In the first federal law against outsourcing, the US Senate on Thursday night passed a law barring doling out sub-contracts to India and other countries by American companies to cut costs.

The legal measure, originally sponsored by Republican Senator from Ohio George Voinovich and others, was included in a $328billion spending bill passed by the Senate.

Also Read US Senate to take up bill against BPO

Under the measure, when the US federal government gives contracts to an American firm, the latter cannot subsequently give sub-contracts to a source outside the United States.

The measure avoids challenging the government's right to give projects to contractors. But what it does provide is that that contract cannot be sub-contracted out by the outsourcing mechanism to India or other countries like China or Russia to cut costs.

The provision is the first federal law that limits companies from performing contracted work outside the US ever since outsourcing became a potent political issue in the US a year ago. Business groups said the move would undercut the ability of US companies to compete with their overseas rivals.

Voinovich has been working on this bill for quite some time though companies having offshore BPO contracts have pointed out that such action benefits not only countries like India but as much or even more the American companies, which have to compete globally.

The Senate adopted the bill before it recessed but the document could not be sent to President George W Bush for signature because a companion house bill was slightly different. Under Congressional rules, a bill to be sent to the president for signature must be identical in both Houses.

Voinovich got over the problem by attaching it to the Treasury and Transportation Spending Bill, which prevented it from being knocked out in conference.

Analysts believe that if an Indian company starts an outfit in the US, it is as much entitled as any American company to bid for contracts or take any sub-contracts. The objection of the anti-outsourcing members is to jobs being exported abroad.

The BPO Controversy