Advice and Assistance in relation to 'outsourcing'

It is important for members to carefully consider the option to outsource any part of their operational functions or service provision.

At this point, it may be helpful to define two classifications of 'outsourcing' - business processes and legal processes. For example, 'Business process' outsourcing includes human resources, Cashroom and accounting, IT services/support and 'Legal process' includes document production and review, legal research, drafting motions and briefs, commercial contracts, legal due diligence and litigation support.

While outsourcing can provide additional resources and expertise, it has to be remembered that this does not remove the regulatory obligations imposed by the Society on its members. In addition, the management of outsourced providers requires specific skills and resources, including sourcing appropriate providers, contractual arrangements and project management and reporting. It is also important to consider its implications on service quality provision, client contractual arrangements and Professional Indemnity insurance requirements.

Another option that may be considered is whether to become an 'outsourced provider' by undertaking work for another practice unit or legal services provider. This will be a strategic business decision and as a result, will need to be carefully considered and resourced.

It is essential to look at the implications and risks associated with the implementation of any business change. These tend to fall into three categories - business risk, service risk and regulatory risk.

It is important that the written contract sets out the obligations of both parties. However, as outsourcing implies that you will no longer have direct observation of how the work is being done and who in fact is doing it, it is vital to consider the implications of that on your business, regulatory compliance and service delivery.

The risks associated with outsourcing include that:

• your professional and legal obligations, such as client confidentiality, data protection and conflicts of interest continue,
• your ability to run your business effectively is affected,
• you have insufficient skills or resources to manage the contract effectively,
• you become dependent on the outsource provider in relation to the current and future provision of that service,
• you are vulnerable to the fraud and dishonesty by your outsource providers, their business failure and/or failure to provide you with an effective service,
• your clients, when advised of the arrangement, have concerns in relation to your service provision.

There are a number of suggested actions you should consider taking. These include:-

• scoping the extent of the work that you wish to outsource, and completing a detailed project brief,
• setting out the full extent of the obligations and responsibilities of both parties contractually,
• carrying out due diligence on your chosen outsourcing provider, including their financial viability and professional indemnity cover,
• advising them of your specific regulatory and compliance requirements,
• checking the terms of your professional indemnity insurance and advising your insurers,
• checking the terms and cover of the professional indemnity insurance of the outsourced provider (see more detailed checklist below suggested by Lockton), and
• please refer to B4. 2 new Guidance advising your clients in writing of this outsourcing arrangement.

It is suggested that once outsourcing has been adopted there should be at least an annual check on performance in relation to the selection and instruction criteria to ensure that the outsourcing is achieving its intended aims and standards.

Insurance considerations

The implications for the practice’s Professional Indemnity Insurance need to be considered.

If the practice is proposing to provide outsourced services to other law firms or other businesses, do the services fall within the scope of the practice’s PII cover?

If the practice is outsourcing to another business/law firm, are you satisfied with the PII cover of the other business/law firm?  Points that ought to be considered include:

• Limit of Indemnity:
  • adequacy of limit
  • is cover on an ‘any one claim’ or ‘each and every claim’ basis or ‘aggregate’?
• Scope of cover: Does the policy cover (with no unusual/onerous policy conditions or exclusions) –
  • the outsourced activities?
  • those undertaking the outsourced activities?
  • contractual liability?
  • loss of/damage to client documents?
  • fraud, including dishonesty of partners and employees?

If the outsourced provider is a solicitor, there will be greater certainty as regards the terms and conditions of the compulsory (Master Policy) part of the provider's cover e.g. as regards the level of cover and continuing ‘run-off’ cover in the event the solicitor practice ceases. However, Top-Up cover is in a different position and its terms and conditions ought to be checked.

In documenting the terms of the appointment of an outsourced provider, consideration ought to be given to contractual commitment:

• to maintain Professional Indemnity Insurance (at a level not less than £x) for a specified period (including a period beyond the expiry/termination of the appointment)
• to evidence the cover

If your practice has fidelity guarantee or crime insurance, the policy may be subject to conditions regarding the competency, financial stability and honesty of an outsource service provider.  It may be necessary to have the insurers endorse the practice’s cover to the effect that the outsourced arrangement is acceptable to them.  This will almost certainly be relevant if the outsourcing relates to cashroom services but it needs to be considered whatever the services being outsourced.

If aspects of client work are being outsourced, risk management points to be considered include:

• who is responsible for communication with/taking instructions from the client?
• who is responsible for diarying/complying with critical dates?

Case Study 1 Large Scottish firm

A large Scottish law firm with over 20 partners took the strategic decision to appoint a Director of Operations as it was aware that the quality and consistency of its services was a vital part of its current and future success.

The job brief included the sourcing and supervision for the majority of its support functions including HR, payroll, IT, office services and facilities management, Health and Safety and data retrieval and storage.

A review was carried out across all major existing outsourced contracts including cost, levels of service and duration. Points were identified on a number of contracts where improvements could be achieved in all three aspects.

