America Only

Although this provision has existed perennially for those working on solutions consisting of classified information, the ongoing War On Terror has encouraged more federal agencies to include this language in requests for proposals (RFPs) that involve "sensitive but unclassified information," says Marcia Madsen, a partner at the Washington, D.C.-based law firm of Mayer, Brown, Rowe and Maw, whose practice focuses on government contracts. "We see RFPs coming out that have that kind of provision in it. There was an obvious concern about who had access to these databases."

And that may only be the beginning of a trend, industry experts say.

"About [a month ago], in a government appropriations bill, wording was added that prevents any contract for the U.S. Treasury or Department of Commerce to outsource anything offshore or to subcontract an outsourcing contract to someone offshore," says Lance Travis, vice president of outsourcing strategies at Boston-based AMR Research. "I expect we'll see more of [that] this year--especially since it's an election year."

While this shift may prove a bonanza for small solution providers that have no overseas ties, it already has made some large, commercial integrators reconsider their burgeoning business with the federal market, Madsen says.

"We had several clients look at these kinds of procurements--some who have historically done some government work--and say, 'We just can't do it,'" she says. "Commercial companies have views about these complicated obligations and how rigid they are. They're uncomfortable with trying to put procedures in place."

Still, larger companies with many U.S. employees could benefit, Travis says. "I think it will limit the competition to the global firms that have large numbers of U.S.-based staff," he says. "It will keep the large offshore firms out of this market because they won't be able to provide the U.S.-based staff to fulfill the contracts."

Initially, at least, there will be less competition, while at the same time, new sources of funding will arise. Currently, the federal government has deep pockets when it comes to IT--especially with agencies such as the Department of Homeland Security putting new technology infrastructures in place, Madsen says.

President George W. Bush's fiscal 2005 budget includes a $59.8 billion request for IT spending; although this represents only a 1 percent increase over last year's request, some agencies have seen their budgets increase, according to Reston, Va.-based market research firm Input.

For example, budgets for both the Air Force and Navy are increasing, while the Army's budget is being cut, Input finds. In addition, civilian agencies such as Commerce, Transportation and Veterans Affairs are requesting significant increases in IT spending, says Payton Smith, manager of public-sector IT market analysis at Input.

It's not completely good news, though, for American companies. Although a boon for many solution providers, the trend toward America Only contracts may hit consumers' wallets. Agencies' inability to ship some work offshore could increase the overall costs of the contracts, AMR Research's Travis cautions. "It will keep pricing higher, so U.S. taxpayers will suffer," he says.

Alison Diana ([email protected]) is a freelance writer and editor based in Merritt Island, Fla.