Outsourcing Law & Business Journal™: December 2009

December 23, 2009 by Bierce & Kenerson, P.C.

OUTSOURCING LAW & BUSINESS JOURNAL (™) : Strategies and rules for adding value and improving legal and regulation compliance through business process management techniques in strategic alliances, joint ventures, shared services and cost-effective, durable and flexible sourcing of services. www.outsourcing-law.com. Visit our blog at http://blog.outsourcing-law.com for commentary on current events.

Insights by Bierce & Kenerson, P.C., Editors. www.biercekenerson.com

Season’s Readings (and Greetings) from Bierce & Kenerson, PC, Outsourcing-Law.com and our E-newsletter.
Holiday Greetings and welcome to this first edition of an exciting re-launched Outsourcing-Law.com™ website and e-newsletter! We want your feedback on the new Beta site as well as your contributions of content on international jurisdictions or legal issues in governance, risk management and compliance. Please contact us. See you in the New Year!

Vol. 9, No. 12 (December, 2009)

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1. E-Discovery and Legal Process Outsourcing: EDRM Process Design and Choices between Outsourcing vs. Insourcing

2. When is a Contractual Limitation of Liability Invalid and Unenforceable? American Public Policy Exceptions to Exculpatory Clauses in Telecommunications.

3. Humor.

4. Conferences.

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1. E-Discovery and Legal Process Outsourcing: EDRM Process Design and Choices between Outsourcing vs. Insourcing. State and federal rules of civil procedure and emerging common law of the discovery process impose significant costs on businesses that are engaged in litigation. Pre-trial “discovery” serves to narrow the issues in dispute by forcing the disclosure of records, including electronically stored information (“ESI”) for judicial economy, to narrow the scope of disputed issues for adjudication (such as through motions for partial summary judgment, admissions and prior inconsistent statements), and to speed the actual trial process. E-discovery has become a daily challenge for the General Counsel, the CIO, the COO and the Risk Management Department. They face a choice of policies, procedures and technologies for insourcing (such as by using forensic software and employed staff) or outsourcing for electronic records discovery management (“EDRM”) in e-discovery. This article explores some of the differences between insourcing and outsourcing in terms of records management / EDRM, legal requirements for protection and production of electronic records, project management in forensic record examination, litigation readiness, knowledge management, risk management, ethics and legal compliance. To see the complete article, please click here.

2. When is a Contractual Limitation of Liability Invalid and Unenforceable? American Public Policy Exceptions to Exculpatory Clauses in Telecommunications. An essential element of risk management in any commercial contract for the sale of services or goods is the clause limiting the vendor’s liability. In the sale of goods, the policy limitations are set forth in the Uniform Commercial Code, which invalidates clauses that deprive the customer of an “essential remedy” or the clause is part of an abuse of a consumer under a contract of adhesion, and under the federal Magnuson-Moss Warranty Act and similar state laws. In the sale of services, the policy limitations reflect common law, which may include a judicial analysis of regulations and the fundamental nature of the relationship between the service provider and the enterprise customer.

A decision by a New York State Supreme Court judge in November 2009 highlights the limits on exculpatory clauses under American jurisprudence under principles of gross negligence, willful misconduct, “special duty,” breach of the implied covenants of good faith and fair dealing and prima facie tort. In addition, other legal theories – such as fraud, intentional interference with business relationship, negligent misrepresentation, breach of the implied duty of good faith and fair dealing and prima facie tort – might not be available to enterprise customers for a simple failure by the service provider to deliver proper accounting information relating to its services. Click here for the complete article.

3. Humor.

Legal Process Outsourcing, n. (1) everything legal but not done by a lawyer; (2) everything done by a lawyer but not legal in your jurisdiction; (3) everything non-legal but legal because it’s paralegal.

Contract, n. (1) an enforceable expression of the meeting of the minds; (2) a meeting of the wallets

4. Conferences.

January, 24-26, 2010, IQPC Business Process Outsourcing and Shared Services Exchange 2010, San Diego, California. This is an invitation-only gathering for VP and C-Level senior Shared Services and Outsourcing executives made up of highly crafted, executive level conference sessions, interactive “Brain Weave” discussions, engaging networking opportunities and strategic one-on-one advisory meetings between solution providers and delegates. With a distinguished speaking faculty from McGraw-Hill, Ingram Micro and Pfizer, amongst others, the seats at the 2010 Exchange are limited and filling up quickly. We have limited complimentary invitations available for qualified delegates for a limited time. Please give us your reference ‘Outsourcing Law’ when inquiring. There are solution provider opportunities also available for companies who want to be represented. You can request your invitation at exchange@iqpc.com, call at 1866-296-4580 or visit their website.

