Offshore outsourcing (or offshoring) is the “issue of the day” this election year. Though economists and business leaders generally have a different view, the popular focus on offshoring is negative: how detrimental it is for the U.S. economy, for job growth, for our society.

Offshoring is the practice of hiring workers overseas, primarily to reduce labor costs. Initially the focus was on companies that subcontracted their customer service call centers overseas. More recently, and causing an even greater outcry, the focus has been on engineering and programming jobs, creating a near panic in Silicon Valley and other high tech hubs. India is often cited as the primary location for offshoring, but such activities are growing in other countries as well, including China, Russia, Israel and Ireland.

This being an election year, there are numerous pending federal and state legislative proposals that would have the effect of curtailing offshoring. We have described some of the major initiatives below. At present, few of these proposals have a real chance of passage, especially on the federal level, in the face of severe criticism from business leaders, economists and government figures, including Federal Reserve Chairman Alan Greenspan. Common wisdom is that support for these bills will wane after November 2004. But politics is inherently unpredictable, so these proposals warrant attention and vigilance from the business community.

Federal Efforts

One piece of recently enacted protectionist legislation prohibits some forms of foreign involvement in government contracts. Other proposals could impact offshoring in the government and private sector by regulating government contracts further, amending the L-1 and H-1B visa laws[1] and placing requirements on call centers.

