Something stinks and I'm pretty sure it's coming from a report I read over the weekend from the Hanna Resource Group strongly recommending that the Fayette County Board of Education outsource their legal services.
The recommendations from Hanna were used by the Board of Education on March 22nd, to justify the elimination of the three-person FCPS legal department, including Attorney Brenda Allen. KSN&C readers will recall that it was Allen's report on former BTWA Principal Peggy Petrilli that was rejected recently by KDE for lack of evidence. Allen served as in-house counsel to the Fayette County Board of Education. Are these events related?
The Hanna Group, apparently selected by Superintendent Stu Silberman -not the board - is predisposed to outsourcing and evidence suggests they are invested in making recommendations in one direction only. This, of course, is a huge bias.
Hanna also sells,
"Project management - (on time, within SOW and budget!) If your business plan includes an important project and you just don’t have the resources to manage it, hiring HRG may be the solution. We have a proven track record managing and completing projects on time, on budget and within the scope of work. Our experience includes a wide variety of business development initiatives."Sounds great, but what does it mean? If I have a little "problem," can they solve it for me for a few thousand bucks - in a couple of weeks?
My read of the Hanna report, Fayette County Public Schools Report on
Feasibility of Outsourcing Legal Services, finds it to be highly suspect for bias.
The Hanna report says,
- Lots of folks outsource counsel. (This is certainly true, but I'm not sure it tells us much. Most Kentucky school districts are too small, and lack the legal activity to maintain full-time in-house counsel, as Jefferson County does, and until recently FCPS did.)
- FCPS spends $500,000 to 600,000 per year. (The Board of Education could have saved the district thousands of dollars and hired a 5th grader to derive a more precise number than that. This is hugely imprecise and leads me to believe Hanna didn't even take the time to look at the actual numbers. This is a red flag for sloppy research - and what one gets when one orders up a three-week study. Elsewhere Hanna states the counsel "spends numerous hours...." What does that mean? Ten or a million? There is a shocking lack of actual data upon which the board could have based a decision.)
- Hanna enumerates a long list of important responsibilities for legal counsel in Fayette County, many of which, if handled improperly, can cost the district much more money.
- Says in house costs FCPS $253,000
- FCPS spends more per year for outsourced counsel right now - $284,000
- Hanna's methodology, so far as one can tell, is limited to interviews with unnamed "representatives" from Boone, Daviess, Jefferson, Kenton, Oldham and Warren Counties. Who are these representatives? Why not report the pros and cons? (My own experience in Kenton Co convinces me that the smaller districts are not readily comparable. Things are handled differently in small towns. Kenton Co was third largest when I was there, one-third the size of Fayette Co. We did not have in-house counsel but we were very close to the superintendent (unlike Fayette & Jefferson) plus we had an attorney on some kind of retainer, and we all knew we could call him and he wouldn't gouge us on services. Also, we didn't seem to need it. There wasn't enough legal work to justify a full-time lawyer. Folks weren't that much "by-the-book." Relationships among people are much closer in a smaller environment and folks tend to solve problems by other means. Louisville is a more appropriate comparison from my experience.)
- Reports that only Fayette, Jefferson and Oldham presently have in house counsel - and they all outsource as well. (But get this. Then Hanna says Owensboro recently went to in-house counsel too, but Hanna didn't include them because it's too soon to derive meaningful data on them. So what? Where does Hanna present meaningful data on any of them? This is another tip off for bias.) Reports those districts are "largely satisfied." (Ha! Again...absolutely no data! And absolutely no introspective look at which kinds of services are better outsourced and which are best kept in-house. ) Hanna says, they all report higher legal fees! (But why? Hanna either doesn't know or kept it a secret.
- Reports legal services cost JCPS = $6 per kid; Oldham = $15; Fayette = $17. (How was that calculated?)
- Reports more meaningless BS without substantiation, and pulls a figure for average expenditures of $7 per child, apparently from thin air. (And although I'm sure Hanna didn't mean to, they made a fairly persuasive argument that Jefferson County's operation is much more efficient than Fayette County, perhaps because they better serve the much larger district, by utilizing a larger percentage of in-house counsel than Fayette. Using 31% outsourced and 69% in house, Jefferson County incurs roughly the same cost as Fayette County's smaller population - perhaps because - FCPS's 53% outsource / 47% in house model appears less efficient. An argument could be made that Fayette County should have brought a higher percentage of their work inside.)
- Reports that it is possible to get services from lots of different sources. True. (Then lists advantages....as being cost savings - which the report utterly fails to substantiate...and higher quality legal service - again, based on no data at all.)
- Disadvantages...(because they had to find something, one supposes.) "some temporary loss of general knowledge"...
- Recommendation...Outsource all legal services!? (Outsource all?! This needn't be an all-or-nothing proposition. You can trim. It should really a question of what you outsource and what you keep in house.)
So how much did Fayette County pay for this sophomore term paper? (...and not a very distinguished term paper at that) Somewhere around $9,000 dollars.
