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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.
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