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Karnika Seth, Managing Partner SETH ASSOCIATES ADVOCATES AND
LEGAL CONSULTANTS
Seth Associates, 2007 All Rights ReservedLEGAL PROCESS
OUTSOURCING IN INDIA-AN INSIGHT INTO THE GROWING INDUSTRYICFAI
National Seminar on Prospects and opportunities in Knowledge
Services 9th July,2007,Sirifort Auditorium, New Delhi
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Introduction to the LPO business Scope of Services
renderedPreference for destination-IndiaDifferent Models of
Outsourcing Potential of growth in the LPO IndustryImportant Indian
Government InitiativesIdentifying major Issues in dealing with
foreign clients in an LPO businessEnsuring data protection-Case
study-Mphasis BPO FraudPractical experience & suggestions
Presentation Plan
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What is Outsourcing?Outsourcing is the contracting out of a
company's non-core, non-revenue producing activities to
specialists. It differs from contracting in that outsourcing is a
strategic management tool that involves the restructuring of an
organization around what it does best its core competencies. Three
common types of outsourcing are Information Technology (IT)
outsourcing ,legal process outsourcing (LPO) and Business Process
Outsourcing (BPO). BPO includes outsourcing related to accounting,
human resources, benefits, payroll, and finance functions and
activities. All these activities fall under broad category of
Knowledge process outsourcing (KPO)
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What LPO means?LPO or Legal Process Outsourcing is a kind of
high value added BPO service involving legal work that industry
vendors or in-house departments of organizations outsource from
off-shore areas where it is costly to perform Services rendered may
involve low skilled quantitative tasks or high end qualitative
tasks
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Nature of Services High end The Qualitative tasks include:
Intellectual Property Rights Patent Search Patent Application
Drafting IPR Portfolio Management TM and Copyright Registration
Legal Research/Opinion work Document Review and Analysis
Intelligence Services Contracting and Administration Low endThe
Quantitative tasks include:
Paralegal Services
Legal Transcription Legal Memo Development Medical
Transcription
Document Management Corporate Secretarial Services
Litigation Support. Legal Coding Data entry
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Paralegal servicesImage and Document coding Indexing and Tagging
Legal transcription Archiving Deposition and Testimony
summarization Document/Evidence Review
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Spheres of lawLitigationArbitrationADRBanking
SecuritiesIPRMergers and acqReal estate TaxationGeneral business
lawsInsuranceCorporate consultancy
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Major International clients source of work The in-house legal
departments of MNCs Legal research firms International law firms
Legal publishing companies Independent attorneys
Work inflow is observed to be more from USA, Australia, U.K ,
France ,Japan, China
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Preference for destination -India?Experienced Legal
professionals Communication and education advantage-English
languageprofessionals skilled in use of ITPresence of IT
Infrastructure and Government facilitated schemes for ITES sector,
better telecommunication initiatives, power and transport
facilitiesExposure to foreign lawsForeign qualifications in legal
streamCost reductionAdvantage of time zoneEfficacy at workStaffing
24x7Supports regional assignments
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Preference for destination-IndiaLaws Governing International
Contracts "Proper Law of the Contract"When the parties in the
Contract make an express choice of law ,Indian Courts have always
recognized such choice of proper lawUnder Indian Law, parties are
free to stipulate their terms of contract and lay down the law by
which the Contract is to be governed. Courts in India have held
that the intention of parties would decide the law of which country
would govern the Contract and which Court would have jurisdiction.
Sections 13, 15 and 44A of the Indian Civil Procedure Code and
Section 41 of the Indian Evidence Act, govern the conclusiveness
and enforcement of foreign judgments in IndiaThe parties may also
choose a foreign venue for arbitration. A Foreign arbitral award
would be recognized in India if the country of venue has signed
either the New York or Geneva conventions and has been notified as
having reciprocal relations with India in the matter of enforcement
of foreign awards. A foreign arbitral award would generally be more
easily enforced in India than a foreign court judgment.
