passive technologies. Examplesof active technologies funded by the ARRA include:

! In-home displays

! Programmable communicating thermostats

! More sophisticated building energy management systems

Examples of passive technologies funded by ARRA include:

!Ultraefficient HVAC systems

! Geothermal heat pumps

The timing of these investments will begin as early as late 2009 and continue through2014. We expect investments to start slowly and ramp up in later years.

C a p t u r i n g t h e $ 2 1 . 1 B i l l i o n T e c h n o l o g yH e a l t h c a r e O p p o r t u n i t y

The majority of the provisions in ARRA associated with healthcare are expected toserve as a catalyst for faster and more widespread deployment and usage of

electronic medical records (EMRs) and electronic health records (EHRs). The billaddresses many of the major barriers to EMR and EHR adoption, especially amongsmaller physician practices and hospitals, which represent the majority of U.S.healthcare providers. The bill includes provisions to facilitate the adoption of aconnective health information exchange infrastructure, a key prerequisite for achieving the structural improvements in healthcare delivery that the Obamaadministration is seeking.

The healthcare technology spending in ARRA can be divided between EMR and thecomparative effectiveness research provisions. Out of the $788.7 billion in spendingassociated with the ARRA, we estimate approximately $21.1 billion will go towardtechnology associated with the healthcare industry. Approximately $20 billion will be

spent on EMR technology spending, and $1.1 billion will be spent on technology tosupport comparative effectiveness research.

Table 2 summarizes the key provisions in the ARRA and the technologies we expectto see an uptick as a result.


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T A B L E 2

H e a l t h c a r e Te c h n o l o g y O p p o r t u n i t i e s

Provision in ARRA

Amount of Money Likely to

Go Toward Technology

Technologies Expected to

Receive a Boost

Years Significant Spending onTechnology Is Likely to Take

PlaceHealthcare IT $20 billion EHR technology and

associated technologiessuch as interfaces betweenhuman information andcommunications technologysystems, voice-recognitionsystems, software thatimproves interoperability andconnectivity among healthinformation systems,software dependability insystems critical to healthcaredelivery, business andclinical intelligence tools,wireless and wiredcommunicationstechnologies, healthinformation technologysecurity and integrity,relevant health informationtechnology to reducemedical errors and enhancepatient safety, remote patientmonitoring technologies,distance learning, andtelemedicine technologies

20102014

Comparativeeffectiveness research

$1.1 billion Technology solutions thatmeasure the comparativeeffectiveness of programs,clinical intelligence solutions,including clinical decisionsupport systems (CDSS),along with significantadditional medical and ITinfrastructure

20102012

Note: The bulk of technology spending will be associated with EHR.

Source: Health Industry Insights, 2009

The $20 Billion Electronic Medical Record Opportunity

ARRA provides a combination of near-term stimulus funding for patient care, coupledwith significant long-term incentives and investments in new core health ITinfrastructure to accelerate the move toward digital patient information. New Medicareand Medicaid stimulus money will ease cost pressures for many providers, whiledirect incentives to physicians and hospitals should ensure aggressiveimplementation of new patient information systems starting in 2011.


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We estimate $20 billion of the ARRA spending will be related to EMR and associatedtechnologies. Associated technologies include:

! Interfaces between human information and communications technology systems

! Voice-recognition systems

! Software that improves interoperability and connectivity among healthinformation systems

! Software dependability in systems critical to healthcare delivery

! Business and clinical intelligence tools

! Wireless and wired communications technologies

! Health information technology security and integrity

! Relevant health information technology to reduce medical errors and enhancepatient safety

! Remote patient monitoring technologies

! Distance learning

! Telemedicine technologies

Spending on these technologies will begin in earnest in 2010 and continue throughout2014.

The $1.1 Billion Comparative Effectiveness Research Technology Opportunity

The most prominent and controversial provision is likely to be the $1.1 billion targetedtoward comparative effectiveness research. This funding, which is strongly opposedby the pharmaceutical industry, seeks to identify the performance differencesbetween currently approved drugs, with the aspiration of identifying which drugs workbest under different circumstances.

Specifically, $1.1 billion has been allocated to conduct or support comparativeeffectiveness research, split between NIH and Health and Human Services (HHS).Beginning the efforts to more effectively spend future healthcare dollars, these newcomparative effectiveness efforts are directly aligned with the path that will lead tobroad enablement of personalized medicine in the United States. The key goals of this effort will be the ability to determine which drugs in the same treatment categories

work best in specific patients.

Part of this funding is specifically allocated toward helping to create a healthcare ITinfrastructure that should begin to enable better access and use of medicalinformation at the point of care. We expect this to drive adoption of the followingtechnologies:

! Technology solutions that measure the comparative effectiveness of programs


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! Clinical intelligence solutions, including clinical decision support systems (CDSS)

! Medical and IT infrastructure

Investment in these technologies will be largely concentrated between 2010 and2012.

