Outsourcing Law & Business Journal™: August/September 2010
September 14, 2010 by Bierce & Kenerson, P.C.
OUTSOURCING LAW & BUSINESS JOURNAL (™) : Strategies and rules for adding value and improving legal and regulation compliance through business process management techniques in strategic alliances, joint ventures, shared services and cost-effective, durable and flexible sourcing of services. www.outsourcing-law.com. Visit our blog at http://blog.outsourcing-law.com.
Insights by Bierce & Kenerson, P.C., Editors. www.biercekenerson.com
Vol. 10, No. 8-9 (August/September 2010)
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1. Government Procurement: Civil Fraud and Debarment for Non-Disclosure of [Offshore] “Outsourcing.
2. U.S. Increases Visa Fees by $2,000 for H1-B’s and $2,250 for certain L’s: Sen. Schumer Leaps from “Chop Shops” to “Body Shops.”
3. Humor.
4. Conferences.
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4. Conferences.
September 13-15, 2010. 5th eDiscovery for Pharma, Biotech and Medical Device Industries, Philadelphia, Pennsylvania. Presented by IQPC, this event will bring together industry leaders from in-house eDiscovery teams, expert judges and outside counsel as they discuss:
- How the new Pension Committee decision will effect eDiscovery professionals in the life science industries
- The unique challenges biopharmaceutical and medical device companies face with respect to social media content
- Preparing and responding to FDA inquiries, patent issues, and other types of pharmaceutical litigation
- A progress report on the 7th circuit eDiscovery pilot program and its implications for Pharma and Biotech
- Reducing patient privacy risks and unnecessary disclosures due to indiscriminate document retention
- Discovering new technologies to reach your goal of gaining proactive control over all your data
To register and view the whole program, click here.
September 26-28, 2010. IQPC Shared Services Exchange™ Event, 2nd Annual, to be held in The Hague, Netherlands. Shared Service Centres have long been seen as the cost saving centre of HR, Finance & Accounting and IT processes, but with changing employment trends and global challenges facing organisations, how can SSC’s continually offer service value?
Unlike typical conferences, the Shared Services Exchange™, which will be co-located with the Corporate Finance Exchange™, focuses on networking, strategic conference sessions and one-on-one meetings with solution providers. The Exchange invites strategic decision makers to take a step back from their current operations, see what strategies and solutions others are adopting, develop new partnerships and make investment choices that deliver innovative solutions and benefits to their businesses.
To request your complimentary delegate invitation or for information on solution provider packages, please contact: exchangeinfo@iqpc.com, call +44 (0) 207 368 9709, or visit their website at http://www.sharedservicesexchange.co.uk/Event.aspx?id=263014
September 27-28, 2010, CxO Dialogue Business Process Outsourcing Conference to be held in Berlin, Germany. The CxO Dialogue Business Process Outsourcing offers a neutral platform for about 50 decision makers from HR, finance, CRM and IT that allows to discuss individual projects regarding the outsourcing of business processes. Case studies, workshops and one-to-one meetings provide the opportunity to network on a level playing field and talk with speakers, colleagues from other companies and expert consultants from leading solution providers about topics that really matter.
Our extensive business matching process guarantees tailor-made agendas and really meaningful contacts. To learn more about econique’s business matching, click here. Participation is free of charge but an executive position is requisite. To reserve your spot, please contact catherine.harrison@econique.com. To become an exclusive solution partner and meet executives from your target group, please contact juergen.haller@econique.com.
September 28-30, 2010, SSON presents Finance Transformation 2010, Chicago, Illinois. If you are facing challenges to meet your finance end-to-end and top quartile requirements, consider Finance Transformation 2010 – the most comprehensive event for anyone managing finance back office operations looking for end-to-end capability.
The main themes explore the strategic views of true transformation across the entire finance supply chain and highlight the roadmaps which will help you to achieve top quartile business outcomes you aspire to. Sessions will cover the key tenets that all of you in the industry – large and small, beginner and established, vendor and buyer, private and public – are required to confront. For more information and to register, visit Finance Transformation.