January 28-29, 2010, Global Services Conference, Jersey City, New Jersey. Through the entire episode of the global economic meltdown, the global outsourcing services industry has seen the rise of a group of suppliers who are redefining many traditional management practices; changing the long-standing model for contracting offshore services; collaborating with clients in new ways; and gaining more control over outsourcing strategies. This conference focuses on these changes in the global services model and the learning from this period. For more information, visit their website

February 22-24, 2010, SSON and IQPC 8th Procure-to-Pay Summit, Miami, Florida focuses on “Fostering Smart Partnerships to Optimize Cash Flow and Deliver Positive Business Outcomes from End to End.” This Summit is all about making the most of your smart partnerships to increase cash flow and improve business outcomes as companies move away from a reactionary mode toward sustainable practices. While we may not yet be out of the woods, so to speak, it is clear that the economic landscape in 2009 has created opportunities for companies to create new synergies with their P2P partners to help promote growth for 2010 and beyond. For more information, click here.

February 24-25, 2010, IQPC’s 3rd E-Discovery for Financial Services Conference, New York, New York. Learn the Best Review, Retention and Destruction Procedures to Cut Costs and Response Time During a Financially Troubled Economy. This event examines, from the unique perspective of high-level financial executives, how the challenges of each financial sector intersect with e-discovery proceedings and processes. View the complete program agenda at www.ediscoveryevent.com/finance.

March 22-26, 2010, SSON presents the 14th Annual North American Shared Services & Outsourcing Week, Orlando , FL. Here’s a sneak peek of new and enhanced features, which include:

Speakers from Top Companies:Aramark, Arbys/Wendy’s, AstraZeneca, Chevron, Coca-Cola, Conagra Foods, General Motors, Kellogg, Kraft, Microsoft, Monster, NASA, Northrop Grumman, Oakley, Perdue Farms, Schering Plough, Warner Brothers and more
G8: Global Sourcing Think Tank Eliminating the White Noise: The first ever neutral platform to help shape a common industry agenda in the US
Under the C-Suite Spotlight with Rene Carayol, An Exclusive Onstage CXO Interview : Board-room revelations regarding shared service & sourcing model strategy
New, Strong, Business Outcome-Focused Content : 8 content-intense tracks, from Planning & Launching and BPO Evolution to IACCM’s Contracting to Collaboration
Enhanced Annual Features: Quick Wins Energizers, Speed Networking, Blue Sky Innovation Room for Mature SSO’s, and more.

Please contact Kim Vigilia directly at 1-212-885-2753 or at kim.vigilia@iqpc.com with your special code IUS_OSL_#1 to get a 20% discount off the all-access pass. You can also visit the website at www.sharedservicesweek.com.

March, 25-26, 2010, American Conference Institute’s 4th National Forum on Reducing Legal Costs, Dallas, Texas. This essential cross-industry benchmarking forum gathers together more than 30 senior corporate counsel and legal sourcing managers responsible for cost-reduction success stories, as well as leaders from law firms who are pioneers in the alternative fee world, to guide those in attendance on the complexities of keeping legal department costs in check. Now in its fourth installment, this event also offers unique networking opportunities with senior practitioners in the field, includingin-house counsel across a wide spectrum of companies and industries. For more information, visit their website.

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FEEDBACK: This newsletter addresses legal issues in sourcing of IT, HR, finance and accounting, procurement, logistics, manufacturing, customer relationship management including outsourcing, shared services, BOT and strategic acquisitions for sourcing. Send us your suggestions for article topics, or report a broken link at: webmaster@outsourcing-law.com The information provided herein does not necessarily constitute the opinion of Bierce & Kenerson, P.C. or any author or its clients. This newsletter is not legal advice and does not create an attorney-client relationship. Reproductions must include our copyright notice. For reprint permission, please contact: publisher@outsourcing-law.com . Edited by Bierce & Kenerson, P.C. Copyright (c) 2009, Outsourcing Law Global LLC. All rights reserved. Editor in Chief: William Bierce of Bierce & Kenerson, P.C. located at 420 Lexington Avenue, Suite 2920, New York, NY 10170, 212-840-0080.

Filed under: Newsletter
Tagged: contracting, Contracts, e-discovery, humor, Insourcing, Misrepresentation, outsourcing, risk management, sourcing

E-Discovery and Legal Process Outsourcing: ESIM Process Design and Choices between Outsourcing vs. Insourcing

December 21, 2009 by Bierce & Kenerson, P.C.

State and federal rules of civil procedure and emerging common law of the discovery process impose significant costs on businesses that are engaged in litigation. Pre-trial “discovery” serves to narrow the issues in dispute by forcing the disclosure of records, including electronically stored information (“ESI”) for judicial economy, to narrow the scope of disputed issues for adjudication (such as through motions for partial summary judgment, admissions and prior inconsistent statements), and to speed the actual trial process. E-discovery has become a daily challenge for the General Counsel, the CIO, the COO and the Risk Management Department. They face a choice of policies, procedures and technologies for insourcing (such as by using forensic software and employed staff) or outsourcing for electronic records discovery management. This article explores some of the differences between insourcing and outsourcing in terms of ESI records management, legal requirements for protection and production of electronic records, project management in forensic record examination, litigation readiness, knowledge management, risk management, ethics and legal compliance.

