This Week in the News: Hurricane Sandy and Uncle Sam and their Impact on IT and Outsourcing

by Pillsbury Global Sourcing Practice
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[author: Joshua B. Konvisser]

Sitting in the Northeast, our news has been dominated by only two stories for the last week--Hurricane Sandy and the Presidential Election. Both events have far reaching impacts on this country and its citizens, and both have (or could have) significant impacts on our industry.

Sandy . . .
Hurricane Sandy tested disaster recovery (DR) plans and operations. With outages in power and internet, and flooding of operations creating multiple points of failure, redundancy plans were pushed to the brink. Transportation options significantly limited in the hardest hit areas even where technology was available and workers were often unable to get to a viable work site. While some companies were able to swing operations to backup locations seamlessly, some had primary and secondary outages that prevented such successful recovery operations.

For companies experiencing an outage, it is worth considering whether there is insurance coverage for the outage. In addition, in some cases, policies may contain separate (higher) deductibles for damages due to hurricanes, so the classification of the storm when it affected business operations may be relevant (note that Sandy was downgraded from a Hurricane before making landfall).

As industry begins to put itself together, first focusing on human capital, and then on IT assets, we expect an increased focus on review of existing agreements. In addition, we can expect more attention to be placed on DR planning and force majeure in new technology agreements.

Of course, many companies are still hard at work trying to restore operations - in many cases working hand in glove with their service providers - so contract considerations may, rightfully, be a secondary priority. Once companies turn to their contracts, in addition to looking specifically at the DR obligations, it will be important to understand how DR requirements interplay with service levels. And that force majeure (aka Act of God) clause many businesses often "leave to the lawyers" will be important in assessing how, or to what extent, Hurricane Sandy impacted the service provider's obligations.

Uncle Sam - The Presidential Election . . .
Outsourcing has long been a political "bad word," and true to form during an election year some say a different type of storm is again brewing (on Capitol Hill) when it comes to outsourcing. To many politicians "outsourcing" is synonymous with "offshoring" and domestic outsourcing projects are ignored. It will be interesting to see whether the results of the presidential election affect views on domestic outsourcing and offshoring, and what, if any, mechanisms the federal government can practically put in place in order to limit offshoring.

For example, as discussed in a CIO Magazine article, the government could limit the ability of companies to treat as deductible business expenses the costs involved in transitioning services offshore. The government could also increase the limitations on government work or data being accessed offshore. That said, despite the rhetoric on the subject for the past few presidential terms, little broad-based change has been implemented. Only time will tell if the next presidential term will bring about real change to the outsourcing landscape (e.g., a shift from offshore to onshore), but it is unlikely that any change will substantially eliminate the outsourcing model.

It has been a difficult week for our country and our industry. Our best wishes go to those affected by Hurricane Sandy, and we are hopeful that the presidential election, whatever the outcome, can help bring us together in healing.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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