Schwarzenegger steps into outsourcing fight

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€ Arnold York is taking a break, his column will return soon.

Gov. Schwarzenegger’s new plan to save the state millions in purchasing goods and services gives unprecedented influence over the state’s checkbook to a Canadian-owned company, and has mired the governor in the muck of the bitter outsourcing fight in Sacramento.

Schwarzenegger’s latest cost-saving plan has put the state into business with one of the world’s largest outsourcing companies, the Canadian-owned CGI-AMS. The deal puts the company at the forefront in the decision making process over the $4 billion the state spends annually in goods and services.

CGI-AMS is a $3 billion company with 25,000 employees offering everything from software development to “outsourcing solutions” for its clients, according to the company’s Web site. Before the Canadian-owned CGI Group Inc. acquired American Management Systems earlier this year, AMS made Lou Dobbs’ hit list of companies that are “Exporting America.” Dobbs describes those companies as “U.S. companies either sending American jobs overseas, or choosing to employ cheap overseas labor, instead of American workers.”

The new merger makes the company “well positioned to compete for mega-outsourcing deals,” said Tom Davies, senior vice president at the market research firm Current Analysis Inc., Sterling, Va. Davies was quoted in Washington Technology, a national newspaper dedicated to information technology.

Last week, the administration said the state’s deal with the company would “modernize” the way the state purchased goods and services through the use of “strategic sourcing tools,” according to a release from the governor’s office. The administration claims it will save the state up to $600 million per year.

Fred Aguiar, secretary of the State and Consumer Services Agency, says CGI-AMS is currently conducting a complete analysis of the state’s buying practices, and will come back with a series of recommendations of how the state could save money. And part of the “strategic sourcing tools” at the state’s disposal may well be more state contracts that involve using workers from overseas.

The deal with CGI-AMS is the clearest sign yet of where the governor stands on the controversial issue of “offshoring,” or sending California service jobs overseas to save companies and governments money. In records filed with the Securities and Exchange Commission, CGI-AMS makes it clear that outsourcing is central to the services the company provides. And while it is still unclear what sort of recommendations the company will make on how and where California should buy goods and services, the company has a long track record of looking overseas to save its clients money.

At a May 2003 meeting of investors in New York, AMS CEO Alfred Mockett said outsourcing provided the greatest opportunity for growth for the company. Mockett announced the company was going to quadruple its software development center in Krakow, Poland, and expand contract relationships in India.

“We’ve been a little late to the game in offshore software development. Believe me, we are making up for lost time,” Mockett told investors.

Aguiar said the details of how the new procurement process will work are still being worked out between the company and the Department of Governmental Services, and it is possible that the way to save the state money may involve purchasing goods and services from overseas. But, he said, at least initially, the company’s efforts will be focused on making bulk purchases to try to save the state money, something akin to the state doing its shopping at Costco instead of a local supermarket.

But, Aguiar said, the state must still abide by the myriad regulations in state statute involving government purchases of goods or services. And, he said, “if the quality of the product, and service and delivery of a good or service can be delivered by a California company, that’s where we should be looking, all things being equal.”

But Schwarzenegger spokesman Vince Sollitto said that the governor wouldn’t hesitate to look overseas if the end result is saving money for California taxpayers. “The governor’s focus is more of a bottom-line focus,” he said. “At the end of the day, the governor’s focus is on the taxpayer.”

Aguiar said that while CGI-AMS will be making recommendations to the department on various ways to save money, the Department of Governmental Services will have the final say over which goods and services the state purchases. “As I understand this process, DGS officials will have ample opportunity to change the shape of the proposal,” Aguiar said. “Ultimately, the decision will be made by DGS.”

But the deal can only turn up the heat on the outsourcing fight in Sacramento, and place the governor at the center of the firestorm. Until now, Schwarzenegger has mostly stayed out of the outsourcing fight, refusing to take a position on any of the bills moving through the Legislature.

By signing the state up with CGI-AMS, the governor seems to be preparing to veto a bill by Assemblywoman Carol Liu, D-La Cañada Flintridge, that would prohibit state agencies from using government funds to contract for services unless the work will be performed in the United States.

Schwarzenegger has not taken a position on the bill, but it has been at the center of a war between labor unions and the Chamber of Commerce.

Liu’s bill is only part of a national debate over sending jobs overseas that cuts across party lines. Many business leaders who are Democrats, particularly those in high-tech industries, say sending service jobs to places like India is essential to the American business’ bottom line. Meanwhile, a more protectionist wing of the Republican Party has joined with labor unions and others on the left to oppose the exporting of those jobs.

While the fight has been mostly partisan here in California, Republican legislatures and governors in several states, including Indiana, Illinois and Minnesota, and some Republicans in Congress have moved to restrict state and federal “offshoring.”

Publishers Note: Even though this is a very long column we decided to run it because outsourcing is an important public issue and will most probably be a major issue in the upcoming presidential campaign.