I. E-DISCOVERY AS A SUB-PROCESS OF RECORDS MANAGEMENT.

Record and Information Management (“RIM”) Policies and ESI Management (“ESIM”). The demands of e-discovery highlight the challenges of developing and managing effective governance policies and procedures for information of all kinds, including ESI, and the challenge of adopting and updating an ESI management (“ESIM”) plan for “business as usual.” The International Standards Organization has developed a records management standard (ISO 15489-1, at www.iso.org). ARMA International (www.arma.org) has identified eight standards for records and information management (“RIM”), namely, accountability, integrity, protection, policy compliance, retrievability/ availability, retention, disposition and transparency.

Memory-storage devices have proliferated, challenging the company’s records custodian. In addition to computers, there are cell phones, cameras (stand-alone or in cell phones), scanners, facsimile machines, USB “key” drives, backup hard drives and other storage devices. All pose a challenge for a fully compliant response to an e-discovery request.

Legal Requirements for Protection and Production of E-Records. Federal and state rules of civil procedure have evolved to include electronic records. See F.R.Civ. P. 26(b), 34 and 45 (subpoenas) and F. R. Evid. 901(a) (authenticity). State procedural rules have been adopted to implement the Uniform Rules Relating to Discovery of Electronically Stored Information issued by the National Conference of Commissioners on Uniform State Laws. [Copy available at http://www.law.upenn.edu/bll/archives/ulc/udoera/2007_final.htm]. Basic common law, statutory and civil procedure rules in e-discovery start with similar requirements:

Protection: preservation of ESI through a “litigation hold” to prevent inadvertent loss when a third party demand has been made, or it has become reasonably foreseeable that such a demand will be made, and ensuring that the in-house attorney’s instruction is actually implemented (for example, avoiding the inadvertent over-writing of storage and backup tapes).
Accountability: identifying the scope and “proportionality” of the e-discovery requirements in relation to the overall scope of the dispute.
Cost allocation: allocating costs that are reasonable to the producing party and costs that are unreasonable to the requesting party.
Cost management: using search terms and other cost-effective automated search technologies to get the reasonable or “agreed” coverage for the initial triage, fulfilling the approach that information technology can solve the problem of searching massive records databases using search technologies. See, e.g., Zubulake v. UBS Warburg, LLC, 2004 WL 1620866 (SDNY July 20, 2004, Judge Scheindlin) and other rulings in the same case, at 217 F.R.D. 309 (SDNY 2003), 216 FRD 280 (SDNY 2003) and 2003 WS 22410619 (SDNY Oct. 22, 2003).
Integrity (authenticity and identification of the e-record): identifying appropriate methods and procedures for ESI production, including the appropriate level and nature of legal supervision of forensic inspections, to ensure authentication under F.R.Evid. 901(b) by using circumstantial information such as the file access permissions, file ownership, dates when the file was created and when it was modified, other metadata and hash values for the record when copied to a forensic computer for analysis.
Accessibility: under the rules of evidence: identifying and managing risks of loss of evidentiary privileges by the mere use of electronic e-discovery tools and procedures.
Accountability for Non-Compliance: identifying the sanctions for culpable conduct, mainly, “spoliation” (intentional or negligent destruction of evidence) or negligent collection done by the record custodian rather than by an automated process, such as:

judicial issuance of an instruction to the jury that the jury may validly draw a “negative inference” (or “adverse inference”) from the fact that the offending party could not produce the normally available documents in support of its legal arguments, resulting in a conclusion that, if the “lost” or “destroyed” records had been introduced into evidence, they would have supported a negative conclusion as to disputed factual matters; and

judicial sanctions including an order to pay the reasonable expenses, including attorney’s fees, caused by the violation of discovery rules, where, for example, the adverse party incurred expenses to overcome the inability to access the “lost” or “destroyed” (spoliated) records.

Project Management in Forensic Record Examination. Within a holistic approach to ESIM, e-discovery tools and techniques can be identified along the continuum of “cradle-to-grave” (or more appropriately, “cradle to judge and jury”) progress. As a sub-process of electronic records management, an e-discovery process model can be used to identify the particular role or function of third-party software, in-house resources and an outsourcer’s resources. By looking holistically at the end-to-end chain of processes leading to satisfactory e-discovery compliance, under such a paradigm, the end-result, production and presentation of ESI, can be managed by effectively adopting either a total control at the “information management” level (when records are initially created and stored). The following is our own view of electronic discovery records management (“EDRM”) as a subset of an enterprise-wide holistic ESIM resource management paradigm for governance, risk management and compliance in e-discovery:

Litigation-Readiness: Converting “Business as Usual” IT into Information Management Operations for E-discovery. Information technology plays a strategic role in the enterprise’s ability to comply with e-discovery mandates. The enterprise’s legal department should team up with the IT department, the records management department and the line-of-business management to participate in the design – or re-design – of the enterprise’s information management operations and records management. E-discovery compliance features are now available through software that can troll the enterprise’s entire ESI, search for information according to a myriad of legal and business terms, technical parameters. In conjunction with the CIO and the records management department, the legal department can:

Gap Analysis: Conduct a “gap analysis” to identify which features are missing from those that are recommended or required under the applicable rules of civil procedure and common law, particularly those policies and procedures that involve data collection, classification, accessibility, storage, retention and destruction.
Strategic Access Plan: Develop a strategic access plan for the full life-cycle of “business as usual” and custody and control, including audit, of the company’s information and litigation-relevant information.
Process Design using an ESIM Paradigm: Apply the e-discovery records management sub-process of the enterprise’s holistic ESIM model to identify and segregate functions that will be performed by in-house or captive resources and those for outside legal counsel and outsourcing service providers.
Cross-Border Considerations: Integrate multinational and cross-border legal mandates into the design of the information technology and information management systems, at an early stage in the e-discovery process, to avoid breaches of foreign data protection and privacy laws when complying with U.S. judicial rules of procedure.
Integration of Internal and External Resources: Develop policies and procedures for use of outside litigation support services providers and an array of personnel and technology resources both domestically and internationally to fulfill e-discovery compliance mandates, without adversely impacting the ongoing business operations.

Litigation-readiness must be added to the selection criteria for new IT initiatives such as “cloud computing” (here, the “software as a service” model, not the “variable IT computing-power as a service” model), internal and external social networks, Twitter and internal and external collaboration platforms such as wikis, e-rooms and Google Wave.

Knowledge-Management Readiness: Managing and Protecting Corporate Knowledge. “Knowledge management” refers to policies, procedures and technology that enable an enterprise to capture, organize, identify, re-use and protect the confidentiality of its trade secrets. Knowledge management (“KM”) procedures must also enable the enterprise to distinguish among sources of confidential information that may be trade secrets, copyrights or patents of third parties (including “freeware” and “open source” software) as well. Accordingly, CIO’s must adopt KM planning strategies that, in conjunction with legal and compliance departments, also serve regulatory and legal requirements. The IT infrastructure needs to identify all such trade secrets during the e-discovery process so that, if disclosable, they are subject to non-disclosure and non-use under appropriate protective orders.

II. RISK MANAGEMENT

Risk of Spoliation by Employees and Contractors. According to one e-discovery service provider, a large majority of all corporate litigation is employment-related. If employees have access to change ESI, disgruntled or negligent employees pose a major risk of spoliation. Employees can unknowingly or intentionally destroy ESI evidence. Such actions can range from concealment (through downloading pirated software that deletes files on the employee’s web surfing history) to sabotage (actually deleting documents).

As a result, the legal department and the CIO need to develop IT-enabled solutions to prevent such acts. This article does not address this particular issue, but it highlights the need for appropriate design of the overall information management architecture as a preventive measure.

Risk Management. From the risk-management perspective, a proper defensive strategy will require an alliance between the company’s Legal Department, its Risk Management department and its IT department.

IT Role. The IT department needs to work with the Legal Department to ensure a proper chain of custody and proofs of authenticity.
Insurance. The Risk Management Department needs to help design and review the e-discovery process. Sanctions for spoliation have implications for coverages for directors and officers, employment practices, errors and omissions and general liability. The records manager needs to understand how the company’s Records Management (destruction) Policy meets e-discovery requirements.
Legal Department. The in-house Legal Department must not only manage the e-discovery process. It must design and manage effective records management policies, educate all employees about the e-discovery process and its role in management of risks, knowledge and records.

III. BUSINESS MODELS: INSOURCING, CAPTIVES AND OUTSOURCING

Business Models for Insourcing. Before comparing outsourcing and insourcing, it is helpful to consider the different business models in which an internal e-discovery operation can be financed. These models can be summarized:

Infrastructure Investment in a Complete e-discovery Toolkit. At the “high end,” the enterprise can make a capital investment in the essential tools of a fully “in-sourced” e-discovery operation. Such an investment will have significant payback for enterprises having a high volume of litigation with predictable volumes of e-discovery demands. Such enterprises will need to invest in all the people, process and technology necessary for the operation. If the operation is highly automated, it can be effectively managed onshore. If it requires substantial human review, part of the operation may be handled in offshore locations with remote access, security controls and other measures to prevent loss of confidentiality, competitive advantage and effectiveness. This leads to consider a captive e-discovery service delivery center. In this case, outsourcing can be a viable solution for that portion of the e-discovery process that requires supervised human review and analysis.
Pay-Per-Use Pricing. Where litigation is more volatile in terms of volume and timing, a “pay-per-use” pricing for insourced use of third-party technologies can prove cost-effective. This pricing model provides some benefits to enterprises that have very few litigations, but a large volume of ESI for assembly, analysis, protection and disclosure.
Consumption-Based Pricing. Consumption-based pricing reflects the volume of ESI being sorted and analyzed. This pricing model provides benefits for enterprises that want to allocate litigation costs to individual lines of business or affiliated companies, as a charge-back accounting principle that effectively rewards litigation-free business managers for staying away from the judicial system.

Relative Advantages of Insourcing.

