Outsourcing Spawns New Legal Role

Infotech and the Law David Nadler

Outsourcing Spawns New Legal Role

Outsourcing federal government IT needs is picking up speed these days. Two recent procurements, the Outsourcing Desktop Initiative for NASA and the General Services Administration's Seat Management, have a combined value of more than $20 billion.

In these contracts, like never before, the key words are commercial best practices, and the chief focus is on meeting the customer's total IT needs.

Lawyers who practice infotech law are not immune from the emerging trends in this unique brand of contracting. Our job is to protect the contractor, but in doing so we should place more emphasis on matters that promote high-quality service delivery while minimizing the risks of both the contractor and the customer.

Equally important is that, as federal procurement reform continues, the role of the government contract specialist is less confrontational and more cooperative in meeting customer needs. That role is shifting rapidly from prosecuting protests and other disputes to facilitating the contractor's responsiveness with its IT services.

Contractors have switched from looking for ways to fill the bottom line at the expense of performance to enhancing competitiveness and long-term growth in partnership with the customer. At the same time, contractors have shifted from struggling with issues involving government-furnished property to maximizing the mutual benefits of the contractor's asset management approach.

In addition, some new and many existing legal concepts have unique applications in the federal outsourcing market.

From a contracts standpoint, for example, setting and following standards established in service level agreements will be essential in minimizing risk and enhancing performance. SLAs detail the specific operating and support requirements for each service provided.

Here the contractor should follow a partnership approach with the customer rather than the traditional (and sometimes adversarial) negotiation stance to determine the mutual expectation embodied in the SLAs. The SLA is a critical factor in measuring the outsourcing relationship's success.

Important issues also will arise concerning the proper approach to asset management. This includes the contractor's risks and responsibilities in managing those assets that remain under government title (such as hardware, software and other equipment), assets belonging to other agency contractors, and contractor-furnished assets for which it has full ownership rights, refresh obligations and disposal responsibility.

Again, the aim is to minimize the customer's risk and maximize asset management capabilities as part of the total service delivery model.

Another area of possible legal concern involves the transfer of employees from the federal government to the contractor and proper management of such employees in the outsourcing environment.

Two key issues come to mind here. The first is the requirement that federal employees separated as a result of the outsourcing arrangement be given, under most circumstances, a right of first refusal on positions for which they are qualified under the contract. What determines that qualification and how the employment shift may affect performance will present particular challenges for the contractor.

The second employment issue involves the concept of joint employer or co-employer liability. Generally, a joint employer relationship exists where one entity essentially controls or has the ability to control the employees of another entity, so both entities may be jointly liable as employers.

Many joint employer issues have arisen in temporary employment services, where the employee alleges the original employing service and the company temporarily using the employee are both liable for any damages he or she suffers.

In public procurements, the employer, for purposes of employment actions, may be both the contractor and contracting agency. The key here is to minimize the customer's liability in employment cases that may result from the contractor's actions or inactions but which may legally be imputed to the customer under this concept.

Besides taking steps to avoid co-employment liability, the contractor should create and properly apply policies that promote a productive, discrimination-free work environment.

Of course, this is not an exhaustive list of the legal issues facing the government outsourcer. From a broader perspective, the IT contractor must appreciate the complexities of the outsourcing relationship combined with the unique aspects of federal procurements.

Among the agency's chief goals in outsourcing are to save money, promote efficiency and allow it to focus more on its core competencies. The contractor's goals include providing high-quality, efficient outsourcing services at fair prices. Both agencies and contractors need to work together in achieving these goals and, along the way, minimizing the ambiguities regarding their respective contractual obligations.

James Fontana is vice president and corporate counsel of Wang Government Services Inc. in McLean, Va. His e-mail address is james.fontana@wang.com.

Copyright 1998 Post-Newsweek Business Information, Inc. All rights reserved

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