Legislation/ Proposal	Effect/Impact	Status
	Enacted Law
Consolidated Appropriations Act of 2004, Public Law No. 108-99.	Restricts federal funds appropriated between January 23 and September 30, 2004.  Prohibits successful bidders on certain government contracts from performing such work at a location outside the U.S. unless federal employees outside the U.S. previously were doing the work.  Time period of the restriction limits its impact.  Remains to be seen whether similar provisions will be included in appropriations acts for future fiscal years.	Effective January 23, 2004.
	Pending Legislation
H.R. 3911; introduced March 4, 2004.	Subject to certain exceptions, disqualifies certain companies that have outsourced jobs in the previous five years from the receipt of federal grants, federal contracts, federal loan guarantees, and other federal funding.  Also bars such federal awards to a contractor unless the contractor agrees that it will not offshore for 18 months after receiving the award.	Referred to House Committee on Government Reform on March 4, 2004.
H.R. 3878; introduced March 2, 2004.	Empowers the Secretary of Commerce to establish a “Commission on American Jobs” to evaluate offshoring and propose measures to prevent it.	Referred to House Committee on Education and the Workforce on March 2, 2004.
H.R. 3820; introduced February 24, 2004.  S. 2094; introduced February 12, 2004 (identical).	Prohibits the following: (1) successful bidders on certain privatized government work from performing such work at a location outside the U.S. unless federal employees outside the U.S. previously were doing the work, (2) federal procurement contracts for goods or services from being performed outside the U.S. except to meet a requirement for goods or services specifically at a location outside the U.S. or unless federal employees outside the U.S. previously were doing the work, and (3) federal funds appropriated to a state from being expended for the performance outside the U.S. of contracts entered into by that state.  The prohibition under (2) may be waived if the President determines performance outside the U.S. is necessary in the national security interests of the U.S.	H.R. 3820 referred to House Committee on Government Reform on February 24, 2004.   S. 2094 referred to Committee on Governmental Affairs on February 12, 2004.
S. 2090; introduced February 12, 2004.	Amends the Worker Adjustment and Retraining Notification Act (WARN Act) to cover “offshoring of jobs” which is defined as a layoff of 15 or more workers in any 30 day period in favor of offshoring.  The amendments generally increase the notice period for all covered work force reductions to 90 days from 60 days and subject mass layoffs of 50 or more employees to the Act.	Referred to Committee on Health, Education, Labor and Pensions on February 12, 2004.
S. 1873; introduced November 17, 2003.  H.R. 3816; introduced February 11, 2004 (identical).	Call Center Consumer’s Right to Know Act of 2003 requires each U.S. corporation or any of its subsidiaries utilizing a call center to disclose the physical location of the call center at the outset of each call.  While there has been a backlash against the offshoring of call centers, it is unclear what the impact of this bill and similar state proposals would be if offshoring remains otherwise legal.	S. 1873 referred to Senate Committee on Commerce, Science and Transportation on November 17, 2003.  H.R. 3816 referred to House Subcommittee on Commerce, Trade and Consumer Protection on February 24, 2004.
S. 1637; introduced September 18, 2003.  Amended March 4, 2004 by SA 2660.   SA 2660 amended by SA 2680 and SA 2685.	SA 2660 is very similar to H.R. 3820, but contains additional exceptions where the needs of the contracting governmental agency can be satisfied only by performance outside the U.S.   SA 2680 requires that the laws introduced by SA 2660 will not take effect until after the Secretary of Commerce certifies that the new laws will not result in the loss of more jobs than they will protect and will not cause harm to the U.S. economy.  This certification must be renewed each year.    SA 2685 exempts, from SA 2660’s prohibitions, procurements for national security purposes entered into by (1) the Department of Defense, (2) the Departments of the Army, Navy, or Air Force, (3) the Department of Homeland Security, (4) the Department of Energy with respect to its national security programs, or (5) any element of the intelligence community.	Motion for an immediate vote to recommit S. 1637 to Committee on Finance was not invoked in Senate on 3/24/04.  Motion to reconsider Senate’s refusal to invoke followed.
H.R. 3134; introduced September 17, 2003.	American Manufacturing Jobs Retention Act of 2003 prevents military departments and civilian agencies from hiring certain contractors that do not have at least 50% of their employees in the U.S.	Referred to House Committee on Government Reform and House Committee on Armed Services on September 17, 2003.
H.R. 2154; H.R. 2702; H.R. 2849 and S. 1452 (identical); S. 1635; introduced various times May through September 2003.	Proposals amend the visa laws as follows: (1) L-1 and H-1B visa holders cannot be transferred or outsourced to an unaffiliated employer; (2) employers must take good faith steps to recruit U.S. workers for certain jobs for which visa holders are sought; and (3) employers cannot hire L-1 visa holder or H-1B visa holder if the employer laid off or lays off any U.S. employee in the six months prior to or after the hire of the visa holder.    While these bills do not directly address offshoring, they could be a concern for a company involved in offshoring if it were also to undertake some of the activities the bills do address—hiring and transferring L-1 or H-1B visa holders and laying off U.S. workers—as part of an overall initiative by the company to reduce labor costs.	House bills referred to House Subcommittee on Immigration, Border Security and Claims and Senate bills referred to Senate Committee on the Judiciary at various times up to and including September 17, 2003.
H.R. 2688; introduced July 9, 2003.	Eliminates the H-1B program altogether.	Referred to House Subcommittee on Immigration, Border Security and Claims,  September 4, 2003.

State Efforts

A number of states have introduced bills and at least one state has enacted a law that could impact offshoring. Provisions of that law and of certain pending legislation in several states are briefly summarized below.[2] These provisions require state contractors to operate within the U.S., regulate call centers having contacts with the state, or impose restrictions when the state privatizes government functions.[3]

