Ohio Governor Issues Executive Order Prohibiting Use of Public Funds for Practice of Offshore Outsourcing Known as Offshoring

By Thomas Ahearn, ESR News Blog

Ohio Governor Ted Strickland has issued an executive order that prohibits the expenditure of public funds for services provided offshore and beyond the boundaries of the United States and its territories – a practice known as Offshore Outsourcing or “Offshoring” – a move that is a reaction to public outcry after a El Salvadoran call center was used for Ohio’s appliance rebate program, according to a report on Cleveland.com.

A press release on the Office of the Governor website at Governor.Ohio.gov reveals that the state’s Department of Development awarded a $357,300 contract to a Texas-based service provider in March 2010 to assist with the agency’s implementation of the $11 million federal stimulus-funded appliance rebate program which rewarded consumers with federal stimulus dollars when they bought energy-efficient appliances.

Despite state procurement requirements designed to restrict service providers from using public funds for offshore labor – in particular, an Ohio Department of Administrative Services (DAS) directive that requires agencies to ask potential vendors to list all locations where the services will be performed – the contract was awarded to a company that practiced “offshoring” and used offshore labor.

The company in Texas never told state officials in Ohio it would use a foreign call center, and the state did not require the information with bids. State officials learned about the call center from an Ohio resident who asked a call center employee where the operation was located, according to the press release.

“Ohio’s policy has been – and must continue to be – that public funds should not be spent on services provided offshore,” Strickland states in the Executive Order.  “Throughout my Administration, procurement procedures have been in place that restrict the purchase of offshore services.”

In June 2008, Strickland signed an executive order (E.O. 2008-12S) that implemented Think Ohio First practices promoting economic development by maximizing the use of Ohio businesses when agencies conduct purchases. 

The full text of the governor’s Executive Order 2010-09S “Banning the Expenditure of Public Funds for Offshore Services” appears in the press release:

  • 1. Ohio’s Economic Vitality Necessitates Constant Vigilance in State Job Creation Efforts.  State officials and employees must at all times remain passionately focused on initiatives that will create and retain jobs in the United States in general and in Ohio, in particular, and must do so especially during Ohio’s continuing efforts to recover from the recent global recession.
  • 2. No Public Funds Should be Spent on Services Provided Offshore.  Allowing public funds to pay for offshore services undermines economic development objectives and any such offshore services carry unacceptable quality and security risks. a. The Purchase of Offshore Services with Public Funds Undermines Economic Development and Other Job Creation and Retention Objectives.  The expenditure of public funds for services provided offshore deprives Ohioans and other Americans critical employment opportunities.  It also undermines efforts to attract businesses to Ohio and retain them in Ohio, initiatives in which the State has invested heavily. b. The Purchase of Offshore Services Has Unacceptable Business Consequences.   The use of offshore service providers could pose unacceptable data security, and thus privacy and identity theft risks.  There are pervasive service delivery problems with offshore providers, including dissatisfaction with the quality of their services and with the fact that services are being provided offshore.  It is difficult and expensive to detect illegal activity and contract violations and to pursue legal recourse for poor performance or data security violations.  The State’s use of offshore service providers ill-serves the people of Ohio who are the primary consumers of the services provided by the State.
  • 3. Ohio’s Policy Has Been – and Must Continue To Be – That Public Funds Should Not Be Spent on Services Provided Offshore. Throughout my Administration, procurement procedures have been in place that restrict the purchase of offshore services.  Despite these requirements, federal stimulus funds were recently used to purchase services from a domestic company which ultimately provided some of those services offshore.  This incident was unacceptable and has caused me, through this Order, to redouble my commitment to ensure that public funds are not expended for offshore services.
  • 4. Additional Steps Will Ensure that Public Funds Are Not Spent on Services Provided Offshore.  In order to ensure that the State of Ohio makes no expenditures for services provided offshore, I hereby order the following: a. No Cabinet Agency, Board or Commission (Executive Agency) shall enter into any contract which uses any funds within its control to purchase services which will be provided outside the United States.  This Order applies to all funds in the custody of an Executive Agency, be they from state, federal, philanthropic or private sources.  It applies to all purchases of service made directly by an Executive Agency and services provided by sub-contractors of those providing services purchased by an Executive Agency. b. This Executive Order will be personally provided, by the Director, Chair or other chief executive official of each Executive Agency, to the Chief Procurement Officer or other individual at that entity responsible for contracts for services. c. The Department of Administrative Services, through Ohio’s Chief Procurement Officer (OCPO), shall have in place, by August 31, 2010, procedures to ensure all of the following: i. All agency procurement officers, or the person with equivalent duties at each Executive Agency (APOs), have standard language in all Executive Agency contracts which: (a) Reflect this Order’s prohibition on the purchase of offshore services. (b) Require service providers or prospective service providers to: (i) Affirm that they understand and will abide by the requirements of this Order. (ii) Disclose the location(s) where all services will be performed by any contractor or subcontractor. (iii) Disclose the locations(s) where any state data associated with any of the services they are providing, or seek to provide, will be accessed, tested, maintained, backed-up or stored. (iv) Disclose any shift in the location of any services being provided by the contractor or any subcontractor. (v) Disclose the principal location of business for the contractor and all subcontractors who are supplying services to the state under the proposed contract. ii. All APOs are ensuring that all quotations, statements of work, and other such proposals for services affirm this Order’s prohibition on the purchase of offshore services and include all of this Order’s disclosure requirements. (a) Any such proposal for services lacking the affirmation and disclosure requirements of this Order will not be considered. (b) Any such proposal where the performance of services is proposed to be provided at a location outside the United States by the contractor or any sub-contractor, will not be considered. iii. All procurement manuals, directives, policies, and procedures reflect the requirements of this Order. iv. All APOs have adequate training which addresses the terms of this Order.
  • 5. Exceptions.  Nothing in this Order is intended to contradict any state or federal law.  In addition, this Order does not apply to: a. Services necessary to support the efforts of the Department of Development Global Markets Division to attract jobs and business to the State of Ohio, including incidental services for the support of trade missions, payment of international staff, and services necessary for the operation of international offices. b. Academic, instructional, educational, research or other services necessary to support the international missions of Ohio’s public colleges and universities.
  • 6. I signed this Executive Order on August 6, 2010 in Columbus, Ohio and it will not expire unless rescinded.                                    

