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After pulling a merger or launching an IPO, transactional lawyers often get to brag. But there’s one kind of work that’s usually hush-hush: inking outsourcing agreements. Given the bad PR of late, companies that farm out operations — particularly those that send work offshore — tend to avoid publicity. And the law firms that help them are understandably tight-lipped. “They often don’t publicize those deals,” said Suzanne Bell, a partner in Wilson Sonsini Goodrich & Rosati’s technology transactions group, which, among other things, handles outsourcing arrangements. “Customers often want to keep it confidential.” For firms that have built a practice around it, outsourcing has become a lucrative little secret. Latham & Watkins partner Daniel Mummery said he has handled 35 outsourcing deals in the last five years with a total contract value of $25 billion. And the work is growing more complex. Outsourcing traditionally focused on information technology jobs, such as software application development and maintenance, data center operations and help desk functions. But in recent years business processes like accounting and claims processing have been increasingly outsourced. And a growing number of IT and business process jobs have been sent abroad, triggering new legal concerns. Offshore outsourcing has been in the headlines almost daily since John Kerry made it a campaign issue. The loss of jobs overseas has also intensified in the last 18 months. Last week, Forrester Research predicted that 1.7 million U.S. jobs would move offshore by 2010 — 3.4 million by 2015 — up from 315,000 jobs as of last year. But companies are mum about the number of jobs they send abroad. “It’s gone underground,” Forrester analyst Stephanie Moore said at a press conference. Companies are “careful how they discuss it.” She said one of Forrester’s clients even prohibits employees from using the word “offshore.” While corporations have been outsourcing work for the past 15 years, the level has increased dramatically in the last five years. Lawyers say the Y2K scare — when companies scrambled to make sure their computer functions would not derail at the turn of the century — had companies turning to third parties to analyze their computer code. And with the downturn in the economy, companies shifted work to third-party vendors to cut costs. Several firms have developed expertise in outsourcing. Washington, D.C.’s Shaw Pittman and New York’s Milbank, Tweed, Hadley & McCloy were among the first to specialize as their big corporate clients began outsourcing work. Mummery, who started doing outsourcing deals while at Milbank, said the firm got into the area in the late 1980s and early 1990, handling computer purchasing deals for financial services clients. Lawyers who specialize in outsourcing work within a firm’s technology transactions practice. Wilson Sonsini’s technology transactions group emerged as a separate discipline in 1988 and now has 40 lawyers. Cooley put its technology transactions practice in place by the early 1990s. It currently numbers 25 lawyers. And Latham has 60 lawyers in its group, including 12 partners that lead outsourcing deals. Lawyers say outsourcing deals between companies and vendors are particularly complex since they involve a range of issues and disciplines. “They are very analogous to being an M&A quarterback in the middle of a transaction with a lot of specialists,” Mummery said. “The deals require the expertise of corporate, employment and employee benefit, tax, regulatory and intellectual property lawyers.” Barbara Melby, co-chair of Morgan, Lewis & Bockius’ 30-lawyer outsourcing practice, said it takes companies one to three years to decide if they want to outsource some of their operations. Lawyers jump in to help put together requests for proposals from vendors. Parties then spend three to 12 months to hammer out a deal, the terms of which can range from one to 10 years. “The complexity of the contracts astounds people sometimes because of the level of detail,” Melby said. Last year, Mummery represented Gateway Inc. in outsourcing its IT, human resources, finance and accounting work to Dallas-based Affiliated Computer Services Inc. When he was at Cooley, he also represented an energy company and an optical testing equipment manufacturer in outsourcing software application development to India. He said those two clients couldn’t be identified. As offshore outsourcing has expanded, state legislatures and Congress have acted to restrain it. Michael Pillion, co-chair of Morgan Lewis’s outsourcing practice, said more than 100 bills have been proposed by state legislatures, such as measures to cut tax benefits to companies that outsource. Several bills have been introduced in Congress, including a measure by Los Angeles Democratic Rep. Maxine Waters to make companies that have outsourced jobs in the past five years ineligible to receive federal grants, contracts and other funding. Another bill introduced by Rep. Edward Markey, D-Mass., would prohibit companies from sending personal data outside the country without consumers’ consent. Despite these efforts to slow the stream, lawyers don’t expect any downturn in outsourcing deals — especially not in Silicon Valley. “In some respects, Silicon Valley has been built on an outsourcing model,” said Gary Moore, a partner in Cooley Godward’s technology transactions group, noting that a number of semiconductor companies use third-party fabs to make their chips. While big corporations are responsible for most of the stream of jobs abroad — Forrester said 30 to 40 Fortune 1000 companies send the most work offshore — lawyers say venture capitalists are encouraging startup companies to consider the option as a way to cut costs. “I would expect every company considering outsourcing will at least consider offshoring to see if it will create savings to justify it,” Mummery said.

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