Gain value from High-caliber Keynote & Plenary Sessions and Three Conference Tracks:
- Sourcing Strategy: Achieving New Business Value Through Innovation
- Mastering Sourcing: Driving Outcomes Through Smart Partnerships & Delivery Models
- Best Sourcing Practices: Exceeding ROI Goals While Minimizing Risk
To register, and for the most up-to-date event information, please visit http://www.globalsourcingforum.com
October 21-22, 2010, American Conference Institute’s 5th National Forum on Reducing Legal Costs, Philadelphia, Pennsylvania.
The essential cross-industry forum for corporate and outside counsel who are truly motivated to create value and reduce legal costs through innovative fee arrangements, enhanced relationships, and streamlined operations
Come join senior corporate counsel responsible for cost-reduction success stories, as well as leaders from law firms that have pioneered the use of alternative fee arrangements and other innovative cost-reduction initiatives, as they provide a roadmap for navigating the complexities of keeping legal department costs in check. Now in its fifth installment, this event offers unique networking opportunities with senior practitioners from around the nation, including in-house counsel from a wide range of companies and industries.
Reference discount code “outlaw” for the discounted rate of $1695! To get more information, visit www.americanconference.com/legalcosts
October 25-27, 2010, The 8th Annual HR Shared Services and Outsourcing Summit, Orlando, Florida. This will be a gathering for corporate HR & shared services executives from companies across North America to exchange ideas, develop new partnerships and discuss the latest tools, technologies and strategies being employed in the profession to enhance departmental efficiencies and propel corporate growth. The event will focus on the most current topics in the HR shared services industry including metrics, automation, outsourcing, globalization, compensation & rewards, benefits and an overall focus on the new strategic role of HR shared services. We will review how to tackle change management, analyze current and future projects and further develop the instrumental key areas within HR shared services. Outsourcing Law contacts can receive 20% off the standard all access price when they register with the code HRSS5. Register by calling 212-885-2738. View the program brochure for more details by clicking here.
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FEEDBACK: This newsletter addresses legal issues in sourcing of IT, HR, finance and accounting, procurement, logistics, manufacturing, customer relationship management including outsourcing, shared services, BOT and strategic acquisitions for sourcing. Send us your suggestions for article topics, or report a broken link at: wbierce@biercekenerson.com. The information provided herein does not necessarily constitute the opinion of Bierce & Kenerson, P.C. or any author or its clients. This newsletter is not legal advice and does not create an attorney-client relationship. Reproductions must include our copyright notice. For reprint permission, please contact: wbierce@biercekenerson.com . Edited by Bierce & Kenerson, P.C. Copyright (c) 2010, Outsourcing Law Global LLC. All rights reserved. Editor in Chief: William Bierce of Bierce & Kenerson, P.C. located at 420 Lexington Avenue, Suite 2920, New York, NY 10170, 212-840-0080.
Government Procurement: Civil Fraud and Debarment for Non-Disclosure of [Offshore] “Outsourcing”
September 14, 2010 by Bierce & Kenerson, P.C.
Many companies provide services to the U.S. government. Directly and indirectly, government contractors must disclose extensive information in their bid documents. Under a draft U.S. law, such bids would need to disclose whether the bidder has a history of “the laying off of a United States worker from a job, and the hiring or contracting for the same job to be performed in a foreign country.”
Under the draft “Stop Outsourcing and Create American Jobs Act of 2010”, introduced by Rep. Jerry Cranwell (D., Calif.) on June 29, 2010, all Federal government departments and agencies would be required to request each bidder for a Federal contract to provide information regarding whether the offeror engaged in “outsourcing” during the fiscal year preceding the fiscal year in which the contract is to be awarded. The bill attacks the restructuring of government suppliers who terminate the employment of a United States worker from a job and hire (or contract for) the same job to be performed in a foreign country.
The bill would punish bidders by debarment from future Federal government contracts and impose criminal fraud penalties under 18 U.S.C. 1001 (false statements to the Government).
Analysis. This bill requires disclosure and imposes civil debarment and criminal liability for non-disclosure. The disclosure relates to a lawful act of laying off a U.S. worker followed by a lawful act of hiring a foreign worker.
