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Article by Mohan Babu

US bill to restrict outsourcing—How does it impact us?

Contrary to what most of us think, federal government contracts in the US have long restricted participation by foreign companies, agencies and individuals. Such restrictions are among the indirect ‘tools’ used by the government to encourage economic development in the domestic sector, says MOHAN BABU

Perhaps fewer bills in the US senate were more closely watched by Indian industry leaders and chambers of commerce than the recently passed omnibus Appropriations Bill totalling $328 billion. Why? Because the bill also contained provisions limiting agencies receiving federal funding from outsourcing subcontracts to foreign countries. The provision preventing American companies from outsourcing parts of federally awarded contracts were co-sponsored by two Republican senators, Iowa’s Craig Thomas and Ohio’s George Voinovich. Understandably, this bill caused a stir in the Indian high-tech sector with papers and publications immediately coming out strongly against it saying such ‘protectionist’ moves in the context of WTO would send wrong signals to the free-trade movement sweeping the globe. The reactions in the American media were mixed—ranging from a muted nonchalance to a few murmurs about such bills hindering globalisation.

Before we go further along the pros-and-cons of this move by the American federal government, a few facts:

  • The provision in the bill restricting outsourcing was limited to the departments of treasury and transportation and other government agencies. It does not apply to all outsourcing. Also, the outsourcing restriction applies only to public-private competition and is valid only through fiscal 2004, which ends September 30.
  • Federal contracts—in the US and elsewhere in the world—have always been highly restrictive in nature. Contrary to what most of us think, federal government contracts in the US have long restricted participation by foreign companies, agencies and individuals. Actually, such restrictions are among the indirect ‘tools’ used by the government to encourage economic development in the domestic sector.
  • Federal contracts by nature are not meant to be ‘free for all’. Bidders go through a vigorous round of pre-qualification before even being invited to bid on contracts. Various concerns like national security, restriction of transfer of technology, etc, also come to play when awarding such contracts.
  • Very few foreigners actually work directly for the American federal government. The few Indian techies who did work on specific projects have had to undergo special security checks, etc, a fact in itself which deters consulting companies from employing foreigners.

The argument is that if an equally qualified (or maybe even slightly less qualified) local citizen is available, why jump through additional hoops to get security clearance for foreign nationals?

  • There is a very close ‘old boys network’—yes, very few women in the higher echelons of the federal contracts business—working in the background of the federal contracts game. Remember the recent controversy over the resignation of two Boeing executives? What this also means is that by nature, federal government contracts have been a bit ‘closed’ in nature.
  • Even while outsourcing systems, data is never sourced outside. For instance, even Amer-ican consulting companies working on, say the IRS (Internal Rev-enue Services) IT systems may not ever have access to the actual taxpayers data.

This being an election year in the US, and given the fact that the economy is just about getting out of the woods, it is understandable that the federal and state governments there are trying to give a few sops to the local industry. The biggest bang for the buck, or in this case, the bigg-est mileage that opponents of foreign-outsourcing can get is if a few bills are passed in the US Senate. And this is exactly what is happening.

Given this context, the views of both the proponents of the bill in question, and those opposing the passing of the bill have may not have much immediate impact on the current trends. However, the long-term impact of such protectionist moves is more of interest to industry watchers. Also, if more federal government contracts and subcontracts are restricted from being outsourced, there may be ripple effects since a percentage of IT work owes its existence to some federal project or the other.





About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    For FAQ, Trivia and Information on Life in America, visit the Ask-A-Desi section

    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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