INSIGHT

Business Strateg y: Capturing Your Share of the American

Recover y and Reinvestment Act
Meredith Whalen Scott Lundstrom
Rick Nicholson Teresa Bozzelli

IDC OPINION
The U.S. economic stimulus plan, American Recovery and Reinvestment Act (ARRA),
www.idc.com

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 to
IDC), this is welcome news. In more detail:
F.508.935.4015

! We estimate the $788.7 billion spending in the ARRA will stimulate approximately
$101.2 billion of technology spending in the energy, healthcare, and government
sectors. This includes both traditional IT spending and technologies not typically
considered part of IT (e.g., technologies associated with wind and solar power
P.508.872.8200

generation). The largest portion of the technology spending ($77.6 billion) will be
associated with the energy sector. Healthcare is expected to see $21.1 billion in
technology spending. And government is expected to receive $2.5 billion in
technology spending for its own internal use. This will be incremental spending
that will take place between 2009 and 2014, with the heaviest spending taking
Global Headquarters: 5 Speen Street Framingham, MA 01701 USA

place 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 business
development via relationships and RFPs. While much of these new monies will be
allocated via grants and accelerated acquisitions contracts, there will be new ways
of engaging with the government. Government agencies have already identified
program objections, measures of success, and anticipated savings in critical
programs. IT vendors that can identify additional program innovations and savings
and offer public/private partnerships to capture additional monies saved will have
an advantage over competition in this economy.

IN THIS INSIGHT
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 the
American Recovery and Reinvestment Act (ARRA), and when this spending is likely
to take place. This Insight also provides advice for technology suppliers looking to
capture a portion of the business that will ultimately come out of the Act.

Filing Information: March 2009, IDC #217404, Volume: 1

Worldwide Vertical Markets: Insight
The Recovery and Reinvestment Act includes specific funding for technology in the
areas of healthcare and energy. For technology suppliers that are facing a 0.1% 2009
U.S. growth rate, this is welcome news. This new government money will not
necessarily be identified as such, but as an element of a new and urgent government
initiative. Vendors must understand when and how to upsell existing contracts when
expediency is critical. Vendors must also offer new engagement models to the
government, where reward is directly tied to the results achieved against the promise
of the economic recovery designed within the stimulus package.

SITUATION OVERVIEW
We estimate the $788.7 billion spending in the ARRA will stimulate approximately
$101.2 billion of technology spending in the energy, healthcare, and government
sectors. This includes both traditional IT spending and technologies not typically
considered part of IT (e.g., technologies associated with wind and solar power
generation). The largest portion of the technology spending ($77.6 billion) will be
associated with the energy sector. Healthcare is expected to see $21.1 billion in
technology spending. And government is expected to receive $2.5 billion in
technology spending for its own internal use. This will be incremental spending that
will take place between 2009 and 2014, with the heaviest spending taking place in the
later 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 anticipated
ARRA 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 United
States, 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 the
Act and discussions with industry technology buyers, Industry Insights analysts have
made estimates about the amount of technology spending and technologies industry
is likely to spend the money on and the timing of it. This information is provided in this
document to guide IT vendors in capturing this forthcoming opportunity.

FUTURE OUTLOOK

Capturing the $78 Billion Energy Technology

Opportunity

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

2 #217404 ©2009 IDC

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

T ABLE 1

Energy Technology Opportunities

Years Significant Spending on

Amount of Money Likely to Technologies Expected to Technology Is Likely to Take
Provision in ARRA Go Toward Technology Receive a Boost Place
Intelligent grid $8.6 billion IT and communications Late 2009–2014
hardware, smart meters and
other intelligent devices,
applications software used to
operate the grid and enable
active energy management by
consumers, software to manage
huge amounts of meter and grid
data, advanced energy storage
systems, and grid-connected
distributed generation resources
Renewable energy $66 billion Wind, solar (thermal and Mid-2009–2012
photovoltaic), biomass,
geothermal, and other
renewable generation capital
equipment (not including
transmission lines)
Energy efficiency $3 billion Efficiency technologies not Late 2009–2014
generally used in existing utility
programs or technologies that
were not previously cost
effective (e.g., in-home displays,
programmable communicating
thermostats, and more
sophisticated building energy
management systems)
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" technology
investment. We believe this level of funding will significantly accelerate investment in
a 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 and
Security Act of 2007:

! Section 1304 (Smart Grid Technology Research, Development, and

Demonstration), which is focused on demonstration projects that use advanced
technologies such as energy storage, wide area measurement and control
networks, high-performance computing and analytics and other emerging highly
distributed technologies as well as advanced techniques to achieve peak load
reduction, energy efficiency savings, and improved system reliability

©2009 IDC #217404 3

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

While the ARRA specifically states it will provide $4.3 billion in grants to support smart
grid, this money is offered as a matching effort to a utility's own intelligent grid
investment. Therefore, we expect the real dollars that will go into the economy
associated 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 investments
across different types of intelligent grid projects will depend on factors such as the
efficiency of the federal grant application and approval process, the role of state
public utility commissions (PUCs) in approving the projects, and the ability of utilities
to 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 (in
the form of loan guarantees and ITC grants). While the Act does not call out
technology grants specifically, we believe the effect of the loan guarantees and the
tax credits will be to generate $133 billion in renewable projects. Assuming the typical
project will have about 65% of its spend associated with technology and subtracting
out 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 these
technologies should see an uptick starting in mid-2009 and continue heavily through
2012.

While the Act looks likely to improve the outlook for DE/RE financing over the next
two years, the bill isn't an open-ended, permanent subsidy to DE/RE production. It
alone isn't going to transform the United States into an emissions-free, renewable
energy powerhouse. Instead, it should be viewed as a stopgap measure for financially
supporting 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, and
industrial utility customers make energy efficiency investments. A number of the
provisions within the stimulus package promote energy efficiency in residential and
commercial buildings — for both new buildings and renovations to existing buildings.

4 #217404 ©2009 IDC

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

These new technologies will include both active and passive technologies. Examples
of 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 through
2014. We expect investments to start slowly and ramp up in later years.

Capturing the $21.1 Billion Technology

Healthcare Opportunity

The majority of the provisions in ARRA associated with healthcare are expected to
serve as a catalyst for faster and more widespread deployment and usage of
electronic medical records (EMRs) and electronic health records (EHRs). The bill
addresses many of the major barriers to EMR and EHR adoption, especially among
smaller physician practices and hospitals, which represent the majority of U.S.
healthcare providers. The bill includes provisions to facilitate the adoption of a
connective health information exchange infrastructure, a key prerequisite for
achieving the structural improvements in healthcare delivery that the Obama
administration is seeking.

The healthcare technology spending in ARRA can be divided between EMR and the
comparative effectiveness research provisions. Out of the $788.7 billion in spending
associated with the ARRA, we estimate approximately $21.1 billion will go toward
technology associated with the healthcare industry. Approximately $20 billion will be
spent on EMR technology spending, and $1.1 billion will be spent on technology to
support comparative effectiveness research.

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

©2009 IDC #217404 5

 T ABLE 2

Healthcare Technology Opportunities

Years Significant Spending on

Provision in ARRA
Healthcare IT
Comparative
effectiveness research
Note: The bulk of technology spending will be associated with EHR.
Source: Health Industry Insights, 2009
Amount of Money Likely to Technologies Expected to Technology Is Likely to Take
Go Toward Technology Receive a Boost Place
$20 billion EHR technology and 2010–2014
associated technologies
such as interfaces between
human information and
communications technology
systems, voice-recognition
systems, software that
improves interoperability and
connectivity among health
information 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 enhance
patient safety, remote patient
monitoring technologies,
distance learning, and
telemedicine technologies
$1.1 billion Technology solutions that 2010–2012
measure the comparative
effectiveness of programs,
clinical intelligence solutions,
including clinical decision
support systems (CDSS),
along with significant
additional medical and IT
infrastructure

The $20 Billion Electronic Medical Record Opportunity

ARRA provides a combination of near-term stimulus funding for patient care, coupled
with significant long-term incentives and investments in new core health IT
infrastructure to accelerate the move toward digital patient information. New Medicare
and Medicaid stimulus money will ease cost pressures for many providers, while
direct incentives to physicians and hospitals should ensure aggressive
implementation of new patient information systems starting in 2011.

