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Study: States doing plenty of offshoring

Foreign companies are nabbing millions in U.S. state contract work, and the trend is likely to grow, report says.

At least $75 million in U.S. state contract work has been captured by 18 companies that specialize in offshore outsourcing, according to a new study.

The report, released Wednesday by tech professional advocate group WashTech, found that so-called offshoring is going on to some extent in just about every state government. But the study, which focused on information technology and food-stamp call centers, said the total amount of state contract offshoring cannot be estimated, because most states don't know where the work is performed.

"We find that foreign information-technology contractors are aggressively poised to capture more state government work," the report concluded. "State policymakers are not well-positioned to respond, since they often lack the most basic information necessary to determine who is actually doing contracted work and where."

Offshore outsourcing, which refers to farming out tasks to lower-wage nations such as India or the Philippines, has become a hot-button issue over the past year or so. Defenders of the practice say it ultimately assists the U.S. economy and its workers. But critics say it costs U.S. workers jobs and threatens the country's long-term tech leadership. The exact scale of the trend, meanwhile, remains somewhat murky.

Politicians have entered the debate, but with few actual results. Among some of the more concrete steps taken have been governor decrees in a few states. Michigan Gov. Jennifer Granholm issued a directive to give preference in state contracts to Michigan-based job providers. The state must also take into account whether work performed outside Michigan or the United States "would be detrimental to the state of Michigan, its residents, or the state's economy."

And Missouri Gov. Bob Holden ordered state agencies not to award contracts to vendors that plan to do the work outside the United States, although exceptions apply.

The WashTech report called for states to require all contract bidders to certify where the work on the project will be performed and to disclose the name and headquarters of their parent company. The report also recommended that states require existing contract holders to provide such information.

The study was prepared for WashTech by the Corporate Research Project of Good Jobs First, an organization that aims to help grassroots groups and policy-makers ensure that economic development subsidies are accountable and effective. WashTech is a local affiliate of the Communications Workers of America union.

In a conference call, a reporter noted that $75 million is a drop in the large bucket of state government spending. Philip Mattera, director of the Corporate Research Project, suggested the tally would be bigger if the study included state contract work sent overseas by U.S. tech services companies, such as IBM. "We're convinced that whatever the (total) quantity is, it's much greater than $75 million," he said.

Marcus Courtney, president of Washtech, said government agencies lack information about the wages ultimately paid for state work. "State governments may be undercutting labor standards," he said.

According to the study, subcontracting arrangements can end up sending state government work overseas. In addition, companies that appear to be domestic sometimes are not. A domestic mailing address may simply be a marketing office for a company that is based offshore. Other companies are technically headquartered in the United States but do all or most of their work in offshore facilities, the report said.

Without state action, the offshore trend in state contracting is likely to grow, the study indicates. "At least 18 firms that specialize in offshore outsourcing are positioning themselves in no fewer than 30 states to capture a larger share of the state government market, especially in information technology services," the report said.

The report listed companies including India-based Infosys Technologies, Patni Computer Systems and Satyam Computer Services.