December 7, 1999

To: Administration Committee

From: City Clerk

Subject: Cost Estimate for a Cost Benefit Analysis of

Internal vs. External Legal Services.

The Policy and Finance Committee on December 7, 1999, had before it a communication (November 3, 1999) from the City Clerk advising that City Council on October 26 and 27, 1999, had before it Clause No. 19 of Report No. 8 of The Policy and Finance Committee, headed AOther Items Considered by the Committee@ and directed that the aforementioned Clause be received as information, subject to striking out and referring Item (a), entitled "Cost Estimate for a Cost Benefit Analysis of Internal vs. External Legal Services", embodied therein, back to the Policy and Finance Committee for further consideration:

"(a) Cost Estimate for a Cost Benefit Analysis of

Internal vs. External Legal Services.

The Policy and Finance Committee reports having concurred with the recommendation embodied in the following report:

(September 24, 1999) from the Chief Financial Officer and Treasurer, providing information on the price for a management type study on a cost benefit analysis of internal vs. external legal services; and recommending 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."

The Policy and Finance Committee referred the foregoing communication to the Administration Committee for consideration.

City Clerk

P. A. Morris/cd

Item No. 15

Attachment

November 3, 1999

POLICY AND FINANCE COMMITTEE:

City Council, at its meeting held on October 26 and 27, 1999, had before it Clause No. 19 contained in Report No. 8 of The Policy and Finance Committee, headed "Other Items Considered by the Committee".

Council directed that the following Item (a), embodied in the aforementioned Clause be struck out and referred back to the Policy and Finance Committee for further consideration:

"(a) Cost Estimate for a Cost Benefit Analysis of

Internal vs. External Legal Services

The Policy and Finance Committee reports having concurred with the recommendation embodied in the following report:

(September 24, 1999) from the Chief Financial Officer and Treasurer, providing information on the price for a management type study on a cost benefit analysis of internal vs. external legal services; and recommending 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."

for City Clerk

J. A. Abrams/sb

Encl.

c. Chief Financial Officer and Treasurer

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 Citys 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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