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Offshoring and State Procurement

In May, Tennessee became the first state in the nation to enact procurement legislation favoring companies that do not offshore jobs. According to our latest tracking, legislation has been introduced in some 35 states to deal with state procurement offshoring. States were required to adopt electronic benefit systems by the 1996 welfare "reform" bill and much of this work was outsourced, often with little attention paid to where the work ultimately was performed. Most states outsourced welfare help lines and benefits systems to major U.S. companies – many of which then sent the work overseas. Some states found out about it only when service users or unions, representing the former state employees whose jobs had been privatized, noticed the accents of those answering their calls.

 New Jersey Call Centers

When New Jersey State Sen. Shirley Turner (D-Mercer) learned in 2002 that the telephone hotline for New Jersey welfare recipients was staffed by workers in Mumbai, India, she introduced a bill that required state contracts to be performed by U.S. citizens or legal aliens, unless the service could not be performed by those workers. The bill cleared the New Jersey Senate 40-0 but died in the state Assembly after various information technology (IT) firms and the powerful Washington, D.C. public relations firm Hill & Knowlton came to Trenton to lobby in opposition.

Although the welfare call center examples are the most well-known, many states either have been suspected of - or confirmed to have been - sending work overseas more broadly, and the opportunities for offshore service providers to work on state contracts will only increase in the future. Gartner Research has estimated that 5 percent ($190 million) of the total $3.8 billion in tech spending by states went offshore in 2002. A recent report by Input Research estimated that the market for state and local government information technology outsourcing will more than double (from $10 billion to $23 billion) by 2008.

Most states do not track offshoring of their contract work, but this is starting to change. For example, the Washington state governor's budget office recently reported  that a preliminary survey of the extent of state contract work being offshored found that 24 of the 36 state agencies that responded to the office’s questions said they issued contracts for which all or part of the work was done overseas.

Other states where reviews have been ordered by the governor include: North Carolina, Arizona, and Vermont. Click to find out more about what’s happening in your state.

Some states have had some moderate success in stemming the flow of contracting work overseas by specifying in their bid requests that the work be done in-state.  Some even reportedly stipulate that work must be done within fifty miles of the state capital. Florida recently outsourced its human resources operations and specified on the bid request that the work be done in-state. Even though the winning company (Cincinnati-based Covergys Corporation) has extensive overseas operations, it hired about 525 people to do the work in Florida.

There are also WTO considerations for states. Over the nine years of WTO’s existence, 37 U.S. states have been “signed on” to the AGP – often on grounds no stronger than an informal note from the state governor to the president saying ‘that WTO procurement agreement is interesting, tell me more”… States that are listed as signed on to the WTO AGP rules are expected to conform their domestic policies to the constraints put forth in the AGP agreement noted above. There are major legal and policy issues about states being bound to these rules: It is unclear if a state can be signed on without a vote of the state legislature - which did not occur in any state.

Visit the State and Local Governance section of our web site to explore this topic more extensively and learn how your state is handling this issue.

Further reading:

  • "Taking Its Toll," National Journal (03/27/04)
  • "Job Shift to Cheaper Countries Could Threaten More Careers: Analysts, Architects, Attorneys," The Wall Street Journal (03/23/04)
  • "States’ Contracts Ship Work to India," Charlotte Observer (8/10/03)



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