Report: States unaware of offshore outsourcing

State governments usually are not aware that they are sending information technology work offshore because it is done through subcontracts or by foreign firms using domestic addresses, according to a report released this week.

The report, "Your Tax Dollars at Work ?Offshore," found that nearly every state has engaged foreign companies to perform state work offshore. The Washington-based research group Corporate Research Project of Good Jobs First conducted the study for the Washington Alliance of Technology Workers, a local union of the Communications Workers of America.

"It is important for states to know where the work they have contracted is being performed, and many states have no idea that this work is sent offshore," said Phillip Mattera, the group's director.

In many instances, state governments have awarded contracts to U.S. companies believing the work would be performed domestically, only to find the work was subsequently subcontracted to an offshore vendor, the report said.

In other cases, states assume they are dealing with a domestic company because it uses a U.S. mailing address. Offshore vendors use such addresses for sales and marketing purposes, while the contract work is performed offshore.

The research group found that 18 offshore outsourcing firms are aggressively seeking state government contract work, primarily in IT, in at least 30 states. The 18 firms have captured about $75 million in state contracts so far and are seeking more, the group said.

Offshore outsourcing firms appeared on at least nine separate vendor lists in California, Connecticut, Minnesota, Georgia, Missouri and North Carolina, according to the study.

State taxpayers and lawmakers are ill-equipped to respond to the trend because most states have little or no power to regulate work performed offshore or to regulate the vendors they deal with, the group said.