That is a key finding of a new study from London-based independent market analysis company Datamonitor, which concluded that IT vendors have to better target their offerings to capture federal IT dollars. The 53-page study, "IT Opportunities in U.S. Federal Government," forecasts government IT spending from fiscal 2005 through 2010.

Datamonitor expects IT spending at the Department of Homeland Security to continue rising as that agency moves to integrate existing systems. Other areas where IT spending is expected to rise through 2010 include the Department of Health and Human Services, the Department of Energy, the Department of Transportation and the Department of Justice.

Datamonitor arrived at its spending projections by analyzing government reports, vendor press releases, federal budget plans, U.S. Securities and Exchange Commission filings and other data. It expects U.S. government IT spending to increase at a compound annual growth rate of 5 percent, which would push it from US$60.5 billion in fiscal 2005 to $77.2 billion in fiscal 2010.

Datamonitor also estimates that IT dollars allocated for third-party contractors will grow from 75 percent of the all federal IT spending in fiscal 2005 to 79 percent in fiscal 2010.

Based on the Datamonitor data, federal agencies have a growing need for IT services and support staff, ERP software, CRM applications and e-government services products.