Comity and Reciprocity. Public International Law is built upon reciprocity and “comity.” “Comity” represents a respect in one country for the reasonable internal actions in another country for matters that have potential dual impact in both countries. This draft legislation is patently nationalistic, protectionist and xenophobic. On a reciprocal basis, an American worker would have no chance of replacing a foreign worker employed by a foreign employer where the foreign employer provides goods or services to a foreign government. Such legislation risks serious harm to American workers by foreign adoption of similar laws where foreign labor is replaced by American labor.
Multilateral and Bilateral Commitments. As a legal matter, a law that violates U.S. international commitments may be valid under local law but engage the international responsibility of the United States under a prior binding international convention. This law would punish American government contractors for practices that are protected under the WTO General Agreement on Trade in Services (“GATS”) and possibly the WTO Agreement on Trade-Related Investment Measures. Similarly, the U.S. would be in breach of its bilateral duties under NAFTA.
Bill of Attainder. This faces U.S. Constitutional challenge as a Bill of Attainder under Article I, Section 9. A “bill of attainder” was a law that banned a person because of some inherent status or the exercise of some freedom, right or privilege that is generally available to all citizens. It is a legislative declaration that a person or group of persons is guilty of some crime and punishing them without benefit of a trial. In such, the draft law would have the same effect as debarring contractors who fire U.S. workers for any lawful reason, such as a shortage of work, or such as the employee’s abuse of the employer’s computer system or use of office equipment for conducting a sideline business during off-hours.
Business Process Transformation. The draft legislation does not define what is the “same work” that is being done offshore. In many cases, globalization occurs because the functions and roles are changing to use new technologies, to access new markets and to obtain new skills. As in other cases of “follow the work,” the question is not just work, but organizational design, workforce planning (such as for knowledge workers) and marketing (getting closer to the customers). The draft law invites artificial determinations that offshored work is the “same” and omits any definition of “sameness.”
Hidden Agenda: Compiling a Little List. Since public procurement procedures are accessible to the public in the United States, the draft legislation invites inquiry into its effects. If enacted, the draft law would allow the Government to compile a list of all Government contractors and subcontractors (to the infinite level) who had done any “outsourcing” in the prior 12 months. Such a list would then be used for political purposes to harangue any enterprise “guilty” of such lawful behavior. Companies that are indirect subcontractors would face the same reporting, compliance, perjury and debarment risks.
Instead of outlawing “outsourcing,” the draft legislation would outlaw those who wrongfully deny that they outsource (under 18 USC 1001) and create a political stigma for actions that are not illegal. This is reminiscent of the frenzy and abuses of the anti-Communist witch-hunt of Senator Joe McCarthy in the 1950’s.
A simpler legislative solution would be to ban “outsourcing.” Of course, such a ban would be so offensive (and contrary to national commitments under NAFTA, WTO and bilateral treaties) that it would never pass. But, certainly, no offense could be taken by an innocuous bill to prevent frauds and plan a smear campaign.
Strengthening American Employability. It is regrettable that such defective and ill-conceived legislation does not address the core issues of American employability, such as education, language skills, competitiveness and use of technology to improve the human touch. In fact, in the tax-haven segment of this same draft bill, the test of whether a foreign jurisdiction is a tax haven (justifying anti-deferral and other retaliatory treatment) includes some factors that the Congress should consider for promotion of American employability, such as ”Incentives which may encourage a United States corporation to invest abroad rather than domestically.” H.R. 5622, Sec. 2 (111th Cong., 1st Sess.).
There are other methods of aiding job losses from outsourcing. A legally valid solution would require re-examination of American global commitments and a balancing of benefits and burdens, including enforcement of WTO violations. Such enforcement actions are at the discretion ofthe President and not congressional legislation.
International Outsourcing: Legality of Xenophobia in Outsourcing
October 9, 2009 by Bierce & Kenerson, P.C.
