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Tim Wright and Craig Wolff, partners in Pillsbury’s Global Sourcing practice and Jack Barufka, partner in the IP practice, explain Legal Process Outsourcing.

Whatever your viewpoint, there’s no denying that Legal Process Outsourcing (LPO) is undergoing a boom, with regular reports in the legal press of its use by law firms and corporate clients alike. Companies, as well as law firms themselves are now looking to outsource legal processes for many of the same reasons that saw them already outsource an increasingly wide array of other corporate functions previously performed in-house – to achieve compelling cost reductions and faster turnaround times, to free up scarce in-house resources to focus on more strategic and higher value activities, and to refocus the company’s energies on its core business activities.

As a result of this phenomenon, a rapidly growing cadre of LPO service providers has sprung up in countries that are able to offer the right mix of a suitably educated workforce with good English language skills, modern telecommunications capabilities, a substantially lower wage structure than Western industrialised countries, and a reasonably well developed legal system which is typically based on English law. Favoured LPO destinations currently include India, the Philippines, Sri Lanka, South Africa, Singapore and Canada.

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The end of 2012 saw a flurry of activity in the area of privacy enforcement. In July, Kamala Harris, the Attorney General of California, announced the formation of California’s own state agency, Attorney General Kamala D. Harris Announces Privacy Enforcement and Protection Unit to investigate and enforce the state’s robust privacy laws. By the end of the year, Harris made it clear that she did not intend this new unit to sit on the sidelines. On December 6th, Harris filed a groundbreaking civil suit against Delta Air Lines alleging a violation of the California Online Privacy Protection Act for the company’s failure to include a privacy policy on its “Fly Delta” mobile app. The State of California is seeking up to $2,500 in penalties from Delta for each violation of the California law.

California is not the only government entity that is ramping up its privacy enforcement efforts. The Federal Trade Commission has signaled that it plans to get in on the action as well. On August 9th, the FTC announced a record $22.5 million civil penalty to be paid by Google in order to settle charges that the company made misrepresentations with respect to how it planned to track users’ online activity.

On December 10th, the FTC published a report following up on a year-long investigation in which it found only 20% of mobile apps targeting children properly disclosed how the apps collected and shared personal data. The FTC announced it would be launching multiple investigations to determine whether certain companies have violated the Children’s Online Privacy Protection Act (COPPA), which requires operators of online services (including mobile apps) directed to children under the age of 13 to provide notice and obtain parental consent before collecting personal information from children. The FTC’s record settlement with Google suggests that these investigations could yield serious penalties.

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In a look forward, Aaron Oser was recently quoted in Stephanie Overby’s other recent CIO.com article, “9 IT Outsourcing Trends to Watch in 2013.”  One of the trends he suggests to look out for in 2013 is troubled transitions and their potential for disputes. He says, “Customers and suppliers will continue to close deals without fleshing out transition and transformation details and plans. Failed or delayed transitions and transformations will [become the] number one area of disputes between customers and suppliers.”

Check out Aaron’s other comments on what to look out for next year and the full article in CIO.com here.

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The FSA has written a ‘Dear CEO Letter’ expressing concern that the asset management industry may not have “effective recovery and resolution plans” in place should an outsourcing provider face financial distress or severe operational disruption which could lead to client detriment. The full text of the 11 December 2012 letter appears here.

The FSA states that firms’ Boards must consider the implications of outsourcing to a third party supplier and the regulatory requirements that apply. The FSA calls on firms to exercise “due skill and care and diligence” whenever they enter into, manage or terminate any outsourcing arrangement.

The FSA’s letter highlights its growing concern about the risks associated with asset management firms which outsource operational activities to third party providers. The FSA has been looking at firms’ contingency plans and has concerns about a number of them. These concerns include asset managers relying on the fact that an outsourcing firm is part of a financial institution that is deemed too big to fail. The FSA says that this approach is imprudent, as the FSA might actually allow such institutions to fail.

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The timelines of most strategic IT or sourcing projects are punctuated with key moments that can make or break the deal. These include defining the customer’s strategic objectives, determining which suppliers will be asked to compete (assuming it’s not a sole source deal) and, of course, executing the contract. Another critical juncture is downselection. This is when the customer eliminates competition by choosing a “winning” supplier and focusing on getting a contract signed.

Customers should manage the downselection process thoughtfully. Here are some factors to think about:

1. Timing.

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“Everywhere you look, the quantity of information in the world is soaring.”

