The federal government’s IT force is aging, and this year will see half of those employees retire, reports say. Additionally, the public sector has retained many of its legacy systems at the same time as private-sector industries have walked through fire and burned through considerable funds to upgrade their antiquated systems, integrate their data sources and build new audit trails.
At this late stage in the game, federal agencies feel several pressures, and the simplest relief may be outsourcing. With this option, no new employees need to be screened, hired and salaried; no requests for proposals on new systems need to be floated, evaluated and decided upon; and no new taxes need to be extracted from American citizens.
Trend Toward Outsourcing
“We’ve just finished our first review of the first-quarter deals that were won in the outsourcing marketplace. Certainly the government is growing in outsourcing. Four of the largest eight deals we tracked were in government — two in applications management, one for the U.S. Army and one for the IRS,” says Robert McNeill, senior analyst with Forrester Research, New York.
Additionally, New York City signed a distributed help desk outsourcing agreement with Unisys, and the State of Wisconsin engaged EDS for business process support related to Medicaid claims growth.
“The federal government is driven to outsource to access technology and skill sets it doesn’t have internally and to speed that access,” says Andy Efstathiou, program manager at Yankee Group, Boston.
For the time being, most of the outsourcing partners government groups have secured are U.S. firms. “We’re not seeing the offshore outsourcers winning big deals,” especially in the federal space, because of concerns about public response, he says. However “there are a lot more questions from the federal government about using offshore partners. A lot of those deals are being crafted.”
It’s Who You Know
“There already have been some cases of governmental agencies outsourcing some services outside the country,” says John Challenger, CEO of global outplacement firm Challenger, Gray & Christmas, Chicago. “It’s going to be a growing issue as governments try to strike a balance between balancing budgets and not asking for tax increases.”
Companies around Washington, D.C., are popping up to control government contracts, he says. Their domestic offices relieve the government from public disapproval: Americans don’t want to see American jobs shunted to foreign workers, Challenger explains, and with the facade of an American outsourcing partner, few of the new entities or their government-based clients draw criticism or even attention.
“They serve as a face for getting access to government contracts. They know how to do the paperwork. They know people in government. These U.S. companies funnel the business offshore,” Challenger says of the “Beltway Bandits.” The reality — the offshore outsourcing of functions Americans could perform at home — does not hit the American public. “It’s not as transparent as an offshore outsourcer approaching the federal government directly for a deal,” says McNeill.
Seeking Uncle Sam
U.S. offices for foreign outsourcers “have grown by leaps and bounds,” Challenger says. “Sourcers of all kinds are going to where they can get the best deal. It’s not any different than you or I shopping at Wal-Mart where the quality is basically the same but products come without the brand name.”
National security and Department of Defense outsourcing, when it takes place, may employ only U.S. citizens, and even those must receive security clearance. This policy will not change. But the general employment policies that once stipulated that workers be Americans are changing, says Efstathiou.
He argues that the government has outsourced business-critical operations for years by purchasing products developed overseas but branded in the United States. Microsoft and IBM software and hardware are examples. “There’s absolutely no way anyone could cut off offshore,” he says.
And even when government agencies contract with large U.S. outsourcers, almost all of the large outsourcing firms have global capabilities to which they will direct overflow or regular business, in the case of an emergency — “if a hurricane hit the Florida call center and if the next available call center was overseas,” Efstathiou says, all calls but those that require reps with security clearance would flow overseas.
“The outsourcing of jobs by government, by public companies and by private companies is going to continue,” Challenger says. “I’m not even sure that in five years it won’t be seen as business as usual.”
“A lot of outsourcing is targeted at the federal government,” McNeill says. “The public is starting to distinguish onshore vs. offshore outsourcing regarding the outsourcing of jobs. The public palate for outsourcing is keep U.S. jobs in the U.S. That makes the same more palatable for the government.”
“But that globalization of work is growing,” Challenger contests. “The consumer public is already comfortable with it. They’re buying products and services from all over the world. It’s everywhere. Integration of economies is a central part of our federal policy.”