Industries Affected by Persistent Litigation. Several software tools exist that allow in-house counsel and the CIO to conduct the full forensic discovery using staff employees. Internalization of the discovery process makes economic sense where the company is constantly involved in litigation. Such companies typically include insurance companies, banks, consumer products manufacturers, and can include food service chains and franchisees. Other companies that are subject to class action claims for torts or securities law violations can fall into this category as well, impacting virtually any publicly traded company that has a volatile stock price.
Control of Records Management; Cost Management. Software and IT services companies argue that insourcing can significantly reduce the costs of e-discovery. They argue that, by taking control of the forensic search, collection, analysis and processing of a company’s electronic records, companies have more flexibility and control over the manner in which these critical discovery processes are conducted. This control can translate into cost savings by enabling a closer supervision on-site by the internal lawyers.Cost savings must be compared to comparable external services.Cost savings that might arise from an easier ability to make small changes in the search criteria, for example, may result in a loss of the hard-wired “e-discovery plan” that serves as the basis of justifying to the court that the discovery disclosures comply with civil procedure to locate and disclose all relevant records.
Protection of Trade Secrets and Intellectual Property. Insourcing, or using captives, can provide a significant level of additional protection for knowledge management, trade secrets and intellectual capital. Such protection comes at the cost of maintaining internally controlled resources. Outsourcers will claim that their security levels are higher than those in many global enterprises. Outsourcers offer personal non-disclosure covenants by individual employees. But there is always a risk, whether through insourcing or outsourcing, that the personnel having access to trade secrets, for example, might abuse their positions of trust through tipping a securities investor, selling the ideas to a competitor of the enterprise or other tortious conduct. Even a non-disclosure agreement does not constitute a valid non-competition covenant, and even non-competition covenants are unenforceable as a matter of public policy unless strictly limited in time, territory and scope, and (in California and some other jurisdictions) they may require additional payments of consideration. In short, neither insourcing nor outsourcing appears to have a clear advantage in this field, except that e-discovery managers who are employed by the enterprise might offer an advantage by having ongoing knowledge of what is (and is not) a trade secret for faster, better, “cheaper” claims to a protective order.
Effectiveness of Coordination and Collection of ESI. The use of skilled internal people who know the company’s operations may be able to provide better collection and coordination of ESI. However, “professional” e-discovery service providers may have the advantage in skills at the beginning as the company’s internal personnel become familiar with the processes and technology of e-discovery. Hence, insourcing might follow outsourcing until the processes can be internalized.
Reduction of Risks of Noncompliance with e-discovery Rules. Well-trained, well-supported internal personnel might be able to reduce risks of non-compliance in the typical e-discovery process.

Relative Advantages of Outsourcing e-discovery. Outsourcing of e-discovery processes may be costly, but it may be the best solution for several reasons. This requires an analysis of the relative merits. This “gating analysis” should include appropriate considerations of staffing, quality, ethical risks and speed.

Staffing. One of the key benefits of outsourcing, and one of the key parameters in selecting the right outsourcing service provider, is the service provider’s staff. The best outsourcers have developed a methodology for human capital management in the specialized field of e-discovery and related disciplines. The outsourcer designs a service delivery platform, recruits, trains and tests its staff in generic functions (including project management, information technology and security) and then offers this staff for custom-training on the litigating company’s particular process and e-discovery requirements.Using a business company to provide litigation support can run afoul of ethics and disciplinary rules applicable to the litigating company’s (or its law firm’s) lawyers. Law society rule in England will be changed if and when a pending draft law is modified to permit competent non-lawyers to perform tasks that might be considered the practice of law. Under applicable ethics opinions of the American Bar Association and various city and state bar associations, the in-house lawyer or outside law firm cannot escape certain core ethical duties:

to supervise the work of the outside service provider;

to avoid assisting in the unauthorized practice of law (“UPL”)

to ensure the protection of client confidences;

to avoid waiving any rule permitting a claim of legal privilege (and to rectify innocent or mistaken disclosures, see e.g., Fed. R. Evid. 502);

to avoid conflicts of interest;

to protect against data loss, theft or other act or omission that might constitute sanctionable spoliation;

to comply with the rules of court relating to e-discovery and management of ESI at all stages.

Vendor selection involves finding the right fit for the particular litigating company’s legal, regulatory, compliance, privacy, legal ethics and security requirements.

Service Level Metrics and Quality Considerations. Few internal employees want to live by performance metrics. Outsourcers live by “guaranteeing” service metrics and other quality parameters.

Offshoring Issues. In considering an offshore captive or an offshore LPO outsourcing, the company’s lawyers must evaluate special cross-border legal issues.

Export Controls. By transferring any U.S. data abroad, the company may require a license from one or more branches of the U.S. government. While commercial information may be subject to a general export license that does not require any notification, filing or administration, some information (such as software or design information that may have dual civilian and military uses) may require a specific license. Similar issues arise where the company’s ESI includes trade secrets, pending patent applications and other information that is subject to a required export license.
Data Protection. Data protection rules under HIPAA and other legislation may apply to the data being processed. Foreign LPO service providers must ensure compliance.
Privacy. Privacy rights arise from many legal sources and different jurisdictions. Depending on the source of any personally identifiable information (“PII”), any transfer of company records to a foreign LPO service provider may violate applicable rules. This issue suggests a proactive approach in the design and implementation of the company’s overall information management systems.
Third-Party Consent. The information in a company’s database may include information that is licensed under restrictive disclosure conditions or where a third-party’s consent is required by an applicable law. Third-party consent may be required.
Client Consent. The information in a company’s data base may also require the client’s consent
Political Risk. Foreign service providers come with a suite of political risks that could impair service quality, timeliness of service, confidentiality and other custody and control issues for the ESI and the foreign nationals accessing such ESI.

