States, feds eye restrictions on offshore outsourcing

Industry opposes effort seen as 'political pandering'

Growing concern that government IT contractors are relying too heavily on foreign workers could lead several federal and state lawmakers to severely limit or ban outright offshore outsourcing on government contracts.

Lawmakers in six states have introduced bills that would require American citizens to perform work on government contracts. Other states are prepared to follow suit.

"Virginia may introduce legislation to prohibit or certainly reduce offshore outsourcing," said George Newstrom, Virginia's secretary of technology. "We have political leaders with great angst over this."

Lawmakers said they are worried about the security implications of sending sensitive government computer work overseas. Many also believe government dollars should be funding jobs at home. And their constituents complain that when they call a government department for help, they reach a call center in India or other foreign locations.

Although opposition to offshore outsourcing has been less pronounced in Congress, some lawmakers have complained about the loss of American jobs overseas. This prompted three House members last month to ask the General Accounting Office for an objective look at the issue. They requested GAO to study offshore outsourcing among government contractors, including its benefits and risks, and to make recommendations regarding policy.

At the same time, the Office of Management and Budget is developing policy guidance for software not made in the United States. OMB is working with agencies to define security requirements for buying and deploying software systems, from common desktop operating systems to classified databases.

While acknowledging legitimate security concerns, the IT industry opposes many of these proposed "buy American" mandates on IT products and services, which officials said would drive up costs.

"The reality is that components come from all over the world," said Harris Miller, president of the Information Technology Association of America, Arlington, Va. "You're talking about PCs suddenly costing $5,000 rather than $500 because you need to establish a manufacturing facility for one customer. That's bad for policy."

John Kost, managing vice president for Gartner Government Research, said the drive to limit offshore outsourcing is aimed primarily at protecting jobs, not national security.

"It's political pandering," said Kost, a former Michigan CIO and executive with TRW Inc. and Siebel Systems Inc. "Why should a programmer in India be less secure than an Indian programmer in the United States?"

Whatever their motives, government leaders, especially at the state level, are feeling increasing pressure from constituents who want them to keep government work within U.S. borders.

"Today, the climate doesn't let a politician say 'offshore,' " Newstrom said. "I don't think a politician could survive the end of that sentence."

In New Jersey, an irate legislator proposed a law banning offshore outsourcing when the state's welfare recipients called the department for assistance and reached a call center in India. After the bill was introduced, the call center was moved back to New Jersey at an additional cost of $1.2 million.

In February, Rep. Lane Evans, D-Ill., criticized the Veterans Affairs Department for outsourcing 125 property management jobs to Ocwen Federal Savings Bank, a West Palm Beach, Fla., company that then outsourced work to India.

"The A-76 process should not be a tool to make government employees obsolete and replace American jobs with low-paid, foreign-based workers," Evans wrote in a letter "strongly opposing" the contract. Ocwen bank has since said the VA's work won't leave U.S. shores.

Federal and state governments don't have statistics measuring just how much they rely on overseas companies for IT products and services. In most instances, as long as a foreign company hasn't relocated to a federally prohibitive country, such as North Korea or Cuba, it can enter a competitive bid on a government contract.

But agencies can write their own IT outsourcing requirements for national security clearance for some jobs. And contracting officers can insert those rules into each contract. In some cases, companies said state officials have confined their contract work to within 50 miles of the state capital.

"We have to make very, very clear as to where the work will be performed," said Arup Gupta, president of Tata Consultancy Services America, the U.S. arm of India-based TCS, a software and software services consulting company. "It's all in the contract."

In the Treasury Department, for example, all outsourcing contracts must adhere to the agency's security rules.

"We just have to make sure our requirements are clear," said Treasury CIO Drew Ladner. For example, "the process to allow that is not as demanding for hardware. Software is different."

But contracting officers may not be as vigilant in monitoring offshore outsourcing.

"Many contracting officers are busy people," said David Drabkin, deputy associate administrator for acquisition policy at GSA. "They may or may not know whether an offshore restriction is appropriate."

The congressmen who requested the GAO study are hoping it provides a clearer picture of how much federal agencies rely on foreign companies. Rep. Adam Smith, D-Wash., said he hopes a deeper look will thwart buy-American legislation.

"I want more data and less speculation," said Smith, who along with Reps. Jay Inslee, D-Wash., and Ike Skelton, D-Miss., asked for the study. "A protectionist approach makes me nervous. I don't want to cut off competitive companies that make us better."

While industry officials oppose legislation that would limit their use of foreign products and workers, William Sweeney Jr., vice president of global government affairs for Electronic Data Systems Corp., Plano, Texas, said such restrictions would hardly poison his company's outsourcing policies. Already, he said, EDS government work doesn't leave the country, as stipulated in each of its agency contracts.

Over the long term, however, industry observers said the legislation, if passed, would raise the cost of IT goods and services to government.

"You're either talking bigger government or fewer services," said Atul Vashistha, chief executive officer and co-founder of neoIT, an offshore advisory company based in San Ramon, Calif.

More importantly, they argue, federal restrictions would run counter to U.S global free-trade agreements, making a full-scale prohibition on offshore outsourcing less likely.

"We as a country have an obligation under our trade treaties," Drabkin said. "It would have a significant impact on our participation in those organizations if we cut off all offshore [work]. If another country did that to us, we'd react badly." *

Government Computer News Staff Writer Vandana Sinha can be reached at vsinha@

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