Summary:
In the United States, layoffs during the downward economic cycle following the dot.com bubble and then the 9/11 attack have had a severe impact on the local economies. In the resulting legislative debate over the impact of outsourcing, some state legislators have proposed a reversion to the “Buy American” principle that conflicts with international trade under the World Trade Organization. This issue underlines an emerging internal public policy debate on the desirability of international outsourcing.
NOTE: Posted in 2003, this seminal article could be updated for more recent manifestations of xenophobia in outsourcing.
“Buy American” in State Government Contracting.
In March 2002, a New Jersey State Senator, Shirley Turner, introduced a bill that would impose a “Buy American” rule on all purchases in the state.
“The Director of the Division of Purchase and Property and the Director of the Division of Property Management and Construction in the Department of the Treasury shall include, in every State contract for the performance of services, provisions which specify that only citizens of the United States and legal resident aliens in the United States shall be employed in performance of services under the contract or any subcontract awarded under the contract.”
N.J. Sen. No. 1349, 210th Legislature, intro. Mar. 21, 2002, passed in the Senate (40-0), Dec. 16, 2002.
The bill was inspired by the fact that “Recent published reports have indicated that telephone inquiries by welfare and food stamp clients under New Jersey’s Families First Program were being handled by operators in Bombay, India after the contractor moved its operations outside of the United States as a cost-cutting measure.” The bill was intended to ensure that State funds are used to employ people residing in the United States and to prevent the loss of jobs to foreign countries.
As a “mini-Buy-American” Act, this legislation does not provide any exception for:
- a determination that a domestic procurement is “not in the public interest,”
- a determination that the cost of a domestic procurement is “unreasonable,” or
- a determination that the particular goods or services being procured are not available in such commercially available quantities or quality as are available abroad.
All of these are exceptions under the federal “Buy American” act.
If enacted, such laws would apply only to government procurement. But such legislation could have repercussions on the image of offshore outsourcing throughout the United States.
The bill does not address issues of cost, or availability of local American services in the particular procurement.
Legality for Governmental vs. Private Purchases of Foreign Services.
As a matter of law, “Buy American” (or “Buy Local”) laws are illegal under the World Trade Organization’s General Agreement on Trade in Services (“GATS”) when they relate to purchases by private buyers. But for governmental buyers of services, the GATS allows such favoritism to local service providers.
Impact on International Outsourcing by Private Customers.
Legislation limiting government procurement to local service providers should not have any impact on the right of private companies, as customers, to hire any service provider worldwide to render any service.
- Freedom of Contract.
In our view, nothing in the various laws of individual states in the United States that currently are in consideration could validly overcome such freedom of contract. - War.
In case of a war involving Iraq or other country, the United States federal government could validly adopt rules to safeguard its economy from foreign interests. As discussed below, this raises risks for contracting parties, but such risks may be surmounted through customary technical means for security, business continuity planning, redundancy and disaster recovery.
Buy American – Revival of the Past.
The “Buy American” legislation was originally adopted by the Federal government as a means of promoting local business. This legislation, at 41 U.S.C. 10a, is limited to the purchase of goods:
Sec. 10a. – American materials required for public use
Notwithstanding any other provision of law, and unless the head of the department or independent establishment concerned shall determine it to be inconsistent with the public interest, or the cost to be unreasonable, only such unmanufactured articles, materials, and supplies as have been mined or produced in the United States, and only such manufactured articles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in the United States, shall be acquired for public use. This section shall not apply with respect to articles, materials, or supplies for use outside the United States, or if articles, materials, or supplies of the class or kind to be used or the articles, materials, or supplies from which they are manufactured are not mined, produced, or manufactured, as the case may be, in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality. This section shall not apply to manufactured articles, materials, or supplies procured under any contract the award value of which is less than or equal to the micro-purchase threshold under section 428 of this title.
This law has been rendered largely moot by the Government Procurement Agreement adopted at the Uruguay Round of the General Agreement on Tariffs & Trade. See Agreement Establishing World Trade Organization, Annex 4, Plurilateral Agreements, Government Procurement Agreement.