6 #217404 ©2009 IDC

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

! Interfaces between human information and communications technology systems

! Voice-recognition systems

! Software that improves interoperability and connectivity among health

information 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 enhance

patient safety

! Remote patient monitoring technologies

! Distance learning

! Telemedicine technologies

Spending on these technologies will begin in earnest in 2010 and continue throughout
2014.

The $1.1 Billion Comparative Effectiveness Research

Technology Opportunity
The most prominent and controversial provision is likely to be the $1.1 billion targeted
toward comparative effectiveness research. This funding, which is strongly opposed
by the pharmaceutical industry, seeks to identify the performance differences
between currently approved drugs, with the aspiration of identifying which drugs work
best under different circumstances.

Specifically, $1.1 billion has been allocated to conduct or support comparative

effectiveness research, split between NIH and Health and Human Services (HHS).
Beginning the efforts to more effectively spend future healthcare dollars, these new
comparative effectiveness efforts are directly aligned with the path that will lead to
broad 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 IT

infrastructure that should begin to enable better access and use of medical
information at the point of care. We expect this to drive adoption of the following
technologies:

! Technology solutions that measure the comparative effectiveness of programs

©2009 IDC #217404 7

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

! Medical and IT infrastructure

Investment in these technologies will be largely concentrated between 2010 and

2012.

Capturing the $2.5 Billion Technology

Government Opportunity

We should be clear to note that the government plays two roles in the ARRA. The
most significant role the government plays is distributor of funds allocated in the
ARRA. It is important for IT suppliers looking to capture technology business
associated with the grants awarded to understand government timelines and
contracting vehicles to ascertain when their clients (state and local government
agencies, not-for-profit organizations, academia, utilities, and healthcare providers)
will be likely to spend their newly awarded grants. We cover this in the Essential
Guidance section of this document. The second role the government plays is recipient
of some of the ARRA funding for its own federal operations. IT suppliers should
understand 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 agencies
for new and existing programs. Some of the biggest areas of spending are for the
following:

! The Social Security Administration National Computer Center is expected to

receive $500 million in funding for its datacenter modernization project.

! The Social Security Administration is also expected to receive $490 million in

funding for a claims processing program, with $40 million of that going to
healthcare IT technology investments.

! One of the largest areas of potential IT increase will be in providing technology

systems necessary for the distribution, management, and oversight of the funds.
ARRA guidance suggests up to 0.5% of the funds will be allocated for program
management specifically for oversight; this would equate to at least $3.1 billion in
funding for oversight. We estimate 10% ($317 million) of this oversight spending
will 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 the

Department of State will receive $290 million for security and network assurance
technologies. 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).

8 #217404 ©2009 IDC

! The Institute of Education Science is expected to receive $250 million to be spent
on 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 2009

and is likely to be fully obligated by the end 2010. The ARRA funding will utilize
existing government processes; it will just be "faster." This means that Federal
Acquisition Regulations still apply. Fixed-price contracts are required. Existing
contracts can be augmented to address new requirements. Priority will be given to
completion of programs. The 2011 budget process for IT will continue to reflect similar
priority spending as defined by the new Obama administration.

