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Stimulus Funds to Increase Outsourcing in Public Sector

Local and state government use of outsourcing will rise in 2009, a survey finds.
by Debbie Bolla
U.S. outsourcing is receiving a surge from the most recent government-funded stimulus package. Four billion dollars of taxpayer stimulus funding is heading to the public sector for outsourcing, with the majority of the money going into public sector technology projects through the American Recovery and Reinvestment Act.  

With the unemployment rate rising, some critics argue that the future of government and state outsourcing isn’t looking favorable—but a survey conducted by Brown & Wilson showed the opposite is true. Proponents for outsourcing note these three major
advantages of an external solution:

Improved Service. State and local governments have access to resources that they didn’t have before outsourcing initiatives.

Faster Capacity. Commodity-procurement rules for the public sector are arduous and time consuming. Outsource providers have reduced the purchasing window considerably.

Expertise and Staffing. With outsourcing, government technology jobs are filled with skilled personnel in a shorter amount of time.

By the end of 2009, the additional stimulus spend will increase the state and local outsourcing market from more than $12 billion to as much as $17 billion, according to the study. Forecasters predict that compounding spend will exceed $20 billion by the end of 2010. The report estimated that within the next 18 months, 66 percent of state funding will be put toward technology outsourcing. A smaller portion in local funding—51 percent—will be outsourced for technology in the same time frame. Brown & Wilson’s poll responses also indicated increased demand in the following areas: date center management; help desk services; application management; desktop services; and hosting.
Post Stimulus Funding Time Frames for Procuring Technology Outsourcing

Offshoring will take a hit in some respects. President Obama’s push for “Buy American” to put money back into the U.S. economy will most likely damper the use of offshore vendors. The survey showed that 97 percent of state and local government participants agree that “Buy American” is their only outsourcing purchasing option, regardless if the technology projects are part of the stimulus funded initiatives or not.

 “The public sector is highly motivated to utilize outsourcers to innovate their technologies and isn’t waiting for protectionist legislation to direct their vendor selections. Constituent sentiment is demanding the use of American suppliers as technology unemployment exceeds 10 percent in some parts of the U.S. We’re seeing government’s lead in determining U.S. preferred vendors spreading to the private sector too,” said Douglas Brown, a partner at the Brown-Wilson Group. “The attraction to offshore outsourcing has been greatly mitigated by compounding risks, cost issues, and the focus of the ‘America First’ recovery efforts. Protectionists are being viewed as patriots to the extent of being honored with loyalty-rewarded purchases from consumers.”

This trend is also making its way into the vendor-selection process in the private sector. Of the surveyed U.S. private industry outsourcing practitioners, 86 percent confirm that offshore outsourcing will also decrease in the future.

Of state and local government officers polled, 87 percent agree on five main qualifiers for stimulus-resultant outsourcing under the “Buy American” technology and outsourcing suppliers:

  • U.S.-based headquarters.
  • American citizens comprise at least 50 percent of the outsourcer’s total world employment.
  • The outsourcer is currently capable of performing 100 percent of the initiative via American citizen employees;
  • The outsourcer will assign no more than 10 percent H1-B via workers or offshore employees to the project;
  • The outsourcer is capable of providing for projects that fall under the initiative services that are 100 percent based on American soil.

To ensure stimulus funds are used prudently yet expediently, 81 percent of government agencies report the likely acquisition of consultant services prior to any acquisition of outsourcing services that do not fall under the “Buy American” standards. The use of outside advisors is forecasted to grow three-fold in the near future, and the survey noted that sourcing advisory services firm EquaTerra scored highest in the public sector.

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