IV. PROJECT MANAGEMENT

Most effective e-discovery procedures will require effective integration of internal and external resources. The design, planning, implementation, performance, intermediate re-balancing and supervision of all resources remain, of course, in the hands of the company, and, in particular, in-house attorneys. The Legal Department (which is ultimately responsible) may wish to consult with “outsourcing lawyers” not merely with litigation counsel on achieving a flexible, cost-effective, efficient design, vendor selection and supervision, review of compliance with ethics rules and project management.

Evaluation Process. Companies evaluating an LPO solution for e-discovery (or any other LPO) should therefore carefully explore all relevant implications, design the program for compliance and quality of service, address special issues involving any cross-border data flows and other commercial, judicial rules, legal and ethical requirements.

Project Management Roles. Each LPO project requires thoughtful and careful attention to ensuring that all responsibilities of the different parties are aligned with their roles. Within the outsourcing model, there is room for designing and allocating roles and responsibilities to give in-house attorneys control of the process so that they can manage the ethical responsibilities. The introduction of the LPO service provider raises new questions whether the cost-controlling measures will impair (or improve) the quality of the outcome. External lawyers could also manage the service providers.

V. BUSINESS MODELS

Business Models. Currently, most LPO e-discovery services are conducted under business models of insourcing (including contract attorneys), captives and outsourcing.
New Models. Over time, companies and their legal counsel will become more familiar with the tools, alternatives and strategies for effective LPO, including identifying and assessing risks and evaluating a risk-benefit matrix. With greater maturity in capabilities, new business models for identifying and managing e-discovery processes, tools and personnel may evolve. The impact of cloud computing, platform-as-a-service, software-as-a-service, virtualization of both servers and client computing and mobile computing will challenge enterprises and their technology and legal service providers to integrate a holistic and global ESIM process to incorporate the EDRM subset as “business as usual.”

Filed under: Newsletter Article, White Paper
Tagged: Accessibility, Accountability, Agreement, cloud computing, Cost allocation, Cost management, data protection, dispute resolution, e-discovery, ethics, Insourcing, integrity, Knowledge-Management, Memory-storage devices, outsourcing, Policies and ESI Management, privacy, Protection, Record and Information Management, risk management, sourcing

Outsourcing: Evolution From Single Supplier to Best of Breed

October 9, 2009 by Bierce & Kenerson, P.C.

In a globalizing, services-based economy, outsourcing has rapidly grown in the last decade. Once confined to “low-value,” low-technology services such as a company’s in-house photocopy machines, messengers, food services and janitorial operations, outsourcing has moved “up the value chain.” At the same time, changes in the nature of outsourcing have led to a variety of other management tools such as multiple outsourcings for “best of breed,” greater internal discipline through “insourcing” under a “managed scorecard” and “shared services” subsidiaries. Roles and identities of service users are merging with those of service providers in a continuum of services.

This article focuses on the evolution of outsourcing in the last ten years and how new models have developed.

“Outsourcing” vs. “Out-Tasking.”

Outsourcing is the process of transferring to an external services provider (the “outsourcer”) the day-to-day responsibility for operating a business process of the corporate enterprise (the “user”). Typically, this involves a transfer of the personnel then employed by the user to the outsourcer’s payroll. Frequently, other assets are transferred as well.

In contrast, “out-tasking” is a more limited approach involving “contracting out” or “subcontracting” a task to a “consultant” or other service provider. This can run the gamut from individual projects for product development to a string of projects that are interdependent and require a certain workflow.

Types of Outsourced Services Today.

Currently, external services providers offer virtually any type of ongoing support for business processes. These range from human resources management, tax compliance, internal audit and real estate asset management to product design, manufacture, design, testing, marketing, logistics, distribution of goods and services worldwide. Given the right mix, one can “outsource” an entire enterprise. Indeed, some new businesses are based exclusively on Internet sales with outsourced support.

Deciding When to Outsource.

Outsourcing is suitable for many different situations. For publicly held companies seeking “efficient” and favorable share pricing, the earnings multiples generated by many capital-intensive assets might fail to support management’s high targets for ROI and ROE from “core business.” For such businesses, outsourcing allows liberation of capital from the constraints of price-earnings ratios and promote management focus on essential determinants of shareholder value. “Do the best, outsource the rest.”

For rapidly changing industries, outsourcing may be the tool of choice for obtaining rapid access to scalable production or to new technologies, a “partnership” with a recognized leader for transitional and long-term technology planning and marginal cost pricing for business processes requiring heavy capital investment.

In the context of mergers and acquisitions, divested companies need operational support from the day of a spin-off or split-off. Outsourced facilities can span the gap and give new management the necessary “breathing room” and allow focus on the core business. Outsourcing can also expedite integration of two merged companies with incompatible technical infrastructures.

