Best Practices in Offshore Outsourcing

Parties engaged in private offshore outsourcing transactions (those not involving the provision of goods or services to federal or state governments) relaxed a bit last fall when it became apparent following the November elections that short-term prospects for federal anti-offshore outsourcing legislation had dimmed. Similarly, although bills that would have placed restraints on private offshoring were introduced in many state legislatures in 2004, most of these measures either were vetoed or have expired, making it appear unlikely that any substantial state anti-offshore outsourcing measures will be put in place in the near future. This does not mean, however, that certain other federal or state statutes or administrative rules might not impact a company's proposed offshore outsourcing transaction. In fact, depending on the nature of the transaction, existing regulations may have the indirect effect of making offshoring more difficult by imposing requirements on the outsourcing customer that must be flowed down to its offshore vendor. Such flow downs may either be expressly required by law or may simply be necessary to ensure that the customer is in compliance with its own regulatory obligations. Special attention to compliance with federal and state regulatory requirements is of particular importance in offshore outsourcing, where vendors may have no parallel experience complying with comparable local laws. Making sure that offshore outsourcing vendors understand and agree to comply with applicable U.S. statutes and administrative rules should be an important feature of every offshore outsourcing deal.