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Preference for destination-IndiaIndia has ratified the World
Trade Organization (WTO) Agreement, which came into force on
January 1st 1995 and has also become a party to the Agreement on
Trade Related Intellectual Property Rights. It has made several
amendments to its laws concerning Intellectual Property to suit the
international standards
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Models of International IT-Enabled Outsourcing
Out-tasking model: export a task and, upon completion, import it
for use in home country 7/24 model: maintain a continuous work
schedule by having teams in various time zones Foreign local
subsidiary model: outsource tasks in support of operations in that
country Global model: establish data and service center overseas to
support global operations
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Different Categories of LPO PlayersBPO/ITES Players Providing
LPO Services e.g Office tiger,Pangea3Law Firms Providing LPO
Services e.g Seth Associates, J sagar Associates,, Kocchar &
CoThird Party Units (Single-Focus LPO Excluding Patents Services)
e.g Lexadigm ,MindcrestThird Party Units (Single-Focus Patents
Services)- e.g EvalueserveKPO Players Providing LPO Services e.g
Evalueserve, IntegreonCaptives of Law Firms lex sphere, Atlas legal
researchCaptives of Corporate Legal Departments e.g GE, Dupont
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Survey Reports: predicting future of LPO business in India
According to a study by the United States-based Forester
Research, the current annual value (2004-05) of legal outsourcing
which is worth $80 million can rise up to $4 billion and can fetch
79,000 jobs in India by 2015.The National Association of Software
and Service Companies -- Nasscom -- also projected that legal
processing outsourcing (LPO) providers in India will soon rise to
$3-4 billion industry.
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Potential of growthValueNotes, a Pune based research firm
released a survey report Offshoring Legal Services to India
claiming Legal Process Outsourcing is expected to be a $640 million
by end of 2010 as against $146 nowNumber of people employed in this
sector will go up to 32, 000 from 7, 500 now, in next three
yearsThe frontrunners are leading due to their strong capabilities,
onshore offshore presence, growth strategies, and the strength of
their brand in the global LPO marketRising demand, vendor maturity
and capability to offer higher value services has led to the 50%
growth in this sector in 2005-06
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Important Indian Government InitiativesForeign Direct Investment
(FDI) for 100 percent of the equity in BPO companies -options to
foreign companies to engage independent service provider, branch
office, set up JV or wholly owned subsidiary, acquire exiting
companyForeign Investment Regulations Software development and BPO
services is now under the automatic route and no foreign investment
approvals are required to set up a wholly owned subsidiary; only
certain filings need to be made after receipt and issue of share
capital. However, acquisition of shares in an existing Indian
company may still require a prior foreign investment approval. Most
foreign corporations set up their subsidiaries as private limited
companies with liability limited by share capital. Duty-free
imports of capital goods (under the Export Promotion of Capital
Goods scheme)
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Important Indian Government Initiatives 100% Income tax
exemption for export of services: according to CBDT, the exemption
would embrace the following (few) services: Back-office Operations
Content Development or Animation Engineering & Design services
Human Resource Services Insurance Claim Processing Legal
Databases
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Important Indian Government Initiatives Promotions of STPs which
provide ready-to-plug IT and telecom infrastructure Indian tax laws
have recently included provisions relating to transfer pricing,
requiring pricing of transactions between associated enterprises to
be at arms length allows repatriation of profits, calculated in
accordance with approved accounting rules.
National Venture Fund for the Software and IT Industry with a
corpus of Rs. 100 crore
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Government Incentives in infrastructure segment The government
has been continuously improving infrastructure with better roads,
setting up technology parks, opening up telecom for enhanced
connectivity, providing uninterrupted power to augment growth.
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Tax Incentives-Infrastructure sector
The tax incentives offered to the investors by the Government of
India are a boon for firms involved in IT outsourcing to India. The
incentives that facilitate economic growth and development are: 1.
Infrastructure: A 10 years tax holiday to ventures engaged in
developing and / or maintaining and operating an infrastructure
facility.2. Power: 10 years tax holiday to undertakings, which
generate and / or distribute power.3. Telecom: 5 years tax holiday
for companies providing telecom services including Internet
services and broadband services. Also 30 % deduction from profits
for the next 5 years in any 10 continuous years out of first 10
years is also offered. 4. Industrial Parks and Special Economic
Zones10 years tax holiday is applicable to ventures that develop
and /or operate or maintain in notified IT parks and special
economic zones.
