New law will curb offshoring of federal IT work

By Wilson P. Dizard III

Connecting state and local government leaders

| February 20, 2004

Federal workers who face private competition from OMB Circular A-76 have one less worry: losing their jobs to foreign workers. A provision in the fiscal 2004 omnibus budget bill that President Bush signed last month bars companies that win federal jobs through A-76 competitions from shifting the work to other countries.

Federal workers who face private competition from OMB Circular A-76 have one less worry: losing their jobs to foreign workers.A provision in the fiscal 2004 omnibus budget bill that President Bush signed last month bars companies that win federal jobs through A-76 competitions from shifting the work to other countries.The measure, known as the Thomas-Voinovich Amendment after its two Republican sponsors, Sen. Craig Thomas of Wyoming and Sen. George Voinovich of Ohio, is part of a swell of legislation against the growing trend of businesses and governments seeking software and IT services from companies and workers in countries such as India and China.The provision prohibits for one year any work won by a vendor from being 'performed by the contractor at a location outside the United States,' unless the work is already being done overseas by government employees.In addition to the federal law and ongoing congressional debates over the need for additional limits, numerous states are considering bills that would restrict offshore outsourcing.The National Conference of State Legislatures has identified 29 bills pending in 19 state legislatures that would require contractors to hire only U.S. citizens or legal residents, regulate agencies' use of offshore call centers and otherwise restrict foreign purchases.'Over the past three years, state legislatures have had to fill a $200 billion budget gap,' said Justin Marks, the conference's research analyst. 'They face the dilemma of saving money by outsourcing or keeping jobs here. Over the years, legislators have seen manufacturing jobs go overseas and now they see white-collar jobs going abroad.'The legislation against offshore outsourcing represents a clash of needs. With unemployment remaining at relatively high levels, many lawmakers bristle at the thought of sending more jobs overseas, where labor generally is cheaper.According to Gartner Inc. of Stamford, Conn., the scale of government purchases of offshore software and support runs to the billions of dollars.The Congressional Research Service reported that IT companies increasingly rely on offshore production sites in India, China and 13 other countries, as well as so-called near-shores production sites in Canada.But with the federal government running a huge deficit and many states caught in a budget crunch, the cost savings of outsourcing work overseas is considerable.John Kost, a Gartner managing vice president, said government agencies have been purchasing software from offshore sources for years.'People are naive if they think it is not already happening in large quantities,' he said. 'Once the economy improves and politicians move to a different topic, I doubt it will be a potent political issue.'Kost said many government program managers are aware of the substantial offshore component of the software they buy, and know that offshoring keeps costs down. He said he doubted that program managers would support legislation under which 'the rules of the game were changed requiring projects to omit offshore labor, thereby driving up the cost of projects.'

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