Government agencies wary of offshore outsourcing

Some government agencies in the U.S. hope to outsource certain IT functions to private vendors in the coming years, but they have concerns about the political fallout if outsourced jobs were to go overseas, and in some cases don’t know enough about their IT assets to make an informed decision on what to outsource.

Both the state of Virginia and the U.S. Department of the Treasury are interested in the cost savings they could achieve by outsourcing, but neither has a good handle yet on what IT functions could be outsourced, leaders of the two government bodies said Thursday at a government outsourcing discussion sponsored by the Information Technology Association of America (ITAA).

George Newstrom, chief information officer for Virginia’s state government, said that after a year and a half on the job he’s just begun to get a handle on the IT resources across 91 state agencies.

“We need to look at outsourcing as a possibility,” Newstrom said. “But until we get our arms around what we have, where we have it, how we do it, etc., I don’t know what to outsource. I don’t have the numbers or metrics to give to an (Electronic Data Systems Inc.) or an IBM (Corp.)”

The U.S. Department of Treasury is also conducting a review of all the IT outsourcing that’s currently done at the agency, said Drew Ladner, the department’s chief information officer. That report should be completed within a few months, he said.

Ladner agreed with Newstrom that some outsourcing, using U.S. workers, may make sense. However, the two said that government agencies aren’t likely to take advantage of lower wages outside the U.S. because of the current political climate and economy. Driven by a stagnant U.S. economy and concerns about the security of IT products created overseas, a handful of state legislatures across the U.S. introduced bills this year that would prohibit offshore outsourcing of government contracts.

None of the bills passed, but Newstrom predicted similar bills will be introduced in the next year. Virginia even hates to lose jobs to neighboring Maryland, he said. He and others on the panel were careful to draw a distinction between outsourcing with U.S. workers and offshore outsourcing. By using U.S. workers, a government agency would be replacing the government job with another in the U.S., he said, but a job that moves overseas is lost to the country.

Asked if offshore outsourcing is out of the question, Newstrom answered: “I think the political climate is very adverse. Today, the climate doesn’t exist in government to say ‘offshore’ out loud.”

The ITAA opposes legislation that would bar U.S. government bodies from using offshore workers, because U.S. companies would then have a more difficult time of selling their products and services overseas, said Harris Miller, president of the ITAA. “It hurts our efforts to convince governments around the world to open their competition,” Miller said of such legislation. “It plays into the hands of other governments around the world who do not want to open their government IT business to an EDS or IBM.”

But the unwritten rule among most government entities in the U.S. is, don’t use offshore workers, Miller added. With 2004 an election year in many states. Miller expects politicians trying to connect with the public to introduce more legislation prohibiting governments from using offshore workers, especially if the U.S. economy doesn’t improve.

“Even though no state has yet passed the legislation, the state procurement officials are getting very, very nervous,” Miller added. “They’re all afraid of being the front-page story … in the state capital that says, ‘Thanks to procurement official X, they just hired a company and 15 jobs ended up going to Ireland or South Africa or India.'”

William Sweeney, vice president of global government affairs for outsourcing services vendor Electronic Data Systems Corp., and Arup Gupta, president of Tata Consultancy Services America, defended outsourcing as a way for companies and government agencies to cut costs and focus their employees on core business functions. Both said any government contracts their companies sign state clearly what IT work is being done where.

“It has to be understood up front … that this piece of work is going to be done by U.S. citizens in the U.S., and this piece of work is going to India,” Gupta said.

The general rule for government contracts is that the work is done in the home country, Sweeney said, and some states even require that the IT work is done within 50 miles of the state capital, as a way to minimize travel costs.

TCS America, owned by the India-based TCS, is looking at opening more IT shops in the U.S. as a response to the backlash against offshore workers, Gupta said.

Virginia’s Newstrom said he’d have no problem with a foreign-owned company bringing jobs to his state.

“I would welcome Tata to come to Virginia and set up an operation,” Newstrom said. “We’ll give you all the work you can possibly have … There is no restriction whatsoever. But the other side of it is, we most likely won’t award you a contract that will go anywhere offshore.”