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Tax Incentives5. Other Industries:5-year tax holiday is
available for new industrial units to be set up in backward states
and districts. 6. Incentives for Exports:No Tax is deducted on
exporters profits for unit set up on EPZs, STPs, EHTPs, FTZ and
SEZs. 7. Other Incentives:Tax concessions are allowed for FTI and a
weighted deduction of 150% for scientific research and development
expenditure have been offered. 10 years tax holiday is available
for R&D companies engaged in scientific and industrial
research.
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Government Incentives in SEZIn India units are allowed to be set
up in SEZ for rendering of services as well. The units in the zone
are required to be a net foreign exchange earner.
The units in SEZ set up during the financial year 2005 will get
the following exemptions:100% exemption of profits and gains from
business for the first 5 years50% exemption of profits and gains
from business for the next first 5 years50% exemption to the extent
that such amount is reinvested in the SEZ Special Reserve
Account.Losses falling under the heads Profits and gains from
Business or profession and Income from Capital Gains can be carried
forward/ set off as long as such loss is related to the business of
the SEZ unitExemption from Central sales tax on inter-state sale or
purchase of goods
Facility to retain 100% exchange earnings in EEFC account. (
exchange earners foreign currency account) Exemption from Service
tax Export proceeds to be realized within 12 months
SEZ units may import or procure from the domestic sources, duty
free, all their requirements of capital goods, raw materials,
consumables, spares, packing materials, office equipment, DG sets
etc. for implementation of their project in the Zone without any
licence or specific approval.
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The Key issues-dealing with International clients in LPO
business Your Market presence How you introduce your organizationIT
& systems in place Understanding cultural differencesDue
diligence Establishing credibility,endorsement of valuesExhibit
experienceAddressing IPR & data protection issues Clear terms
of engagement Competence & Manpower Promptness & Quality
Control Payment arrangements
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Approaching
Introduce LPO
Discussing work possibilities Understanding Differences in
culture
Scrutiny Background Check EstablishingCredibilityIPR & Data
protection issues Steps in Dealing with an International Client
Agreement Competence Payment
Services & Quality
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The Six Fundamental Value
ParametersParentagePresencePeopleProductProfessionalPromise Global
leader more than 5 decades of customer loyalty & service
Continuous onsite and global support to handhold and troubleshoot
immediately Professionally qualified, hands-on industry experience,
specific domain expertise & proven delivery capabilities Most
user friendly, futuristic design, easy scalability, zero vendor
dependence, technology backing Continuous commitment, on-time
delivery, reliability, & flexibility Guaranteed success
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LPO Industry s prime challenges:
High attrition rates Unpredictability in regular flow of
workHigh cost of training and infrastructure investment Ensuring
information security and confidentiality especially under varying
privacy laws Abdication of responsibility Risk managementQuality
assurances
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Quality related accreditations International Standards
Organization (ISO) 9000 series Six Sigma CMMi Model (Capability
Maturity Model) SEI-CMM Model People Capability Maturity Model
(People-CMM) e Services Capability Model (eSCM)
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LPO Literature Printed/Online directory
Past Experience of The firmExperience of key personnel
Advertisement Website Media/press conferences Publications
References Giving/hosting Seminars Approaching a client
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Agenda for discussion with a foreign clientExchange of
GoalsCommitmentUnderstanding RelationshipAgreement
Earliest contacts should include a detailed exchange aimed at
achieving long term goalsA thorough understanding of the clients
business objectives in the context of political, economic and
social systems in the local jurisdictionAn understanding of how
different business practices, customs and etiquette can affect the
relationship between the firm and its foreign clientAn agreement
recording terms of engagement, issues-IPR, Data protection, tax
issuesTo avoid unverified assumptions and to address issues when
they arise.
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Working out detailed strategies & plansAppreciate Clients
goals Tune your Business objectives and strategy Risk Implications
of the clients position in the home market Domestic Market place
Safeguarding LPO Reputation in the local jurisdiction
confidentiality, security concernsAgree on policies and standards
for assignment management and client service Collect feedback on
client satisfaction
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Understanding common cross border differences Professional
precedence and deference Communications Holidays Adjusting to
inevitable time gaps
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Ready for Scrutiny
?TEAMINFRASTRUCTURECAPABILITYRELIABILITYSKILLSRELEVANT APPLICABLE
LAW
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What is indispensable to a Foreign Client? A trustworthy &
value adding partner - that ensures Quality & service
Reliability -that ensures success Values - that goes beyond words
Experience - that holds Client in good stead to make right
decisions
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What Clients look for? Expertise- that provide accuracy.
