A political hot potato

Legislatures juggle offshore outsourcing regulations.

Troubled by the movement of high-tech jobs overseas, state and federal legislatures are trying to discourage offshore outsourcing in the sector of the economy they control: government procurement.

In May, Tennessee became the first state to pass legislation aimed at preventing the offshore outsourcing of its IT services. Tennessee's law says contractors that keep data entry, call center and other IT support jobs in the U.S. will receive significant preferential treatment during the bidding process on new contracts.

"The Tennessee law is precedent-setting because it's the first regarding the whole issue of IT outsourcing," says Justin Marks, a policy analyst with the National Conference of State Legislatures. "Tennessee didn't ban [offshoring], but it inserted preferences into its procurement code for contractors who employ U.S. workers."

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Troubled by the movement of high-tech jobs overseas, state and federal legislatures are trying to discourage offshore outsourcing in the sector of the economy they control: government procurement.

In May, Tennessee became the first state to pass legislation aimed at preventing the offshore outsourcing of its IT services. Tennessee's law says contractors that keep data entry, call center and other IT support jobs in the U.S. will receive significant preferential treatment during the bidding process on new contracts.

"The Tennessee law is precedent-setting because it's the first regarding the whole issue of IT outsourcing," says Justin Marks, a policy analyst with the National Conference of State Legislatures. "Tennessee didn't ban [offshoring], but it inserted preferences into its procurement code for contractors who employ U.S. workers."

The governors of three other states - Arizona, Minnesota and Michigan - have signed executive orders in recent months that give preferences to any contractors that use U.S. or in-state workers. Of these directives, Arizona's is the most stringent because it prohibits state work from being performed overseas.

From Alabama to West Virginia, many other states are considering similar measures. State lawmakers have introduced 35 bills that explicitly ban offshore outsourcing on government contracts, up from eight such bills last year, Marks says.

Government spending accounts for about 30% of the nation's economy.

The issue of offshore outsourcing "blew up this year," Marks says. "Whenever an issue comes up as fast as this came up, legislatures are going to introduce [bills] that are designed to fix the problem. It doesn't mean that these particular bills are going to [pass] but they will work their way through the system."

Congress is considering making changes to federal procurement laws to prohibit or at least limit offshore outsourcing. The Senate in March passed an amendment sponsored by Sen. Christopher Dodd (D-Conn.) that prohibits offshore outsourcing of federal, state and local government contracts where federal dollars are involved. However, the Dodd amendment includes a provision that the Secretary of Commerce must certify that these anti-offshoring measures will not harm the U.S. economy. The House of Representatives has yet to consider the Dodd amendment, and Capitol Hill watchers say its future is unclear.

"Workers in Connecticut and across the nation are first-rate. It simply doesn't make sense to export their jobs and futures half-way around the world to save a few pennies," Dodd said when he introduced his amendment in February. "This administration needs to get its priorities straight, and use taxpayer dollars to invest in America -American workers and small-business owners. This legislation is a step toward stopping the needless export of American workplaces."

Sparking opposition

Such measures have sparked plenty of opposition.

"When there's an issue that has as broad complexity as this - and we're dealing with very seminal trade issues here - it tends to be an issue that Congress cannot deal with quickly," says Stan Soloway, president of the Professional Services Council (PSC), a trade group that represents government contractors. "So Congress tends to go to the place where they have impact: government procurement."