©2009 IDC #217404 9

 T ABLE 3

Government Technology Opportunities

Years Significant Spending on

Amount of Money Likely to Technologies Expected to Technology Is Likely to Take
Provision in ARRA Go Toward Technology Receive a Boost Place
Social Security $500 million Datacenter/IT systems and 2010–2011
Administration National services
Computer Center
Social Security $490 million Approximately $450 million 2010
Administration to go to claims processing;.
the other $40 million to go
to claims processing and
health records
management systems
Management and $317 million IT systems for distribution, 2010–2012
oversight systems management, and
oversight (e.g.,
performance management
systems)
Department of State $290 million Datacenter/IT systems and 2010–2011
services
Special purpose $254 million Specialized equipment for 2011
equipment security, surveillance, and
science (e.g., sensors)
Institute of Education $250 million Research systems (e.g., 2011–2012
Science high-performance
computing and predictive
modeling tools)
Department of $200 million Datacenter/IT systems and 2010–2011
Homeland Security services
Communications $140 million Communication equipment 2010
equipment for law
enforcement/emergency
response
Department of Veterans $50 million Datacenter/IT systems and 2009–2010
Affairs services (specifically, a
new benefits administration
system)
Department of $50 million Datacenter/IT systems and 2010
Agriculture Farm services
Service Agency
Small Business $20 million Datacenter/IT systems and 2010
Administration services
Domestic Volunteer $6 million Datacenter/IT systems and 2009–2010
Program services
Note: Technology spending that will go to the government is estimated to be $2.5 billion.
Source: Government Insights, 2009

10 #217404 ©2009 IDC

ESSENTIAL GUIDANCE

Actions to Consider

With all the uncertainty surrounding the specifics of the new economic stimulus
package, one thing is certain — there will be substantial new government funds
flowing into technology spending. This new government money will flow directly to
federal government agencies and indirectly to the private sector, state and local
governments, not-for-profit organizations, and academia.

Government spending taking the form of grants directly to citizens and businesses will
be distributed either through state and local governments or through federal
government programs. OMB has directed federal agencies that receive funds to meet
requirements of transparency and accountability. Many agencies have launched Web
sites that will list recipients and uses of all funds, as well as the public benefits of all
funds, and many states are following suit. Information regarding available grants is
required 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 application
procedures.

Technology monies will not necessarily be identified as such, but as an element of a

new and urgent government initiative. Vendors must understand when and how to
upsell existing contracts when expediency is critical. High priority for projects will
follow the same prioritization scheme of "shovel ready" that is for physical
construction, new IT projects, and innovative services for citizens.

Specific provisions for funding is quite complex, with various dates and review. The
monies will likely be released in phases, with clearly identifiable incremental success
being 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 results
for the economy. To ensure the best use of this incredible amount of government
funding, the newly created Accountability and Transparency Board will be visible and
powerful. All federal agencies and state governments receiving funds are required to
make plans, progress, and results available in www.recovery.gov, beginning in
March 2009.

Expect a federal push for state and local governments to use federal stimulus funds
to leverage existing investments, effectively extending the value of stimulus dollars.
Many states will restructure and revamp systems to gain cost savings while improving
citizen service. The vendors must also offer new engagement models to the
government, where reward is directly tied to the results achieved against the promise
of 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. Due
to the aggressive timeline, success will not come from the traditional business
development via relationships and RFPs. While much of these new monies will be
allocated via grants and accelerated acquisitions contracts, there will be new ways of

©2009 IDC #217404 11

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

LE ARN MORE

Related Research

! 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 Industry
Insights #HI217111, March 2009)

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

Renewable Project Development While Seeding Longer-Term Growth (Energy
Insights #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 Tech
Industry? (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 Accelerate

Personalized Medicine (Health Industry Insights #HI217069, February 2009)

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

2009)

12 #217404 ©2009 IDC

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Published Under Services: Worldwide Vertical Markets; Vertical Markets Watch;

United States Black Book: State IT Spending by Vertical Market; Telecommunications
Services Vertical Views; Services Vertical Views; BPO Services: Market Opportunities
by Key Business Processes with Vertical Views; Analytics and Data Warehousing
Software with Vertical Views; Energy Insights: Distributed Energy Strategies; Energy
Insights: Renewable Energy Strategies; Health Industry Insights: Healthcare Payer IT
Strategies; Health Industry Insights: Healthcare Provider IT Strategies; Government
Insights: United States Federal Government IT Spending Guide; Government
Insights: United States Government Line of Business Budget Guide; Government
Insights: United States IT Opportunity: Government; Government Insights: United
States State and Local Government IT Spending Guide; Energy Insights: Intelligent
Grid Strategies; Energy Insights: Customer Operations Strategies; Energy Insights:
Business Customer Strategies; Energy Insights: Residential Customer Strategies

©2009 IDC #217404 13