Infrastructure- that can ably support & value add to Customer
Quality- that assures you error-free and timely project delivery
Support - that ensures success
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Establishing credibilityFully skilled TeamStrong
infrastructurePrevious tasksCompleted TaskAppreciation from the
client
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Background Check on a New ClientConduct due diligence incase of
new client .Website checkPersonality analysis over phone
discussions Verify the identity of the company with the
corresponding Countrys embassy/government/country records Confirm
that the signatory is authorized to sign on behalf of the company
Verify that the company is legal and doing real business
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Collate detailed InformationFirms must maintain procedures and
obtain satisfactory evidence of identity for all new
clients.Confirm the Clients Identity
If the official name of the companyexists in the corporate
records of the state or region in which the contract needs to be
enforceable.
If the signatory signing on behalf of a legitimate company, is
listed as an authorized signatory of that company.
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Due diligence techniquesCheck The Client's Backgroundfind some
history about the company in the public corporate records
consultants who specialize in checking out company backgrounds
credit reporting companies (like Equifax) corporate credit and
information bureaus (like Dunn & Bradstreet) consolidated
information sources (like knowx.com) Identity procedures should not
be an end in themselves.
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CLIENT IDENTITY VERIFICATION
IdentityAddressIndividualBirth Certificate Record of home
visitPhoto driving license Council tax / rent demand Passport
Utility bill Photo card (Corgi / CIS) Inland revenue document
Government identity card Entry on electoral role Residence permit
State benefit entitlement Firearms certificate Paper driving
license
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CLIENT IDENTITY VERIFICATION
Persons Identity evidence Business or entityProprietorUtility
bill Bank signatories registration certificate Inland revenue
document Bank details Tax returns Business records Professional
registrations Personal visit
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Legal IssuesIssues relating to the ownership of intellectual
propertyLiability for failures, and limitation of liability The
right of termination-exit route Prohibition on hiring the others
employeesData Protection, confidentiality-contractually enforceable
,Art 21 of constitution, common law,fiduciary duty, breach of
trust-criminal offence both IPC and IT Act 15432
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Types of security related risksThree types of security related
risks: Theft of Data and Information Natural Disasters External
Acts like virusesThe National Association of Software Services
Companies or Nasscom is working with the government to ensure that
India's data privacy legislation is more in line with the U.S. It
also intends to have the security practices of all its 860 members
audited by international accounting firms. A cyber crime unit,
which NASSCOM initiated in Bombay's police department where
officers were trained to investigate data theft, is planned in nine
other cities.
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Create strong confidentiality protection regimesDedicated teams
to maintain strict security, info -access and staffing rulesSecure
transmission and storage of informationProcesses to be streamlined
only if need to know principle be adoptedNDA, adopt foreign data
protection principlesIP of projects belongs to clientClient
attorney priviledgeQuality assurance accrediation
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Data Protection-UK
The Data Protection Act 1998 came into force on 1 March 2000
Under the Data Protection Act, anyone processing personal
information must comply with eight principles of good information
handling. fairly and lawfully processed; processed for limited
purposes; adequate, relevant and not excessive; accurate and up to
date; not keptlonger than necessary; processed in accordance with
the individual's rights; secure; not transferred to countries
outside the European Economic area, unless there is adequate
protection.
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Legal Provisions dealing with data protection under the IT
Act,2000
IT Act, 2000 delineates both civil and criminal liabilities for
-cyber contraventions[S.43(a) to (h)] and cyber
offences[Ss.65-74]
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Legal Provisions dealing with data protection under the IT
Act,2000Sec 2(1)(o) of IT Act 2000 defines Data-A representation of
information, knowledge, facts, concepts or instructions which are
being prepared or have been prepared in a formalized manner, and is
intended to be processed, is being processed or has been processed
in a computer system or computer network, and may be in any form or
stored internally in the memory of the computer;
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Legal Provisions dealing with data protection under the IT
Act,2000Computer database[ S.43 Exp (ii)-A representation of
information, knowledge, facts, concepts or instructions in text,
image, audio, video that are being prepared or have been prepared
in a formalized manner or have been produced by a computer,
computer system or computer network and are intended for use in a
computer, computer system or computer network.
