Sourcing Speak

Enterprises that undertake serial M&A or outsourcing activity can find themselves with a diverse workforce with differences in pay and other terms and conditions of employment applying to different categories of employees across the business. This can lead to inefficiencies such as the cost of administering different benefit plans as well as dissatisfaction amongst groups of employees who consider themselves to be, rightly or wrongly, worse off than their colleagues. For this reason, we are often asked to help with developing and implementing plans designed to harmonise terms and conditions of employment across a client’s business.

Each harmonisation plan must be carefully considered. In the UK an employer’s ability to make changes to an employee’s terms and conditions of employment has always been challenging, particularly where an employee transfers pursuant to the Transfer of Undertakings (Protection of Employment) Regulations (“TUPE Regulations”). (Similar laws apply across the European Community although there can be marked differences.) This can be frustrating for an employer trying to integrate the new transferred employees into its existing workforce – because managing employees on different terms can often lead to issues in the workplace – and employers also need to provide a pay and benefits system which is not unlawfully discriminatory.

The UK government purported to provide a solution to this problem when it revised the TUPE Regulations in 2006. The 2006 regulations allow changes to be made to an employee’s contract (albeit with the employee’s consent) if they are unconnected to the transfer. Alternatively, if the changes are connected to the transfer they are still permitted if they are for an economical, technical or organisational (“ETO”) reason entailing a change in the workforce. However, the reality is that the employer’s ability to make changes to terms and conditions of employment for the purpose of harmonisation is very limited. The desire to achieve harmonisation is usually connected to the transfer itself and the ETO defence will not apply unless the employer can point to a workforce reduction or change in the employee’s function.

Unfortunately, the new year does not hold much hope for reversing the disturbing trend of increasing federal, state and local taxes and surcharges that are applied to telecommunications services. It’s not unusual for enterprise customers to pay an additional 25-30 percent on their bill, depending on the types and locations of services purchased. The worst of these offenders is the Federal Universal Service Fund (FUSF) charge, which is administered through the FCC and applied by telecom carriers to interstate and international service charges, and is now almost 18 percent. The FCC is expected to review the FUSF contribution requirements this year, but may try to expand FUSF contributions to include broadband connections (Internet access), which are currently not subject to the charge. These would lower the percentage rate, but will likely not decrease total payments.

Thousands of state, county and local governments are faced with tightening budgets and decreasing revenue sources. These taxing authorities set their sights on telecommunications transactions to help replenish their coffers. In many jurisdictions, the idea of “updating” telecom taxes generally means revising existing statutes to include new technologies and services, such as Voice over Internet Protocol (VOIP) or prepaid wireless. For years, carriers have tried to get a national, uniform tax policy for telecom, but to no avail.

These taxes may be referred to on your invoice as sales taxes, gross receipts taxes, 911 fees, or communications services taxes. There may also be line items for regulatory administrative fees or property tax fees, which are imposed by some carriers but not required to be collected by any government agency.

Outsourcing attorneys spend many hours negotiating complex terms and conditions governing the delivery of IT outsourcing (ITO) and business process outsourcing (BPO) services. As good outsourcing counsel, we spend a lot of time imagining ugly scenarios and allocating the associated risks and liabilities. Often as not, the result is an outsourcing contract that looks more like a phone book than anything you would use to guide the development and management of an outsourcing relationship.

It’s no wonder business people want to lock these contracts in the bottom drawer.

Industry-standard contracts have ballooned to hundreds of pages and yet, despite over two decades of maturation, the outsourcing industry continues to produce more than its fair share of disappointments: failed implementations, misaligned service delivery models, spotty operational performance, billing disputes, cost blowouts.

Background on Economic Pricing Adjustments

Outsourcing contracts often include mechanisms to adjust prices for inflation. Among the factors of production, the cost of labor is the most critical and is often subject to these adjustments.

To account for rising production costs in a particular market,** service providers will typically ask for an annual price increase that is pegged to a standard cost of living benchmark, such as a public consumer price index (CPI). Some onshoring and offshoring examples:

Making the decision to terminate an outsourcing agreement is often very difficult and is usually only pursued if enforcing existing rights is not sufficient to address a customer’s major concerns or renegotiating the agreement can’t achieve the desired outcome.

If a customer begins to think about terminating an agreement, it is useful for customers at that juncture to undertake a complete review of the agreement in relation to termination options and consequences to help inform the decision. What should such a review entail?

Can you terminate? And what are you terminating?