September 24, 1999

To:Policy & Finance Committee

From:Chief Financial Officer & Treasurer

SUBJECT:COST ESTIMATE FOR A COST BENEFIT ANALYSIS OF INTERNAL VS. EXTERNAL LEGAL SERVICES

 Purpose:

This report provides information on the price for a management type study on a cost benefit analysis of internal vs. external legal services.

 Funding Sources, Financial Implications and Impact Statement:

There are no immediate funding implications relating to this report.

 Recommendation:

It is recommended that this report be received for information and that any further action to define the scope parameters of such a study be referred to the City Auditor in consultation with the City Solicitor.

 Council Reference/Background/History:

The Corporate Services Committee on February 15, 1999, had before it a joint report (February 2, 1999) from the Chief Administrative Officer and the Chief Financial Officer & Treasurer, providing specific information relating to external legal firms retained by the City of Toronto for insurance claim defence purposes and a recommendation that the report be received for information. The Corporate Services Committee, on February 15, 1999 referred the following motions to the Audit Committee for report thereon to Corporate Services Committee:

Moved by Councillor Lindsay-Luby:

That any future reports regarding the outsourcing of legal work, determine the cost effectiveness of work undertaken inside vis-à-vis outside and particularly when specific expertise is needed; and that this cost-benefit analysis be undertaken by the City's External Auditor.

Moved by Councillor Rae:

That the foregoing motion be referred to the Chief Financial Officer and Treasurer for report thereon to the next meeting of the Corporate Services Committee respecting the cost of the City employing an External Auditor.

The Audit Committee, on May 25, 1999 considered the motions referred by the Corporate Services Committee and recommended that Ernst & Young provide a cost evaluation of the report requested by Councillor Lindsay-Luby to the Policy and Finance Committee.

The Policy and Finance Committee on June 24, 1999, had before it a communication (June 1, 1999) from the City Clerk, advising that the Audit Committee on May 25, 1999, during its consideration of a communication from the City Clerk, entitled, "External Firms Retained for Insurance Claim Defence", recommended that Ernst and Young provide a cost evaluation of the report requested by Councillor Lindsay-Luby to the Policy and Finance Committee.

The Policy and Finance Committee referred the foregoing communication to the Chief Financial Officer and Treasurer for report thereon to the Policy and Finance Committee.

 Comments and/or Discussion and /or Justification:

Ernst & Young were requested to provide an informal fee estimate for a management type cost benefit analysis of internally provided legal services versus externally provided legal services.

Ernst & Young suggest that such a project be comprised of two stages at fees generally in the range of $150,000 to $300,000 for both stages. The first phase would include the base level review of the Legal Division with benchmarking. The second phase would be the screening of potential proponents if it were decided to acquire external legal assistance. At this time Ernst & Young has limited information on the scope parameters of the analysis expected by the City.

Conclusion:

The February 2, 1999 joint report to the Corporate Service Committee from the Chief Administrative Officer and the Chief Financial Officer & Treasurer provided specific information relating to outstanding insurance claims where external legal firms are selected and retained as well as financial information on their annual billings. It should be noted that the report requested by Councillor Lindsay-Luby, at the cost evaluated by Ernst & Young as reported herein, is more global in scope than just insurance claim defence work.

It is recommended that this report be received for information and that any further action to define the scope parameters of the report requested by Councillor Lindsay-Luby be referred to the City Auditor in consultation with the City Solicitor.

  Contact Name:

Jeff Madeley, Manager, Insurance & Risk Management, 392-6301

E-mail: jmadeley@mta1.metrodesk.metrotor.on.ca

Len Brittain, Director, Treasury & Financial Services, 392-5380

E-mail: lbrittai@toronto.ca

    W.A. Liczyk

Chief Financial Officer & Treasurer

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