Congressional and public outcry in March 2006 at a potential transfer of six major U.S. port operations to Dubai Ports World illustrated the controversy of contracting foreign companies to provide public or infrastructure services. The Dubai deal, which was eventually voted down, was deemed too great a security risk despite the ongoing use of offshore outsourcing in the private sector, and in major infrastructure and ports around the United States.

Overall, outsourcing has produced the type of consternation that crops up each time economies shift to new ways of producing goods. Yet this shift has produced security considerations as well. The Department of Defense's (DoD's) private outsourcing of military and intelligence tasks to sustain operations in the second Iraq war also caused a flurry of concerns about patriotism and safety.

In particular, offshoring -- or paying a foreign-owned company to provide goods and services previously produced at home -- has triggered considerable opposition. Many opponents fear it drains jobs from American workers, particularly when tax dollars are part of the equation. Others believe that remote offshore providers don't offer the same quality in service as domestic companies do.

Since 9/11, the appetite for foreign presence in the public sector has weakened, especially in state legislatures and Congress, where numerous anti-offshoring laws were introduced in 2004 and 2005. Six states have passed laws limiting or abolishing state contracts with non-U.S. citizens, according to the National Conference of State Legislatures. Arizona and New Jersey prohibit all outsourcing in state contracts. Many other states tabled offshoring legislation with plans to further study the issue. Still others give preference to domestic contractors over offshore companies or require disclosure from contractors regarding where all work will be performed. Disclosure has become a concern since many domestic companies that outsource services do so to non-U.S. subcontractors.


The Buck Stops Here
The public sector's skepticism, even hostility, toward offshore outsourcing seems off-base, given its apparent success in the private sector. Corporate customers recognize that the offshore model has proven effective in providing better, faster and more cost-effective IT and software development services, said Robert P. Lee, CEO and chairman of Achievo Corp., a global software outsourcing provider with China. "Companies worldwide use software outsourcing to accelerate product cycles and improve their competitiveness."

Domestic public-sector outsourcing has become commonplace. The DoD is the single largest government outsourcer, and other government contractors saturate office space around the Beltway. State and local governments depend widely on outside contractors for enterprise architecture, call centers, human resource management, and Web site and e-business activities. Medicaid claims processing has also dramatically grown in outsourcing, as have the intelligence community and federal departments of Justice and Commerce. Cost, replacement of legacy systems and increasing numbers of public-sector retirees are all drivers for outsourcing.

Still, while public-sector outsourcing has been common for years, governments may have difficulty encouraging or requiring service providers to offshore any work they must perform for the government. "Politicians are expected by their constituents to preserve jobs and look out for their best interests," said Bob White, a partner with TPI, a global outsourcing advisory company. "For that reason, elected officials discourage the bureaucrats running the executive branch agencies from allowing solutions featuring an offshore component."

Security is a constant bedfellow of IT services, and also colors consideration of foreign outsourcing in state, local and federal government. Unemployment rates are another very public concern. As a result, perhaps, public-sector offshoring is especially rare, says a 2005 study from the Reason Public Policy Institute. Before 2006, offshore outsourcing remained a small portion -- about 6 percent -- of total federal government outsourcing, the institute reported, and less than .01 percent of government outsourcing in state and local governments.

"Most outsourcing is domestic because of anti-offshoring sentiment that started in the last election year," said James Meadows, attorney