Contracting Out IT Jobs Vexes States
By Pamela M. Prah, Staff Writer
States are wrestling over whether they should contract out or "outsource" their information technology (IT) projects to private companies, including those located overseas.
While farming out high-tech work may be cheaper and more efficient, state officials are leery of possible voter anger about losing state jobs to foreign companies, industry and government officials said at a recent Washington D.C. luncheon.
The issue is important both politically and financially. State government IT market amounts to about $50 billion a year, said Harris Miller, president of Information Technology Association of America (ITAA), a trade group that represents the IT industry and the sponsor of the luncheon.
The trend in private business is to outsource IT jobs to firms located both on- and offshore, meaning companies located in and outside the United States. But some states are moving in the opposite direction. Lawmakers in nearly a dozen states have introduced legislation that would restrict state agencies from using foreign companies for IT. None of the legislation passed, but Miller said he expects to see similar measures resurface, particularly if the U.S. jobs picture doesn't improve quickly.
"Today the [political] climate doesn't exist to say `offshore' out loud," said George Newstrom, secretary of technology for the Commonwealth of Virginia and a former high-tech official in the private sector. "We have political leaders right now that have great angst about any outsourcing whatsoever in state government."
Outsourcing to companies offshore is drawing even closer scrutiny, he said.
Industry experts said state agencies consider outsourcing IT for some of the same reasons private businesses do: better and cheaper service.
For many state agencies, "their mission is not technology business," said William Sweeney, vice president of global operations for Electronic Data Systems Corp (EDS), headquartered in Plano, Texas. Instead, the state agency's "mission" may be delivering welfare or unemployment benefits or tracking down terrorist using financial data and they want to focus on that, rather than IT, he said.
Newstrom of Virginia agreed that certain state IT tasks could be done better somewhere else. He said legislation restricting IT outsourcing is a bad idea and estimated that Virginia could save $100 million of the $900 million it spends on IT through outsourcing and better management.
However, Virginia is still working on understanding its IT needs, so the state really doesn't know what to outsource, Newstrom said. He said it took him six months to figure out exactly how much the state really spends on IT. Then there's politics. "We reject moving work from Virginia to Maryland, not to India, to Maryland. We don't even like that," he said.
States that do outsource information technology business with companies abroad often attach strings. Pennsylvania, for example, hired TCS America, the U.S. arm of Tata Consultancy Services (TCS), one of the largest IT companies in India according to industry figures,to help with its IT services for it corrections department.
Pennsylvania required that the work be done by people located in the state, Arup Gupta, president of TCS America, told Stateline.org. New Mexico, on the other hand, hired TCS America to work on the state's unemployment insurance system and allowed some, but not all, of the work to be done abroad, Gupta said.
The same holds true for EDS. Some EDS state contracts specify that the work be done by people located no more than 50 miles from the state capital, Sweeney said.
New Jersey has learned that contracting out IT work can create a political firestorm. The state decided to drop the idea of having some of its call centers located abroad after coming under fire for taking jobs out of the state. Miller said New Jersey would probably spend $1 million to bring the call centers back onshore.
"It's an interesting political tradeoff," he said.
The IT industry fears that statehouse action could affect their business worldwide. "If we start passing legislation state by state or at the federal level that says we can not award contracts to a non-U.S. company then it plays into the hands of other governments around the world that do not want to open their government IT business" to U.S. firms, Miller said.