ICD has predicted that, by 2012, mankind will have created 2.7 zettabytes of data! The numbers are mind boggling – a zettabyte is a 1 billion terabytes. With all of that data comes the Next Big Thing – namely, Big Data.

What is Big Data?

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Want to learn more about the insourcing trend and pointers for the proper process to follow for those tempted by that trend? Please check out our article in Computers & Law Online here.

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As the Thanksgiving holiday approaches, we are all juggling a whole host of “to-dos”, such as working out family travel logistics, making sure the turkey is thawing, and shopping for all of the “fixins”. Many of us are also starting to contemplate our impending consumption of too much turkey, stuffing and pie. Yes, we know everyone tries to be strong and resist temptation, but we generally just give in. Fortunately, we can all take solace in the fact that calories consumed during a holiday don’t count as much as non-holiday calories – well, at least that is the wise advice I got from my Aunt Simone (which, by definition, makes it a “fact”).

Thanksgiving is also a time when you can sit back and think about those things you are thankful for. In this blog, we decided to reach out to our Pillsbury Global Sourcing group to find out what outsourcing industry trends they were thankful for. Here are a few responses mixing outsourcing trends with Thanksgiving themes – enjoy:

1. We are finally addressing the “messy middle”. You might be misinterpreting this item to be the state of your stomach following dinner. Actually, this refers to IT service integration that is required to align service delivery among multiple players typically found in an IT environment. We refer to the service integration layer as the “middle”, because it usually sits between leadership and service delivery execution. We also refer to it as “messy” because most IT operations are at very low maturity levels in optimizing their service integration capabilities. Implementing a successful service integration framework can be difficult, time consuming and challenging. That said, we are thankful that many of our clients recognize harmonizing the activities of internal IT and multiple of third party providers is critical if they want to be in a position to mitigate operational risk, promptly address incidents and maximize efficiencies in their environment.

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The Federal Communications Commission (FCC) is considering whether to make fundamental changes to how carriers (and ultimately their customers) pay for federal programs that provide greater access to telecommunications and Internet services. The dilemma facing the FCC is that Universal Service Fund (USF) program expenses are increasing, while interstate and international telecommunications revenues, the source of the funding, are on the decline. Facing a carrier contribution rate that is now 17.4 percent – a hefty rate in any economy – the FCC is looking at alternatives to revenues, including assessments based on telephone numbers or network connections.

No one disputes the laudable goals of USF. These include funding for: a) carriers who provide free or low cost telecommunications services to the poor; b) high cost telephone companies so that customers in rural and remote areas can access telecommunications at rates similar to customers in the cities; c) schools and libraries to get discounted rates for essential telecommunications services; and d) telecommunications services for rural health care providers. In 1998, these programs cost about $3.9 billion. In 2012 the cost will be more than $9.5 billion. The FCC has taken steps recently to cap or slow the growth of these programs, and put in place rules and regulations to reduce fraud, waste and abuse.

The growth on the expense side has put added pressure on the revenue side – all of which comes from carriers providing interstate and international telecommunications and VoIP services. As a result of the declining cost of telecommunications services combined with reduced demand because of email and free voice services, there has been a reduction in assessable revenues from 1998 to 2012, from $80 billion to about $66 billion. Accordingly, the contribution factor has risen from 3.19 percent in 1998 to 17.4 percent today. The FCC adjusts the contribution factor quarterly.

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I recently attended the UK Society for Computers and Law’s Annual Conference where Cloud Computing was one of the ‘IT Law Hot Topics’ under discussion. The others, in case you are interested, were Big Data, Apps and Mobile Payments. The event was sold out which goes to show how ‘hot’ these topics really are!

One of the speakers was Christopher Millard, Professor of Privacy and Information Law at Queen Mary, University of London where he leads the Cloud Legal Project – a three-year Microsoft funded academic project undertaken by the Queen Mary Centre for Commercial Law Studies. Started in October 2009, its mission is to reduce uncertainty regarding legal and regulatory status of essential aspects of cloud computing by “the production and dissemination of a series of scholarly yet practical research papers to address various legal and regulatory issues that will be fundamental to the successful development of cloud computing… [which will] demonstrate thought leadership in several complex and difficult areas of law and regulation that are of vital importance to governments and businesses globally.”

The Cloud Legal Project website contains a rich source of content and is recommended reading for IT law practitioners whether in house or in private practice. Topics covered include an analysis of Cloud service provider’s standard legal terms; data protection issues in cloud computing; law enforcement access in a cloud environment; and the role of competition law in the cloud; as well as a report on some of the differing legal issues in cloud computing as compared with conventional outsourcing or hosting contracts.

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