More recently, state legislatures in the United States have considered imposing some restrictions or prohibitions on the use of foreign service providers for contracts involving payment of state or local funds. In New Jersey, State Senator Shirley K. Turner introduced a bill that would prohibit any contracting or subcontracting to foreign service providers where the work could be done by American citizens or lawful permanent resident aliens. Similar legislation is reportedly under consideration (as of February 2003) in Connecticut, Maryland, Missouri and Wisconsin.
Policy Debate: Validity vs. Wisdom of Xenophobia.
As a matter of public policy, we must distinguish between law and policy. Would such legislation be lawful? Under the World Trade Organization (WTO) General Agreement on Trade in Services (“GATS”), it would appear valid for government procurement of services. As a “beggar-thy-neighbor” policy of keeping jobs at home, such legislation would help generate employment at a time of economic decline, reducing the costs of public welfare and other social costs.
Would such legislation be good public policy? Such legislation would deprive local governments of purchasing services at the cheapest price. It would hurt local taxpayers as consumers of government services.
World Trade Organization: No “Non-Tariff Barriers” for Private Trade.
Free trade under the World Trade Organization (formerly known as the General Agreement on Tariffs and Trade, or GATT) is based on certain fundamental principles:
- national treatment of foreign suppliers of goods and services, where each member state must “accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favorable than that it accords to its own like services and service suppliers.” General Agreement on Trade in Services, Art. XVII(1), MTN/FA II-A1B, p.19).
- transparency of the laws and regulations governing international trade (subject to the supervening principle that disclosure is not required where it “would impede law enforcement or otherwise be contrary to the local public interest or would prejudice the legitimate commercial interests of particular enterprises, public or private.” See, e.g., Agreement on Trade-Related Investment Measures, Art. 6, MTN/FA II-A1A-7, p. 3.)
- non-discrimination.
Market Access to Foreign Services Providers under GATS.
The WTO’s General Agreement on Trade in Services embodies the principle that, in sectors where a member state undertakes to grant market access to service providers from another member state, that market access cannot be restricted either nationally or regionally. Specifically, it is a violation of GATS for a member state to impose any restriction on market access in any of the following forms:
- Number of Service Providers: limitations on the number of service providers (such as in the form of numerical quotas, monopolies, exclusive services providers or the requirement of a “economic needs” test as a condition of market access).
- Value of Service Transactions: limitations on the total value of service transactions or assets (in the form of numerical quotas or the requirement of an “economic needs” test).
- Quantity of Services Provided or Service Operations: limitations on the total number of service operations or on the total number quantity of service output expressed in terms of designated numerical units, in the form of quotas or the requirement of an “economic needs” test.
- Number of Employees: limitations on the total number of natural persons who may be employed in a particular service sector or that a service provider may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test.
- Type of Legal Entity or Joint Venture: measures that restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service.
- limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholdings or the total value of individual or aggregate foreign investment.
General Agreement on Trade in Services, Art. XVI(2), MTN/FA II-A1B, p.18.
Exceptions to GATS Protections.
Several exceptions expressly permit a member state to disregard its obligations on trade in services.
Services Supplied in the Exercise of Governmental Authority.
By definition, the GATS does not apply to “services supplied in the exercise of governmental authority.” General Agreement on Trade in Services, Art. I(3)(c), MTN/FA II-A1B, p.14). In some countries, “governmental authority” involves the performance of functions that are considered commercial or otherwise not “in the exercise of governmental authority.”
In the United States, for example, in November 2000, President George W. Bush’s administration adopted regulations requiring that all governmental functions be evaluated and classified as governmental or non-governmental, and non-governmental functions are to be contracted out to outsourcers (or possibly even privatized).
National Security.
National and international security considerations take precedence over trade in services under GATS. In particular, member states may take actions that they may deem necessary to protect “essential security interests” relating to services for provisioning military establishments, nuclear fuels or their materials, or any other action “taken in time of war or other emergency in international relation.” As a procedural matter, the member state must notify the WTO’s Council for Trade in Services when such “security exceptions” have been adopted and when they have been terminated. General Agreement on Trade in Services, Art. XIV bis, MTN/FA II-A1B, pp.16-17.
