Offshore work raises legal red flags

Infotech and the law | Legal insights for today's market

Performing software development, data entry
and customer services work with offshore
subsidiaries or subcontractors is a common
commercial practice. It might be the subject
of occasional criticism, but it is widely
accepted as a way to reduce costs. But when a government
contractor wants to launch an overseas operation
or send work offshore, the practice raises questions that
the company must analyze before moving ahead.

The questions that arise when
sending work offshore differ
from those that arise when performing
the contractor's backoffice
or other functions with
non-U.S. employees. Some constraints
might arise under the
Federal Acquisition Regulation
and be disclosed in the contract,
but others have nothing to do
with the FAR and find their
source in authorizing or appropriating
legislation, privacy
statutes or other laws.

For federal contracts for software
development and systems
integration, contractors should analyze
a number of federal statutes. Questions
to ask include:
  • Does the contract call for work product
    deliveries covered by the Buy
    American Act or trade agreements
    legislation?
  • Is the agency for which the contractor
    is doing the work subject to language
    in authorizing legislation or an
    appropriations bill limiting the
    agency's authority to contract for
    work performed offshore?
  • Does the work fall within the scope
    of regulations or agency directives
    that limit disclosure of information
    to foreigners?

Such constraints can apply
whether the work is done in the
United States or abroad but bar
sending such work to a subcontractor's
foreign office. Contractors
should analyze security
clearances, nondisclosure clauses
and export control regulations.

If the technology that is the subject
of the contract work falls under the
Commerce Department's Export
Administration Regulation, contractors
should consider licensing requirements.
If the work would be considered
a defense service or involves
defense items regulated by the International
Traffic in Arms Regulation,
registration and approval of a technical
assistance agreement from the State
Department might be necessary.

More mundane contract work, such
as simple data entry or database maintenance
contracts, can raise equally
challenging issues. For example, if the
contract involves working with government
records systems that contain personal
information, the contract will
have obligations under federal privacy
laws and agency implementation regulations.
Those regulations impose a
variety of restrictions on the use, disclosure
and protection of personal
information that an offshore provider
will have to adopt and the contractor
will need to monitor.

Similar obligations are imposed on
government contractors whose work
requires them to access individuals'
health records. Regulations require the
contractor to take steps to ensure that
its offshore contractors comply with
the regulations. If the proposal is to
send work not directly related to contract
performance offshore, the problem
still requires analysis. For example,
company-funded research and development
can still involve contractual
issues related to exports.

Even having back-office functions ?
such as accounting, billing and records
management ? performed offshore
might raise issues that require analysis.
For example, companies with regular
access to government facilities or data
systems are required to implement
employee identification systems that
meet minimum standards for collection,
maintenance and disclosure of
employee information and confirmation
of employee identification. Those
requirements often are not consistent
with privacy laws in other parts of the
world where company personnel might
be located. The challenge is to comply
with requirements imposed on the contractor
by the U.S. government without
violating the laws of the foreign
employee's home country.

Jonathan Cain is a member of the law firm
of Mintz Levin. The opinions expressed in this
article are his. He can be reached by e-mail at
jtcain@mintz.com.

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