Hanna should have added up all of FCPS's legal bills for the previous year and worked with the superintendent to estimate the cost of productive executive time lost due to involvement in, concern about, or management of legal issues. Having identified the value of managing the district's legal environment that amount should have been adjusted upward or downward to reflect the expected activity in the current year - considering pending suits and other issues. The in-house employee cost could then be compared to the projected legal costs to determine the best path. In the end, if there is more work than one full-time attorney can do, in-house counsel is likely to be the most cost effective way to go. Hanna should have taken greater care with their calculations and shown all of their work - the district paid for it.
Did Hanna leave anything out that the school board should have considered? You bet. Hanna didn't mention billing practices that the board should have been made aware of.
- Hanna didn't mention minimum increment billing. This is where outsourced attorneys bill for small blocks of time (one-tenth of an hour - six minutes) no matter how little time they spend. Under this practice, a one-minute phone call would result in a charge for at least six minutes. If an attorney bills at $300 an hour that one-minute phone call would cost $30. In this way an attorney can bill more time than they actually spent.
- Hanna didn't talk about expense reimbursement. Any expenses an outsourced attorney incurs will be charged to the school district on top of the hourly rate. The client has little if any control over these expenses, which can be a source of waste by the attorney. These expenses may include airfare, copies, faxes, overtime meals, coffee and donuts for meetings, secretarial hours and other costs incurred in working for the client. Some firms even charge a surplus on top of expenses as "overhead."
- Hanna fails to mention double billing. "Double billing" refers to the practice of billing a client, or clients, more than once for the same period of time. Say an outsourced lawyer legitimately charges for time spent on a client's behalf doing things other than legal research or advocacy. For example, he may need to travel to another city. Some lawyers would charge less per hour for such time, but almost all would charge something. But suppose the lawyer is using what would usually be down time for some productive purpose. How will an attorney bill for his work if he is flying for one client, and while flying, works for another client?
- Where outsourcing really makes sense is from the point of view of the lawyer. They can recycle work, but Hanna doesn't mention this practice. Recycling work occurs when the outsourced attorney does research and work for one client, say Jessamine County, and bills them for those hours worked. Then Fayette County comes to the attorney with the same issue and gets Jessamine County's answer, and is billed for it. Some argue that the attorney should bill close to nothing, but that's not what seems to happen. In-house attorneys have no such incentive because there is only one client.
- There's also the issue of setting up outsourced services. The retention agreement associated with outsourcing can take many forms and should be carefully tailored. Although many school districts and private companies use retention agreements provided by their various firms, it makes more sense for the law department to set up its own set of uniform guidelines, and secure agreement to those terms from all of the firms that it manages. Oops. Fayette County just fired the law department, so, never mind about that one.
- The ‘in-house’ advantages generally include the performance of internal legal services at a cost per unit of time lower than hourly rates of external law firms. When legal services are delivered on-site, the lawyer is known to the staff, and learns a lot about the school district and the overall strategy of its management team. This makes it easier for the in-house lawyer to give proactive advice that is in line with the company’s corporate strategy and business objectives - even when nobody asks. This ability can anticipate problems. Mistakes cause legal services to be necessary in the first place. Having one lawyer responsible for delivery and management of all legal requirements brings continuity and cost management to the function.
- In house counsel is valuable for its availability to school administrators - apart from the value to the board and superintendent. If you outsource - who can a principal call? Will they need permission to call? And if that's true, who decides whether (and in whose interest) advice is given? An in-house counsel can advise a principal and get off the phone - or they can be called back repeatedly if necessary without running up billable hours for every phone call.
- In my opinion, legal work that is critical to the central mission of the school district should never be outsourced.
- The ability to obtain legal services from an attorney trained specifically in education law and who produces a higher quality of work - without having to look every question up - is a primary reason for in-house counsel, even more than cost-savings.
- The likely "victims" of outsourcing include those legal expenses that can be reduced through better training of the employees responsible for causing them. An example might be targeting reduction of wrongful dismissal lawsuits by training to the human resources staff, or avoiding special education suits through enhanced training for school personnel.
On the other hand, outsourced legal services can provide an opportunity to buy only the services the district needs on a flexible, scalable basis. For example, a law firm might offer experienced in-house lawyers on a flexible schedule based on the district's legal requirements. Such a schedule can include a morning a week all the way to full-time. The services for such in-house lawyers can be priced on an hourly fee arrangement, or alternative billing arrangement such as monthly retainer, project fees, or other basis. They could work on-site at FCPS. That pricing model reflects aggressive use of labor-saving technology and a belief that the district should not pay any more for legal services than that which is absolutely necessary.
Functions relating to the district’s compliance status (again, think special ed) and asset maintenance (routine procurement contracts) may offer a substantial opportunity to save money. Completion and return of standard forms can be delegated to trained staff and then monitored by a lawyer.
You can't tell it from the Hanna reoprt, but maybe the Board of Education made the best possible decision for the future of FCPS, considering all the pros and cons in a reasoned fashion. But frankly boys and girls, this smells like something else.