Outsourcing became part of the business world during the 1980s. It refers to the delegation of non-core operations to an external business specializing in the management of that operation.
Outsourcing has been going on for decades. But today, more firms than ever are using it to help cut costs, improve business practices, and focus on their foundations.
The issue of assigning responsibility for the interpretation, identification and application of laws is of great significance in any outsourcing arrangement. This is true whether the outsourcing involves information technology or business process. This allocation of responsibilities with obedience to laws affects the manner in which the supplier provides and the customer receives and uses the outsourcing services. On a practical level, the issue of compliance with laws is becoming a greater challenge because the outsourcing industry is rapidly expanding.
As a general affair, information technology outsourcing has enjoyed comparatively limited government regulation while the services involved in business process outsourcings (finance and accounting, human resources, etc.) are in general subject to greater legal and regulatory inspection by regulatory and self-regulatory bodies. The contractual requirements governing compliance with law matters in an outsourcing transaction must be handled with care, in consideration of the requirements of the customer and the abilities of the supplier.
There are a number of legal necessities that apply to any outsourcing transaction, regardless of the services being outsourced and irrespective of the industry of the outsourcing customer. Such general outsourcing compliance issues can range from those firmly applicable to the service provider (such as body licensing to do business issues), to those directly affecting service performance (such as health, safety and environmental regulations), to those impacting the use of services (such as privacy and data use restrictions).
New government regulation of outsourcing projects is likely to be a case of “the dog didn’t bark” for the predictable future. There seem to be only some areas where new or considerably revised regulation will lift material issues in outsourcing practice.
A number of bills have been introduced to restrict outsourcing in different ways, but not any has been passed into law.
State regulation may be a different story. Hundreds of bills regulating outsourcing transactions have been established over the past two years and a few even have become law. These laws do not have broad affect on purely private transactions but they do need to be analyzed carefully by parties doing business with state governmental bodies
Each body regulated under these laws will need to uphold a strong focus in its contracts and observing activities on compliance with the regulations, chiefly when dealing with untried or new service provider.
In short the solution is often reached in the same way that a work-around is reached for those other spiky matters that come up in an outsourcing transaction - providers and customers must work through examples to better understand the difficulty of the problem, and negotiates the risk based upon each party’s aptitude to control cost and risk.
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