Deciding What to Outsource.

In making any “buy” vs. “build” decision, as in outsourcing, financial considerations are critical. But the key driver is to distinguish between functions that are “core” (non-delegable) and those that are merely “essential.” Many “essential” functions are ripe for outsourcing under suitable conditions. For some enterprises, the “hard” decision is deciding what not to outsource.

The classic example of outsourcing revolves around information technology. Today, this field includes the converging technologies of data processing (especially using “enterprise resource planning” (ERP) and “supply-chain management” (SCM) software), telecommunications, Internet “e-commerce,” and remote processing through Internet service providers. In business and industry, this can involve both “back office” and “front office.” In financial services, it can even include the “middle office,” for compliance with financial reporting and securities laws.

At the “back office” level, this business function can be divided into a number of discrete elements. Customers rely upon, but rarely see

the operation of a data center with mainframe computers running “legacy” applications,
certain applications development and maintenance for custom programs,
network administration for local area networks, wide area networks (including telecommunications) and now even “storage area networks” of storage devices for the burgeoning volumes of archival data and
“help desk” services for employees with problems using the company’s information technology infrastructures.

At the “front office” level interfacing directly with the customer, outsourcers can provide “private label” services that allow a company to offer a host of resources that it does not own. In doing so, the company can specify in advance what it wants to do, how it wants to do it, and what it is willing to pay. By combining such services as customer relationship management, remote electric meter reading, electronic billing and the like, some new companies can sprout up to compete directly with “bricks and mortar” companies on a cost-effective basis without loss of service quality.

Evolution of Deal Structures.

In the early 1990’s, data services providers such as EDS, IBM, CSC, Perot Systems made their fortunes on long-term, monolithic packages of services covering a broad scope. The trend today is to find niche players to provide specialty services, but this requires significant supervisory and planning skills for the user enterprise. Sometimes one supplier acts as general contractor, or “first among equals,” and manages a consortium. Occasionally, joint ventures supplant the supplier-customer relationship, providing added incentives and risks for both sides. Current methodologies for competitive procurement of outsourcing services reflect the learning of former (or current) long-term deals. Renegotiation occurs regularly, but can only be effective if the necessary tools have been crafted into the deal in the first place.

Making It Work.

Senior management needs to be committed. After the deal is signed, in-house managers need to monitor and manage the supplier’s performance.

Done wrong, however, outsourcing can be a catastrophe. Multiple business risks are inherent in the outsourcing process.

If mismanaged, an outsourcing process could retard growth and result in unintended losses of momentum and key personnel. In such cases, the resulting disenchantment may swing the business process back to “insourcing.” However, “re-sourcing” to another vendor might prove more effective.

“Genetic Mutations” on Outsourcing: Shared Services, Insourcing, Managed Scorecard.

In the last five years, responses to outsourcing deals have generated the quest for “better” deal structures.

“Insourcing” is the process of bringing in-house a business function that was, or was at risk of, being transferred to an external service provider. “Shared services” subsidiaries provide common administrative functions for a group of affiliated companies.

To improve performance and forestall being outsourced, some in-house staffs are focusing on process improvement, sometimes agreeing to be managed as if they were external providers. In some cases, this reaction can produce self-management by “managed scorecard” techniques or in the establishment of “shared services” subsidiaries for cost efficiency. In either case, the “threatened” personnel then become external services providers of their own specialized, albeit generic, processes in the market.

The Independent Lawyer and the “Two Hat” Client.

Virtually every corporate user has the capacity to wear the two “hats” of “user” (in one outsourced business process) and supplier (in another). In major procurements, the assistance of knowledgeable “infrastructure services” lawyers can accelerate the process, reduce risk and facilitate future adjustments. For users-turned-suppliers, knowledgeable legal and business advisers can expedite the “go-to-market” strategy and achieve valuable payoffs in the selection, due diligence and negotiations phases.

Independent legal counsel with experience in both sides of these strategies can expedite and facilitate the process of determining the scope, selecting the outsourcer, negotiating the contract and ensuring implementation.

Sponsors of www.outsourcinglaw.com provide legal and practical business advice on the structuring and implementation of various strategies discussed in this article. For further information, contact one of our sponsors or Bill Bierce (author).

Filed under: White Paper
Tagged: business processes, data processing, information technology, Insourcing, managed scorecard, service provider, shared services, supply-chain management

Outsourcing Tools for Insourcing

October 9, 2009 by Bierce & Kenerson, P.C.

Outsourcing Tools for Insourcing.

The typical outsourcer also provides a spectrum of support and consulting services compatible with a totally insourced environment. Thus, outsourcing is only one of the core service offerings. Enterprise customers now ask the question: why outsource when I can insource using the right tools? While there may be many reasons to outsource, there are equally many reasons not to outsource. The reasons relate to ERP, SCM, CRM and DRM solutions that can be used to keep customers loyal and flexibly prepared for a future outsourcing. Emerging BPM / business process management tools and software as a “service,” can likewise create opportunities for retention of functions in house.

Does your “outsourcer” also sell tools that facilitate insourcing? In this article, we take a quick look at one particular tool offered by the king of outsourcers for its enterprise customers’ data centers.