C a p t u r i n g t h e $ 2 . 5 B i l l i o n T e c h n o l o g yG o v e r n m e n t O p p o r t u n i t y

We should be clear to note that the government plays two roles in the ARRA. Themost significant role the government plays is distributor of funds allocated in theARRA. It is important for IT suppliers looking to capture technology businessassociated with the grants awarded to understand government timelines andcontracting vehicles to ascertain when their clients (state and local governmentagencies, not-for-profit organizations, academia, utilities, and healthcare providers)will be likely to spend their newly awarded grants. We cover this in the EssentialGuidance section of this document. The second role the government plays is recipientof some of the ARRA funding for its own federal operations. IT suppliers shouldunderstand how much of this money is likely to go to technology and in what federal,state, and local government agencies.

The $2.5 Billion IT Opportunity in Government

We estimate $2.5 billion of the ARRA provides technology funding to federal agenciesfor new and existing programs. Some of the biggest areas of spending are for thefollowing:

! The Social Security Administration National Computer Center is expected toreceive $500 million in funding for its datacenter modernization project.

! The Social Security Administration is also expected to receive $490 million infunding for a claims processing program, with $40 million of that going tohealthcare IT technology investments.

! One of the largest areas of potential IT increase will be in providing technologysystems necessary for the distribution, management, and oversight of the funds.ARRA guidance suggests up to 0.5% of the funds will be allocated for programmanagement specifically for oversight; this would equate to at least $3.1 billion infunding for oversight. We estimate 10% ($317 million) of this oversight spendingwill be allocated to IT systems (specifically performance management systems).The federal agencies will define the program requirements and guidelines as well

as the necessary IT requirements.

! There will be technology investments associated with security. We expect theDepartment of State will receive $290 million for security and network assurancetechnologies. We also expect the Department of Homeland Security will receive$200 million for technology to assure its mission for protecting the homeland.

! We expect $254 million of spending will go toward specialized equipment for security, surveillance, and science (e.g., sensors).


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! The Institute of Education Science is expected to receive $250 million to be spenton research systems, which we believe will include technologies such as high-performance computing systems and predictive modeling tools.

Table 3 summarizes the federal agencies we expect will receive funding for technology as a result of the ARRA.

Spending on these technologies is expected to begin in the remaining months of 2009and is likely to be fully obligated by the end 2010. The ARRA funding will utilizeexisting government processes; it will just be "faster." This means that FederalAcquisition Regulations still apply. Fixed-price contracts are required. Existingcontracts can be augmented to address new requirements. Priority will be given tocompletion of programs. The 2011 budget process for IT will continue to reflect similar priority spending as defined by the new Obama administration.


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T A B L E 3

G o v e r n m e n t Te c h n o l o g y O p p o r t u n i t i e s

Provision in ARRAAmount of Money Likely toGo Toward Technology

Technologies Expected toReceive a Boost

Years Significant Spending onTechnology Is Likely to TakePlace

Social SecurityAdministration NationalComputer Center

$500 million Datacenter/IT systems andservices

20102011

Social SecurityAdministration

$490 million Approximately $450 millionto go to claims processing;.the other $40 million to goto claims processing andhealth recordsmanagement systems

2010

Management andoversight systems

$317 million IT systems for distribution,management, andoversight (e.g.,performance managementsystems)

20102012

Department of State $290 million Datacenter/IT systems andservices

20102011

Special purposeequipment

$254 million Specialized equipment for security, surveillance, andscience (e.g., sensors)

2011

Institute of EducationScience

$250 million Research systems (e.g.,high-performancecomputing and predictivemodeling tools)

20112012

Department of

Homeland Security

$200 million Datacenter/IT systems and

services

20102011

Communicationsequipment

$140 million Communication equipmentfor lawenforcement/emergencyresponse

2010

Department of VeteransAffairs

$50 million Datacenter/IT systems andservices (specifically, anew benefits administrationsystem)

20092010

Department of Agriculture FarmService Agency


2010

Small BusinessAdministration


2010

Domestic Volunteer Program


20092010

Note: Technology spending that will go to the government is estimated to be $2.5 billion.

Source: Government Insights, 2009


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E S S E N T I A L G U I D A N C E

A c t i o n s t o C o n s i d e r

With all the uncertainty surrounding the specifics of the new economic stimuluspackage, one thing is certain there will be substantial new government fundsflowing into technology spending. This new government money will flow directly tofederal government agencies and indirectly to the private sector, state and localgovernments, not-for-profit organizations, and academia.