War.
As a “national security” measure, a member state might impose an embargo on trade in services with one or more other WTO member states during a time of war. The exception applies “in time of war.”
This “war” exception leaves open a number of vital questions about the legality and viability of discrimination, trade embargos and other acts normally prohibited by GATS. The “war” exception does not specify that the embargo must only apply to another member state that is at war with the buying member state. But it is not clear whether the right to impose an embargo applies to a country that is perennially in a “state of emergency” or has never entered into a formal cessation of armed hostilities with a particular other member.
In a sense, this exception could arguably serve as the basis for a member state’s attempt to circumvent the WTO principles of free trade in services. In our view, such an attempt could invite trade reprisals and dispute resolution before a WTO dispute tribunal.
Deceptive and Fraudulent Practices; Contract Default and Enforcement of Rights.
Under GATS, member states may adopt and enforce measures of a general, non-discriminatory nature relating to “the prevention of deceptive or fraudulent practices or to deal with the effects of a default on service contracts. Accordingly, laws governing enforcement of rights and remedies under contract breach are not subject to GATS rules, so long as the laws are “not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services.” General Agreement on Trade in Services, Art. XIV(c)(i), MTN/FA II-A1B, p.15.
Data Protection.
Similarly, under GATS, member states may adopt and enforce non-discriminatory laws for “the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of the confidentiality of records and accounts.” General Agreement on Trade in Services, Art. XIV(c)(ii), MTN/FA II-A1B, p.15).
Safety.
Laws governing safety are also generally exempt from the rules of GATS, except if they are discriminatory or disguised trade restrictions. General Agreement on Trade in Services, Art. XIV(c)(iii), MTN/FA II-A1B, p.15.
Collection of Taxes.
Laws for the “equitable or effective imposition or collection of direct taxes,” or for the avoidance of double taxation under a tax treaty, may be somewhat discriminatory against foreign service providers. General Agreement on Trade in Services, Art. XIV(d) and (e), MTN/FA II-A1B, p.15).
Government Procurement.
Exceptionally, under GATS, the WTO principles of most-favored-nation treatment, market access and national treatment do not apply for governmental procurement of services. General Agreement on Trade in Services, Art. XIII(1), MTN/FA II-A1B, p.14). (The other principles, such as the “transparency” duty to publish applicable laws and regulations, remain unaffected.) The Government Procurement Code, adopted prior to the GATS, relates to trade in goods and does not require any treatment different from GATS.
Safeguard the Balance of Payments.
This exception allows a government to escape from GATS requirements to open its economy to free trade in services in order to safeguard the country’s balance of payments “in the event of serious balance-of-payments and external financial difficulties or threat thereof.” General Agreement on Trade in Services, Art. XII(1), MTN/FA II-A1B, p.12). This exception is not directed at measuring bilateral trade imbalance between two countries that are trading partners. Rather it focuses on multilateral trade and generalized imbalances in the balance of payments.
Conclusions for Outsourcing Services Providers.
If you are promoting the sale of your services from a foreign country, you should focus on the practical economic benefits of your service. This may include:
- abundant labor supply.
- rapid deployment of a large pool of skilled workers for early completion of a complex project.
- high quality standards, such as the Software Engineering Institute Capability Maturity Models for both software and services.
- low cost to the taxpayers whose governments are acting as purchasing agents.
- local presence in the host country, and the role of the host country employee pool for the service provider.
Conclusions for Purchasers of Transborder Services.
There are undoubtedly substantial risks of force majeure in outsourcing. But the WTO principles of national treatment for private-sector transactions and other fundamental protections of international trade in services are well established. Legislation by state legislators is not likely to have any impact on your ability to procure services at low cost under a clear outsourcing contract. Despite the risks and problems, using technological methods as well as legal contracts, you can protect your investment in foreign services.
Conclusions for National Governments.
The opening of borders to “free trade” under WTO principles leaves everyone exposed to the risk of loss of value of their knowledge in a rapidly changing information economy. Governments should focus on building a workforce that is skilled in knowledge tools.