            Ted Strickland, Governor

Banning the practice of offshoring where public funds are concerned – like the governor of Ohio issuing an executive order prohibiting use of public funds for outsourcing – may seem like a no brainer to many, but according to a blog on The Economic Populist the use of taxpayer dollars to offshore outsource jobs happens every day, from food stamp and unemployment support to large software design projects.

The Economic Populist blog also notes that as a result of the State awarding a stimulus contract to support the appliance rebate program to a contractor that practiced offshoring, workers in El Salvador were able to come into contact with the personal and sensitive financial data – also known as Personally Identifiable Information (PII) – of people from Ohio.

The controversial practice of “offshoring” has come to the attention of other states as well. As reported earlier on the ESR News Blog, California Governor Arnold Schwarzenegger recently signed into law California Senate Bill 909 (SB 909), which appears to be the first law in the nation that addresses the issue of personal information being sent offshore outside the United States or its territories.

SB 909 amends the California Investigative Consumer Reporting Agencies Act (ICRA) that regulates background checks in California and requires that a consumer must be notified as part of a disclosure before the background check of the web address where a consumer “may find information about the investigative reporting agency’s privacy practices, including whether the consumer’s personal information will be sent outside the United States or its territories.”

While SB 909 does not prohibit offshoring when it comes to background checks, the law will require a disclosure in the privacy statement of the background check firm’s website, as well as a link to that privacy statement.

Employment Screening Resources (ESR) does not offshore information contained in background check reports and is a member of Concerned CRAs, a group of Consumer Reporting Agencies (CRAs) that oppose the practice of offshoring information of U.S. citizens outside the country.

For more information, visit the ESR News Blog articles tagged “offshoring” at http://www.esrcheck.com/wordpress/tag/offshoring/.

Employment Screening Resources (ESR) is the company that wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. ESR is recognized as Background Screening Credentialing Council (BSCC) Accredited by the National Association of Professional Background Screeners (NAPBS®) for proving compliance with the Background Screening Agency Accreditation Program (BSAAP). For more information about Employment Screening Resources, visit http://www.ESRcheck.com.