Hogan Lovells is a global law firm that has the privilege to support a prominent USAID Contractor with headquarters in the Washington, DC area. The Contractor operates projects in several countries —leading to the need for expert legal counsel.
In this piece, we’ll use the term “the Contractor” instead of the name, to protect attorney/client privilege.
The Contractor is a growing business that partners with USAID on development projects worldwide. The Hogan Lovells/Contractor relationship centers on helping the Contractor with the non-US law support necessary to guide foreign regulatory compliance on active USAID projects.
Specifically, Hogan Lovells and the Contractor have worked together on projects in Africa and Asia to address legal and operational strategy for host country employment, tax, registration, and related implications of the Contractor’s local monitoring and development work in these jurisdictions. The legal compliance issues range from structuring employee placements abroad, to benefits, income tax, immigration, and payroll requirements in the host country.
Can you tell us about a specific issue faced by the Contractor?
A common challenge for USAID grantees and contractors is answering this question: How do we efficiently and swiftly set up a legally compliant project in the host country – recognizing the numerous and complex legal issues related to registration, employment, tax, payroll, immigration, licenses, bilateral treaties, customs regulations, and human rights implications?
Specifically, the Contractor needed a host country employment operation that accommodated both US expatriate staff and third country nationals essential to the project.
Are there steps NGOs can take to prepare for those challenges? And if so, should they do those before applying for USAID?
Consider an actual scenario, modified slightly:
Recently, an institution learned that it had two dozen foreign nationals working on a service project in Country X. Documentation confirmed that the workers were assumed as “independent contractors” for simplicity with regard to the host country employment law, payroll, and income tax withholding. In substance, however, the workers were employees. (Country X, like most countries, elevates the substance of the relationship over contractual form and disregarded the independent contractor designation.) Under Country X law, to employ workers without a registered corporate affiliate in-country (which this institution did not have) was a civil and criminal offense. A hectic scramble ensued to obtain proper legal status, to understand why it was omitted, and to articulate an uncomfortable corrective action plan to the institution’s fiduciaries.
A scenario like that creates indigestion among project managers and counsel! Taking the advanced step of preparing a playbook for exploration of host country operations – including concentration on host country law – is critical to USAID awards and can be done in advance.
Looking at that kind of issue on a larger scale, what general challenges do you find most NGOs face?
Global capacity building and development projects take no conventional shape. Long experience notwithstanding, international development organizations, like any global enterprise, are prone to stumble, often on the same U.S. and foreign legal issues that multinational conglomerates find challenging.
Add to that complexity the reality that USAID projects are distinct, with interests and fiduciaries unlike any other organization, and demanding solutions that account for the unique USAID mission.
With many NGO budgets under pressure, and the zeal for sustainable development and capacity building unabated, counsel is called upon, typically daily, to evaluate international ventures, manage risk, and conduct confidential and privileged investigations to protect contractors.
How does an NGO know when to ask for legal help?
A highly experienced NGO lawyer colleague—when asked to identify mistakes that NGOs make in development projects—remarked as follows:
- Mistake 1: Deferring to the judgment of representatives on the ground in the host country.
- Mistake 2: Not deferring to their judgment.
- Mistake 3: Not knowing whether you made Mistake #1 or Mistake #2.
Obtaining reliable information is an ongoing challenge. NGOs work closely with their counsel to manage risk, assess applicable laws, and conduct investigations as needed. Indeed, many institutions have learned the lesson of ignoring the foreign legal landscape or obtaining insufficient or unreliable information. Competent counsel can be a true partner on Day 1, guiding the diligence, structure, contracts, and decisions for a successful project.