A process was also established for any new outsourced arrangements that involved the following stages:-

1. before a decision to outsource was made by the firm, an internal review was carried out to identify what the firm wished to achieve and what it was looking for,
2. based on this, a clear remit was drawn up and a specification prepared that was issued to the market,
3. tenders were obtained on the basis of the specification and due diligence was carried out against tendering suppliers,
4. the firm's internal contract lawyers were involved in reviewing the contract.

The Director of Operations considers 'good supplier relationships are essential as we always look to work with our suppliers closely, to help them fully understand our business requirements and come forward with improvements and suggestions. We see that as real added value as we seek ways to constantly ensure that we are using our resources most effectively'.

Case Study 2 - Medium Scottish Firm

Outsourced Activities

We have a number of outsourced activities and are actively looking at what else can be either wholly outsourced for sound commercial reasons or what can we put in place to improve business resilience. There are a number of drivers for each activity covered in more detail below. Our annual spend on outsourcing is in excess of £100k per annum and we police this spend to ensure we receive value back in to the business. It's important to us to find outsource partners who are prepared to work with us and develop and improve upon their delivery of their services or how we use their services.

We hold regular meetings (calls) to discuss any issues that either of us have. We feel it is important to visit their operations to understand their operation and that's been a very useful experience.

Telephony

We have a third party provision for capturing inbound calls, Aquarius based in South Queensferry when either all of our lines are tied up, or there is no resource to answer calls, the reception staff being diverted by other duties. The callers are unaware that this is a third party supplier and they are trained to pass those calls to the appropriate person or department within the firm or to take numbers and arrange call-backs. There were two drivers for this:- (a)the commercial consideration of whether there were business opportunities being missed and a (b) the customer service consideration to ensure that we are delivering a quality service to our clients.

In terms of cost, when measured against the new business we have written or the business we have retained as a result of ensuring that our phones are answered promptly it pays its own way. We keep this service under review and do quality testing to ensure the correct level and quality of service is provided.

IT Support

We outsource to Capito based in Livingston. They are a highly accredited operation having both ISO and Investors in People. They provide desktop support company wide and physical technical support to our Edinburgh office in terms of infrastructure, servers, hardware installation and removal. The driver here is to free up our highly trained and qualified in-house team who are an expensive resource to concentrate on and deliver their services in network development, IT training and system program development.

To date this has been a wholly satisfactory arrangement for us and in fact has brought some additional benefits as Capito have very highly qualified engineers and system analysts that we access when matters arise that need a specific discipline.

Typing / Transcription

This is outsourced to Intelligent Office based in Alloa. The driver here was to provide a flexible resource for business resiliency. Anyone who works in the legal arena will understand that solicitors bounce from "hunger to burst" in relation to dictation and level of instructions so we needed to maintain a healthy in-house resource as well as be able to deal with spikes as well as sickness and absence issues.

We operate BigHand dictation platform and supply dedicated terminals to them in Alloa for accessing our pick-up folder. This is an area we are keen to expand.

Document Management

We had our own scanning and archiving team in-house but for speed, efficiency, continuity of service and commercial reasons (storage costs) decided to trust this to First Scottish based in Dalgety Bay. When we close a file it is transported to their facility where the files are logged, carefully prepared and scanned in a controlled environment. Images are quality checked and then recorded on to DVD in an indexed and searchable format.

We then receive that information and attach to the individual matters to provide a full record of the matter. We are working with First Scottish to develop a gateway in a secure file transfer environment which will allow us to pick up those files and automatically upload them to the individual matters removing a large part of the manual intervention presently required.

Case Study 3-Multi-national Practice

We act for over 100 claimants who are part of a Group Litigation Order (GLO). The litigation has already been going on for years, with the possibility of it running for several more years.

Each claimant is part of a Group Funding Agreement whereby they contribute a set share of group costs in respect of legal fees. Because (as a matter of VAT analysis) we provide our services to the test claimant, only that claimant receives an invoice for our fees. Instead, the other claimants get a monthly 'cost call' which is met for most of them from payments on account which we hold in a client account. With such a large claimant group, managing the administration of the GLO can be extremely time consuming, repetitive and expensive.

Additionally, claimants often contact us to ask questions about the GLO. Even if each one only raised a few questions a year, we are easily looking at several hundred queries annually. Although the same questions tend to arise, each one requires a bespoke answer for each claimant from someone who can access our systems.

Over the past few years, this administration has occupied a fair amount of trainee and billing time. We have now outsourced the same function at a much lower cost to our clients and this should result in substantial savings over the expected life of the litigation. As such, we are now able to integrate more cost-effective support seamlessly into our internal process, leaving us with more time to provide real value to the clients in dealing with the legal and commercial issues of the case.

It was very important to us that the person at the LPO was able to understand and appreciate the legal issues involved in the GLO, the importance of accurate reporting of monies held on client account, and our constant strivings to align ourselves with the best interests of our clients.

The risks are that the clients do not get the same level and quality of service as they did when we provided the service direct, but with an extensive induction programme with the LPO and a checking all replies to queries before they are sent out to clients, we are able to maintain ongoing quality.

Additional sources of information

Other publications members may find useful:-

• The Law Society's 'Legal process outsourcing: what you should know' booklet