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Cyber ContraventionsDeals primarily in with unauthorized access
to computer, computer system or computer network.May result in
civil prosecutionLiable to pay for damages by way of compensation
not exceeding one crore rupees to the person so affected.
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Cyber OffencesDeals with computer, computer system, or computer
network related serious offences such as hacking (Section 66).May
result in criminal prosecutionIT Act, 2000 has identified offences
which are punishable with imprisonment or with fine or both.
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Computer Related Crimes under IPC and Special Laws*
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Case Study- BPO Data TheftThe recently reported case of a Bank
Fraud in Pune in which some ex employees of BPO arm of MPhasis Ltd
MsourcE, defrauded US Customers of Citi Bank to the tune of RS 1.5
crores has raised concerns of many kinds including the role of
"Data Protection".
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Case Study (contd.)The crime was obviously committed using
"Unauthorized Access" to the "Electronic Account Space" of the
customers. It is therefore firmly within the domain of "Cyber
Crimes". ITA-2000 is versatile enough to accommodate the aspects of
crime not covered by ITA-2000 but covered by other statutes since
any IPC offence committed with the use of "Electronic Documents"
can be considered as a crime with the use of a "Written Documents".
"Cheating", "Conspiracy", "Breach of Trust" etc are therefore
applicable in the above case in addition to section in ITA-2000.
Under ITA-2000 the offence is recognized both under Section 66 and
Section 43. Accordingly, the persons involved are liable for
imprisonment and fine as well as a liability to pay damage to the
victims to the maximum extent of Rs 1 crore per victim for which
the "Adjudication Process" can be invoked.
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Case Study (contd.)The BPO is liable for lack of security that
enabled the commission of the fraud as well as because of the
vicarious responsibility for the ex-employee's involvement. The
process of getting the PIN number was during the tenure of the
persons as "Employees" and hence the organization is responsible
for the crime. Some of the persons who have assisted others in the
commission of the crime even though they may not be directly
involved as beneficiaries will also be liable under Section 43 of
ITA-2000. Under Section 79 and Section 85 of ITA-2000, vicarious
responsibilities are indicated both for the BPO and the Bank on the
grounds of "Lack of Due Diligence". At the same time, if the crime
is investigated in India under ITA-2000, then the fact that the
Bank was not using digital signatures for authenticating the
customer instructions is a matter which would amount to gross
negligence on the part of the Bank. (However, in this particular
case since the victims appear to be US Citizens and the Bank itself
is US based, the crime may come under the jurisdiction of the US
courts and not Indian Courts).
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The Outsourcing cycle: Memorandum of Understanding (MOU)
Agreement Negotiations Outsourcing Agreement & engagement
letter Service Commencement Service Improvement Renewal or
termination
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Points to be addressed in the engagement letter Availability and
access Responsiveness. Working language(s) Status reports.
Delegation of legal work Communications with the foreign clients
home office and local subsidiaries. Communications with third
parties. Conflict and unfair competition issuesStaff sustitution
Billing Expenses and disbursements. Payment.Applicable law &
settlement of disputes
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IMPORTANT CONSIDERATIONS-Service Level AgreementQuality - The
client should be able to get out of the contract if he finds the
quality below par. Quantity- volume of work to be done in an
hour/day/week/month as per agreed. Confidentiality- assurance that
all the information and data would be not be disclosed to any third
party. Pay Cycle- how to remit professional fees Price Increases-
dependence of the client-ensure that for large, long-term projects,
once the vendors personnel have acquired experience on the client
projects, the vendor does not result in unreasonable price
increases or replacement of key employees
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Billing How often will fees be billed? How much detail does the
client require on the invoice? Billing practices vary considerably.
A foreign client who is used to itemized, detailed hourly billing
might take exception to the summary form of invoice that is
customary for the firms local clients.
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Billing ratesDepending upon the type of services being
delivered, the billing charges range from US$ 10 to 150. Mainly in
the industry, three kinds of standards are prevalent in terms of
charging the clients.One, the flat rate fee the clients have to pay
the fixed amount of charges for the entire months working. Second,
the packaged fee wherein the clients pay for buying the entire
package of services like patents prior art search would cost them
around US$ 900 for 12 hours. Third, on hourly basis. High-end jobs
would cost more than even US$ 100. The value for money has to be
given by keeping prices relatively reasonable.