State	Effect/Impact	Status
	Enacted Law
Indiana House Enrolled Act 1080	Provides 1% to 5% price preferences to in-state businesses on contracts awarded by the state. A business that pays a majority of its payroll to state residents or employs state residents as a majority of its employees is eligible for these preferences as an “in-state” business. Certain businesses that do not meet these criteria, however, may still qualify as “in-state” businesses if they meet other criteria not directly dependent on their employment of Indiana residents. Expires in 2009.	Enacted on March 17, 2004.
	Pending Legislation
California Assembly Bill 1829	Requires vendors contracting with state agencies or local governments to certify that the work under the contract will be performed solely by workers within the U.S., subject to exception for services that are so specialized that there are no workers within the U.S. trained to perform the services.	Referred to Committee on Business and Professions on March 22, 2004.
California Assembly Bill 1845	Requires state agencies to specify in service contracts that such services shall only be performed by U.S. citizens or legal resident aliens in the U.S.	Referred to Committees on Business and Professions and Labor and Employment on March 1, 2004.
California Assembly Bill 2163	Requires an entity hired by a health care provider for the transcription of patient records to disclose to the health care provider whether any patient records will be sent offshore for transcribing. The provider must then obtain patient’s consent in order to do so.	Referred to Committee on Health on March 1, 2004.
California Assembly Bill 2449	Requires state agencies and recipients of state funds to give preference to vendors and contractors of information technology services who provide written certification that the vendor or subcontractor performs the work in the U.S.	Referred to Committees on Business and Professions and Labor and Employment on March 15, 2004.
California Assembly Bill 3021	Requires employers to file with the Employment Development Department reports relating to, among other things, the number of jobs the employer maintained in the state, in the U.S., and outside the U.S. during certain prescribed periods.	Referred to Committee on Labor and Employment on March 15, 2004.
California Senate Bill 1452	To the extent not in conflict with federal law, prohibits the state from contracting with entities that employ persons or subcontractors outside the U.S. in order to perform that state contract.	Referred to Committee on Governmental Organization on March 4, 2004.
California Senate Bill 1453	Requires any employer that outsources jobs resulting in replacement of 20 or more California workers to give 60 days notice to the replaced workers and to the state.	Hearing before Committee on Labor and Industrial Relations set for April 14, 2004.
Connecticut Senate Bill 395	Requires a call center, within 30 seconds of a call either received from or made to a state resident, to disclose to such resident the location of the call center and other information. Requires a call center to obtain written consent of customer prior to transmitting customer’s personal identifying or financial information to any foreign country.	Placed on Senate calendar on March 24, 2004.
Connecticut Senate Bill 400	Requires a call center to disclose to the customer, upon request, the location of the call center and other information. Prohibits release of financial, credit or identifying information to call centers outside the U.S.	Public hearing scheduled for March 2, 2004. No action taken as of March 9, 2004.
Connecticut Raised Bill 430	Prohibits state contract work from being performed outside the U.S. unless the contracted work is related to an event that occurs outside the U.S.	Referred to Office of Legislative Research and Office of Fiscal Analysis on March 23, 2004.
Connecticut Senate Bill 501	In awarding certain state contracts, gives preference to bidders that use state manufactured supplies and provide services in-state. Prohibits services under state contracts from being performed outside the U.S.	Placed on Senate calendar on March 25, 2004.
Indiana Senate Bill 4	Requires a successful bidder to demonstrate cost savings to the state, if a government function will be privatized and government layoffs would result. Permits governmental employees to bid on such a contract. Bars government from paying private company more than state would pay its employees for comparable work.	Passed in Senate and then adopted by House committee on February 19, 2004.
Indiana House Bill 1101 and House Bill 1381 (identical)	Requires that contract for services entered into by a state agency must specify that only citizens in the U.S. or those authorized to work in the U.S. may perform under the contract.	House Bill 1101 and House Bill 1381 referred to Committee on Appointments and Claims on January 13, 2004 and January 20, 2004, respectively.