Panoply of Insourcing Tools.

Insourcing tools help a customer manage its technology and service delivery to its internal customers without dependence on a third party for design, maintenance and support. Let’s consider a few:

Web-Enabled Self Service and the ASP Model.
Under the “Applications Service Provider” model, the external services provider hosts its own proprietary software solution. The customer enters data into the provider’s software by remote control, either using web-enabled services or high-speed link.
Web-Enablement of Customer’s Proprietary Software.
Companies such as Citrix have developed tools to allow a customer to place its own proprietary software on a secure Intranet, thereby reducing access costs, particularly for end-users who are traveling, home-based employees, or in a large complex organization with multiple offices worldwide.
Software Licensing Model.
Software that helps customers perform their own “managed services” has developed over time. In the “early days,” data base software such as Oracle and DB2 organized data. More recently, enterprise resource planning software (“ERP”), supply-chain management (“SCM”), customer relationship (“CRM”) and device-relationship management (“DRM”) software have enabled enterprise customers to harness a uniform set of business process tools across large organizations. Such more robust software serve as tools for reducing complexity, enforcing business process rules and showing transparency of data. Such software also can plan, identify and manage for business continuity in case of disasters. As an emerging insourcing or outsourcing tool, new software tools facilitate provisioning of resources.
External Benchmarking and Performance Metering Tools.
Service level agreements (“SLA’s”) define the various performance parameters that define the essential services under any outsourcing agreement. Enterprise customers have tools that measure the same operational data that the external service providers see at the service provider’s facilities. Customers now are demanding access to benchmarking and performance metering tools.

Why Outsourcers Might Offer Insourcing Tools.

There are many reasons why outsourcing might not be a proper solution for a client. Currently, IBM, Hewlett-Packard and Sun Microsystems all offer some form of tool to enable an enterprise customer to automatically provision server workloads based on supply and demand and network traffic. The same “silicon switch” that enables a customer to manage insourced IT resources could thus be used to transform to a hybrid insourced-outsourced combination or externalize the business process virtually.

Transitional Tools for Eventual Outsourcing of Process or Infrastructure, or for Provisioning of Services “On Demand.”

In such cases, the outsourcer should consider providing tools that retain customer loyalty and, like a Trojan horse, enable the customer to become an outsourcing customer “on demand.” The customer becomes trained in the service provider’s software, and such training might inspire confidence that, by using such tools, the customer can place more trust in an outsourced solution, either temporarily or on a continuous outsourced basis. These tools face the challenge of maintaining user control and limiting access to software applications while demand surges or subsides across a network of servers and data centers.

Infrastructure Support.

In fact, among others, IBM has adopted this strategy to service customers who might need hosted infrastructure and rapidly deployable additional server capacity. Its Tivoli “Intelligent Orchestrator” software will allow customers to convert a data center into an IT utility, where provisioning of network capacity (bandwidth), server processing capacity, storage and other computing resources are allocated dynamically in response to defined parameters of supply and demand. This resembles a “utility” because the “grid” operator may now anticipate demand and plan for allocation and reallocation of resources. In emergencies, the “grid” (data center with Intelligent Orchestrator (or competitive equivalent) could redistribute computing resources globally. But the challenge of dynamic global provisioning will remain daunting.

Pricing Challenges.

Tools for insourcing present challenges for the vendor. If the price of the tool is too attractive, the tool will sell and the services will not. If the tool is too expensive, outsourced services might be preferred, but only where the customer has no alternative. And by promoting tools, the vendor might cannibalize revenue from services, and vice versa. Pricing could be in the form of per-seat, per user, global site license, or site license by some other “line of business” demarcation.

Legal Issues in Dynamic Provisioning of Computing and Telecom Resources.
When we look at dynamic, rules-based provisioning of resources across international boundaries, we must remember that data transfers across borders remain subject to local legal controls. These include:

data protection laws.
privacy laws.
export controls on military data or “dual use” civilian-military processes.
license restrictions on authorized use.
infringement indemnifications that may be territorially restricted.
force majeure risks.

Transitioning from Software Licensing to Outsourcing.

Generally, a contract for a software license does not change when the parties enter into an outsourcing relationship. But customers should consider what changes should be made when this occurs, and what risks and assumptions have changed by virtue of the transition. By gaining the customer’s trust through a software tool, the vendor can thereby convert the customer to an outsourcing customer quickly, almost immediately. “Just sign here.”

We believe, in such cases, there could be significant business issues that need to be reflected in an appropriate contractual document. We recommend that an outsourcing lawyer be consulted in such circumstances.

More Information.

Bierce & Kenerson, P.C. does not provide any of the tools described above. However, we may be able to identify or comment on legal and practical issues of tools that may be of interest to the IT and technology-enabled services community. Please let us know if you have any questions about our experiences with particular vendors.

Filed under: Contributor Post, Uncategorized
Tagged: benchmarking, business process, customer relationship, device-relationship management, enterprise customer, enterprise resource planning software, external services provider, Insourcing, service delivery, service level agreements, supply-chain management