Industry braces for outsourcing fight

Attempts to limit government outsourcing will again be a flash point for the information technology industry when Congress comes back to Washington Jan. 23. IT contractors fought attempts to restrict outsourcing that appeared in myriad bills last fall, and they expect to face similar challenges this spring. The Government Accounting Office's Commercial Activities Panel is due in May to report on its investigation of the A-76 outsourcing process, which could trigger either support for outsourcing or a backlash against it."It's going to be very political year. Both sides are going to dig in," either promoting or moving to restrict outsourcing, said Booth Jameson, director of global government affairs for the federal unit of Electronic Data Systems Corp. of Plano, Texas.One piece of legislation defeated last year was a budget amendment proposed by Rep. Neil Abercrombie, D-Hawaii, that would have let Defense Department workers compete for thousands of jobs held by contractors. Still considered a threat is the Truthfulness, Responsibility and Accountability in Contracting Act, introduced by Rep. Albert Wynn, D-Md., which would force contracting competitions between the public and private sector."We have no reason to believe that proponents of the TRAC Act won't continue to press that issue," said Olga Grkavac, executive vice president of the Information Technology Association of America, an Arlington, Va., trade association.Mike Rious, senior legislative assistant for Wynn, said the congressman would consider attaching the TRAC Act to a larger bill to help it get passed, but would want to have a hearing first. That hearing would be set by Rep. Tom Davis, R-Va., chairman of the House Government Reform subcommittee on technology and procurement policy.David Marin, spokesman for Davis, said he expects outsourcing to be "an issue in perpetuity," although he didn't expect a hearing on the TRAC Act in 2002. "We held a comprehensive hearing on the legislation and the issue of outsourcing in general [last year]," he said. "If there are new issues, we'd like to hear about them."Outsourcing is just one of several issues left unresolved by lawmakers as they rushed to complete appropriations bills and pass various security measures before leaving town last month. Industry lobbyists say Congress is expected to consider numerous bills of vital interest to the government IT community, ranging from tax credits and trade to homeland defense and cybersecurity.Industry executives will advocate for several legislative provisions that could boost their bottom lines in the tough economy, including a permanent extension of the tax credit for research and development, accelerated depreciation of IT assets, services acquisition reform and trade promotion authority for the president.The R&D tax credit, which ends in 2004, allows companies to invest in advanced research areas, and is essential to their long-term planning and budgeting, advocates said.Accelerated depreciation of IT assets would allow companies to write off the costs of high-tech equipment more quickly. Then they wouldn't have to hold onto outdated technologies in order to realize full tax deductions. The result would be increased savings for the firms and the creation of more tech jobs, advocates said. The success of the provision is uncertain, however. Republicans and Democrats have included it in their economic stimulus bills, but the two sides have not been able to agree on an overall stimulus package. "The good thing is that everyone is talking about [depreciation], but unfortunately, it's caught up in bigger fights over the economy," Jameson said. If Congress can't agree on a stimulus bill, an accelerated depreciation provision might be approved if it is attached to another piece of legislation, he said."I would not be surprised to see attempts to attach it to some train that is moving," Jameson said.Efforts to reform services acquisition procedures should begin early this year with the introduction of the Services Acquisition Reform Act by Davis. The bill would create a chief acquisition officer position within every federal agency and encourage the use of award-term contracts, multiple-year contracting and past performance as a standard for contract awards, so that best value ? rather than lowest price ? drives the procurement award process.Trade promotion legislation passed the House Dec. 6 by one vote, and industry executives hope the Senate will approve the measure as well. The legislation requires Congress to vote on trade treaties without the ability to amend or otherwise modify them. "While IT spending growth at home has slowed, growth in other international markets remains strong. Competitiveness for many IT companies will depend on their ability to access these global customers on favorable trading terms," said Harris Miller, president of ITAA.John Palafoutas, senior vice president for domestic policy at AeA, a Washington high-tech trade association, said he thinks the Senate will approve the measure. IT industry executives will also closely follow legislation that could bring them work in information security, make it easier for government clients to buy products and services, and affect their ability to recruit and retain workers.Government IT contractors are particularly interested in legislation that would fund additional homeland security projects, such as airport security technologies and information sharing among law enforcement agencies, Jameson said. They'll also be watching for the legislation to reauthorize the Government Information Security Reform Act, which requires federal agencies to report on their security measures. The reauthorization bill, sponsored by Davis, would require agencies to implement security best practices and adopt minimum standards. Legislators also will pursue the expansion of emergency procurement procedures beyond the Defense Department to all government agencies. Provisions in the 2002 Defense authorization act include reclassifying goods and services to fight bioterrorism as "commercial" items, allowing for simpler, faster contracting procedures. "Emergency procurement legislation will be among the first items [Davis] will push," Marin said. Davis introduced legislation Dec. 6 that would simplify governmentwide procurement procedures for items used in humanitarian, peacekeeping and counter-terrorism efforts.Palafoutas expects the industry will have to work hard to protect programs that help recruit and retain workers. If unemployment continues to rise, he expects lawmakers to re-examine the H-1B visa program. The visas are commonly given to highly skilled foreign IT workers. The cap on the number of H-1B visas, at 195,000, is in effect until 2003. The most recent figures from the Immigration and Naturalization Service, issued in November, indicate that 163,200 H-1B visas were issued against the fiscal 2001 cap, and that 29,000 applications were pending at year-end that could bring the 2001 total to 192,200. "If unemployment is up, legislators are going to be saying you've got to be hiring U.S. workers. That rhetoric is going to be very compelling to some people, even though [the visas are] providing skills we just don't have here," he said.The industry may also have to press for legislation that would prevent the Internal Revenue Service from withholding employment taxes from employee purchases of company stock under stock purchase plans and from incentive stock options. A moratorium on the withholding expires in January 2003. If the ban is not reinstated, the IRS will begin taxing compensation that has not been received by employees, Palafoutas said. "I think companies are going to stop giving these incentives, and employees will get hurt," he said.