Government spending taking the form of grants directly to citizens and businesses willbe distributed either through state and local governments or through federalgovernment programs. OMB has directed federal agencies that receive funds to meetrequirements of transparency and accountability. Many agencies have launched Websites that will list recipients and uses of all funds, as well as the public benefits of allfunds, and many states are following suit. Information regarding available grants isrequired to be posted on www.grants.gov . The issuing agency will post a "synopsis"and include a link to its home Web site for complete description including applicationprocedures.

Technology monies will not necessarily be identified as such, but as an element of anew and urgent government initiative. Vendors must understand when and how toupsell existing contracts when expediency is critical. High priority for projects willfollow the same prioritization scheme of "shovel ready" that is for physicalconstruction, new IT projects, and innovative services for citizens.

Specific provisions for funding is quite complex, with various dates and review. Themonies will likely be released in phases, with clearly identifiable incremental successbeing a requirement of subsequent funding. A significant amount of the ARRA has"use it or lose it" provisions for grantees, so expediency is critical. An even higher critical success factor for ARRA is reporting of plans, progress, and positive resultsfor the economy. To ensure the best use of this incredible amount of governmentfunding, the newly created Accountability and Transparency Board will be visible andpowerful. All federal agencies and state governments receiving funds are required tomake plans, progress, and results available in www.recovery.gov , beginning inMarch 2009.

Expect a federal push for state and local governments to use federal stimulus fundsto leverage existing investments, effectively extending the value of stimulus dollars.Many states will restructure and revamp systems to gain cost savings while improvingcitizen service. The vendors must also offer new engagement models to thegovernment, where reward is directly tied to the results achieved against the promiseof the economic recovery designed within the stimulus package.

It is imperative that the vendor community be both aggressive and agile in their strategy to capture this newly addressable market. This once-in-a-lifetime flood of new technology money requires a new way of finding and following opportunities. Dueto the aggressive timeline, success will not come from the traditional businessdevelopment via relationships and RFPs. While much of these new monies will beallocated via grants and accelerated acquisitions contracts, there will be new ways of


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engaging with the government. Government agencies have already identifiedprogram objections, measures of success, and anticipated savings in criticalprograms. IT vendors that can identify additional program innovations and savingsand offer public/private partnerships to capture additional monies saved will have anadvantage over competition in this economy.

L E A R N M O R E

R e l a t e d R e s e a r c h

! Impact of the American Recovery and Reinvestment Act on Intelligent Grid Technologies (Energy Insights #EI217253, March 2009)

! Any Stimulus in the Stimulus Plan for the Healthcare Payer? (Health IndustryInsights #HI217111, March 2009)

! The American Recovery and Reinvestment Act: Reigniting Near-Term

Renewable Project Development While Seeding Longer-Term Growth (EnergyInsights #EI217159, March 2009)

! The Economic Stimulus Bill: A "HITECH HIT" (Health Industry Insights#HI216955, February 2009)

! Energy Efficiency Provisions in the American Recovery and Reinvestment Act of 2009 (Energy Insights #EI 217117, February 2009)

! U.S. Economic Stimulus Package: How Much Money will Go to the High TechIndustry? (IDC #lcUS21684309, February 2009)

! Economic Stimulus Bill Renews Optimism for Growth in Renewables (IDC#lcUS21690409, February 2009)

! Economic Stimulus Package Gives Intelligent Grid Technologies a Jolt (IDC#lcUS21696609, February 2009)

! The Unintended Consequences of the ARRA of 2009 (IDC #lcUS21706409,February 2009)

! The Opportunity for the Obama Economic Stimulus Bill to AcceleratePersonalized Medicine (Health Industry Insights #HI217069, February 2009)

! The $41,000 Question for Ambulatory Providers (IDC #lcUS21698409, February2009)


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C o p y r i g h t N o t i c e

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Published Under Services: Worldwide Vertical Markets; Vertical Markets Watch;United States Black Book: State IT Spending by Vertical Market; TelecommunicationsServices Vertical Views; Services Vertical Views; BPO Services: Market Opportunitiesby Key Business Processes with Vertical Views; Analytics and Data WarehousingSoftware with Vertical Views; Energy Insights: Distributed Energy Strategies; EnergyInsights: Renewable Energy Strategies; Health Industry Insights: Healthcare Payer ITStrategies; Health Industry Insights: Healthcare Provider IT Strategies; GovernmentInsights: United States Federal Government IT Spending Guide; GovernmentInsights: United States Government Line of Business Budget Guide; Government

Insights: United States IT Opportunity: Government; Government Insights: UnitedStates State and Local Government IT Spending Guide; Energy Insights: IntelligentGrid Strategies; Energy Insights: Customer Operations Strategies; Energy Insights:Business Customer Strategies; Energy Insights: Residential Customer Strategies

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