As federal spending slows, contractors are again turning to state and local governments for projects ranging from computer system upgrades to electronic health records management to development of wireless networks. According to the Washington Post, research firm Gartner expects local and state spending on IT projects to increase from $44.24 billion last year to $54.96 billion in 2008, fueled by higher property-tax revenues and a healthy economy. Long-term IT spending is expected to grow by 6 percent to 8 percent annually, compared to a 2 percent to 4 percent federal growth rate. But breaking into state and local markets presents challenges, especially for those who have focused on Homeland Security and Defense projects since 9/11. Unless they can remake themselves, these contractors will face growth ­challenges.

 Federal contractors will find dealing with 50 states, 19,000 cities, and 3,200 counties, each with its own rules for doing business, difficult. The bidding process, for one, is generally longer, taking between 18 months to two years, and usually results in lower valued contracts. But interest is growing among contractors nevertheless, as evidenced by attendance at the annual conference on state and local markets hosted by research firm FedSources in June, which increased by about 25 percent from two years ago.

Making one of the biggest pushes into state and local markets is Northrop Grumman, which has doubled its revenue in those sectors over the past four years.