Indiana House Bill 1275	Provides 10% price preference to in-state businesses for contracts awarded by the state. Criteria for eligibility of preference is similar to the criteria under House Enrolled Act 1080. Requires contractors to agree that only U.S. citizens or those authorized to work in the U.S. will work under state service contracts. Contains elements of House Enrolled Act 1080 and House Bills 1101 and 1381. Given that House Enrolled Act 1080, which set 1% to 5% price preferences, was enacted since this bill was referred to committee, it is unlikely that House Bill 1275, which proposes a higher price preference, will be passed in its current form.	Referred to Committee on Appointments and Claims on January 15, 2004.
Maryland House Bill 183	Allows a procurement unit in awarding a contract for services to consider whether the services will be rendered from outside the U.S. unless the contract relates to an event or a proceeding outside the U.S.	Third Reading passed on March 18, 2004. First Reading in Senate by Committee on Education, Health, and Environmental Affairs on March 19, 2004.
Maryland Senate Bill 362	Prohibits a procurement unit from awarding a contract for services to be rendered by specified persons from outside the U.S.	Referred to Committee on Education, Health, and Environmental Affairs. Hearing on February 26, 2004.
New York Assembly Bill 201 and Senate Bill 6079 (identical)	Requires public utilities to provide call center service assistance from centers located within the state and within the service area of the utilities.	Assembly Bill 201 referred to Committee on Corporations, Authorities and Commissions on January 7, 2004. Senate Bill 6079 referred to Committee on Energy and Telecommunications on February 5, 2004.
New York Assembly Bill 9567 and Senate Bill 6040 (identical)	Prohibits business entities from offshoring if they receive certain types of state assistance relating to economic development. Such state assistance includes, among other things, industrial development bonds, loans, loan guarantees, and various tax abatements, credits and discounts.	Assembly Bill 9567 referred to Committee on Economic Development, Job Creation, Commerce and Industry on March 3, 2004. Senate Bill 6040 referred to Committee on Corporations, Authorities and Commissions on February 26, 2004.
Rhode Island House Bill 5678	Requires state agencies to submit written analysis to state treasurer showing cost effectiveness of privatizing government functions. Requires bidding contractors to a state contract to agree to offer available positions to qualified state employees who are being terminated because of the privatization. Limits privatization contracts to seven years.	Referred to House Labor Committee on February 11, 2003.
Vermont House Bill 647	Prohibits the state from awarding a contract for telemarketing services or telephone center services to a vendor that provides telemarketing or telephone center services that are performed by individuals outside the U.S.	Referred to Committee on Government Operations on January 28, 2004.
Vermont House Bill 702	Prohibits the state from awarding a procurement contract for services to be rendered by a contractor from a site outside the U.S., subject to certain exceptions.	Referred to Committee on Government Operations on February 3, 2004.
Virginia House Bill 243 and Senate Bill 151 (identical)	Provides that in awarding contracts for goods or non-professional services, public bodies must give preference to U.S.-based firms, so long as the bid price is not more than 20% greater than the low bid price of responsive and responsible foreign-based firms.	Senate Bill 151 and House Bill 243 continued to 2005 in Committee on General Laws on January 28, 2004 and February 3, 2004, respectively.
Virginia House Bill 315	Provides that in awarding contracts for the procurement of goods or services in excess of $500,000, public bodies shall give a 3% preference to any person with facilities located in Virginia that produce such goods or services.	Continued to 2005 in Committee on General Laws on February 3, 2004.
Virginia House Bill 1010	Provides that no public body shall enter into any contract for professional services unless the contract provides that only U.S. citizens, legal resident aliens or individuals holding a valid visa will perform the services.	Continued to 2005 in Committee on General Laws on February 3, 2004.

The summaries above are intended to be brief for easy reference; therefore, we have not described each provision, qualification, exception, or penalty that might be relevant to a specific circumstance. For further information on the issues and proposals noted above, or for assistance in reviewing your company's particular situation with respect to offshore outsourcing, please contact Ameek Ponda at the number below.


[1] The L-1 visa program allows multinational companies to make intracompany transfers to the U.S. of specialized nonimmigrant employees. The H-1B program permits employment of highly qualified nonimmigrants.

[2]In addition to the states listed, numerous other states currently have pending legislation aimed to restrict or prohibit offshoring. Such states include Arizona, Colorado, Georgia, Illinois, Kansas, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, North Carolina, South Carolina, South Dakota, Tennessee, Washington and Wisconsin.

[3] One or more of these provisions may be unconstitutional, in violation of federal law, or in violation of international treaty obligations.

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