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Billing ratesThe billing charges are as follows: Area Amount
(USD per hour) Telemarketing 5-12 Transaction Processing 10-14 Tech
Support (inbound) 11-12 Printing Support Services 15-25 Basic Back
Office 15-25 F&A 15-35 Document Management Services 30-50
Research & Analysis 40-90 Patent Drafting & Legal Research
150
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Per-transaction priceA norm in the US and the concept is fast
gaining popularity among top Indian firmsPTP for the uninitiated is
a form of pricing where a firm company is paid only on the basis of
completed transactions. The client pays a portion of the value that
he gains from outsourcing rather than a fixed cost based on the
number of seats or hours of effort that a service provider uses to
deliver the solution. This ensures that the client pays only for
the benefits that he derives and not for inefficiencies of the
service provider. Transaction-based pricing requires high degree of
domain specialization especially for high end work a firms
credibility and proven track record that today is not
widespread.
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Expenses and disbursements. The range of expenses and
disbursements that are accepted as reimbursable can vary
considerably from country to country.What is customary in one
jurisdiction might be viewed as bordering on dishonesty in another?
Unless reimbursement of expenses and disbursements is discussed and
agreed at the start, the firm should expect the foreign client to
challenge some of these charges.
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Payments provisionsAmounts to be paid-(i) Lump sum contract;
(ii) Time based contracts; (iii) Success fee based contract; (iv)
Percentage contract; (v) Indefinite delivery contract.
Schedule of payments-
Payment procedures, shall be indicated in the draft contract and
agreed upon during negotiations.
Payments may be made at regular intervals (as under time-based
contracts) or for agreed outputs (as under lump sum contracts).
Payments for advances if any should normally be backed by Bank
Guarantee. The limit for advance payment will be as prescribed by
GFR. Normally, it should not exceed 10% of the cost of the
contract.
Payments shall be made promptly in accordance with the contract
provisions.
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Three words of Caution-Payment It may be the custom in the
foreign clients country to age professional services invoices for
up to 90 to 120 days. A demand for payment within 30 days might be
viewed as distrusting and insulting to the clients integrity.
Law firms must also be very careful about attempting to charge
interest on accounts that are more than 30 days old. In some
countries, interest payments, especially to providers of trusted
professional services, are considered highly improper or even
immoral. Litigation to collect a fee is considered to be a breach
of professional ethics in some countries.Even though these
professional rules might not apply to a law firm outside the
clients home jurisdiction, even the suggestion of possible legal
action to collect a fee could be viewed as highly offensive by the
client, especially if the client feels that there are unresolved
service issues. CustomsLitigationInterest
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Key Performance Indicators (KPIs) Average Data Value (Sales and
Reservations Only) Customer Satisfaction Service Level Abandoned
Percent of DataCost Per DataErrors and Rework Forecast Work-load to
Actual Scheduled Staff to Actual Adherence to Schedule Average
Handling Time Reviewing strategies for increasing performance
levels
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Dealing with a complaint If the complaint is in writing,
acknowledge it immediately Tell your client who will be dealing
with the complaint, and what the likely timescale is for dealing
with it Keep your client informed of the complaints progress if it
is unlikely to be resolved quickly Note what the client expects
from the complaints process, and whether those expectations are
reasonable If your client asks for a meeting, try to arrange one as
soon as possible Open a complaint file, and keep a record of what
steps you take towards resolving the complaint Finally, remember
that speedy resolution of complaints helps to maintain client
goodwill, and is frequently the most cost-effective solution for
you.
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Thank You! Seth Associates, 2007 All Rights ReservedSETH
ASSOCIATES ADVOCATES AND LEGAL CONSULTANTSNew Delhi Law Office:
C-1/16, Daryaganj, New Delhi-110002, IndiaTel:+91 (11) 55352272,
+91 9868119137Corporate Law Office: B-10, Sector 40, NOIDA-201301,
N.C.R ,IndiaTel: +91 (120) 4352846, +91 9810155766Fax: +91 (120)
4331304E-mail: [email protected]