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Class Action Perspectives

Selecting a Settlement Administrator: A Guide to a Successful Partnership

Recent years have witnessed dramatic increases in class action lawsuits filed, with over 45% more filings in 2008 than 2004; correspondingly, they have witnessed dramatic increases in the number of class action settlement administrators available to assist the parties in carrying out these settlements.¹ Many of these administrators are capable of successfully handling settlements; several can administer even the largest settlements.

However, the availability of options should not prevent the parties to class action lawsuits from carefully considering their choice of administrator for any particular settlement. Neither all settlements nor all administrators are the same, and a poor match can have disastrous results for the class, the parties, and the administrator.

When selecting an administrator, the parties should first ensure class member data will be handled securely; then, they ought to consider criteria such as the administrator’s core services and relevant experience, project teams’ expertise and relevant experience, and their responses to settlement-specific needs addressed in requests for proposal.

Data Security

In the digital age, data security is not a “nice-to-have,” but a “must-have.” As business has increasingly moved from paper to online, the risk to consumers’ personal identifying information has increased as well. Once virtually unknown, data breaches have become commonplace. Whether in the form of a misplaced company computer or a hacker stealing personal information, data breaches are in the news almost daily. 

Legislation in the past decade has addressed the issue of personal information numerous times, sometimes aimed at particular industries, other times at public companies across industries, and still other times at governmental entities.

The data an administrator will handle for any particular settlement may be relatively benign, such as name and address only. But in securities, insurance, or labor and employment settlements, the sharing of very sensitive personal and financial information may be necessary in carrying out the administration of the settlement.

Prior to selecting an administrator, confirm the measures it will take to protect data. There are various certifications and auditing standards with which a competent administrator should be able to demonstrate compliance. Some examples, depending on the area of business represented by the settlement at hand and the administrator’s own corporate structure as a publicly held or privately owned firm, may include Sarbanes Oxley, the Federal Information Security and Management Act (“FISMA”), HIPAA, or audits such as SAS70.

Regardless of which party is responsible for selecting the administrator, to avoid mistakes or delays later in the process, include the defendant company’s compliance personnel in the data security requirements discussion to ensure that the administrator selected can meet that company’s needs.

Firms' Services and Relevant Experience

When it comes to settlement administration tasks, most administrators eventually get to the same place, but they take different paths to get there—with different strengths, risk points, and costs along the way. We encourage the parties to consider the key functions of each settlement and ensure they are comfortable with the administrator’s approach to providing services.

One factor to consider is by whom administrative work will be performed: will it be handled by the administrator, or outsourced to another vendor? There is no inherent problem with outsourcing work. However, outsourcing does raise a series of additional issues to consider. 

• How does the administrator maintain control over the vendor’s work product? In any class action settlement, the terms of the settlement must be carried out with the utmost attention to detail, according to strict timelines, and in a secure environment. Whoever is responsible for carrying out the tasks must understand the importance of the work as part of a court-ordered settlement.
   
• Will the vendor complicate the parties’ oversight of the administration process and communications? A streamlined communications approach with the administrator taking ownership of all outsourced work enables the parties to focus on their work rather than navigate a maze of contact lists to identify the appropriate person. 
  
   
• Where will the work be done? For certain work, outsourcing –particularly offshore—can be problematic or even illegal.

A solid understanding of an administrator’s service offerings, both internal and outsourced, helps the parties avoid inconveniences and disruptions later. An administrator should be willing and able to provide examples of how it has accomplished work of a similar manner and scope in the past, in addition to detailing the vetting process for its vendors, the length of the relationship, and the security requirements for data exchange.

Project Teams’ Expertise and Relevant Experience

As important as an administrator firm’s expertise and relevant experience are the expertise and relevant experience of the specific project team to which a settlement will be assigned. The parties should feel comfortable with the personnel with whom they must work throughout the life of the settlement.

Ask how the administrator will handle the management of a settlement. Will responsibility be shifted from person to person as the settlement moves from phase to phase, or will it have a single owner? As discussed regarding outsourced work, will there be “too many cooks” as the administrator conducts its business, with multiple owners? Or will a single contact with the administrator speak for and own each task?

Particularly when requesting proposals to administer large settlements, ask for details regarding the project team members who will be assigned to the project. An administrator should be prepared to explain its project management methodology and to provide examples of the relevant experience of project team leaders.

Requests for Proposal and Follow-Up

Lastly, ensure that the request for proposal process is truly relevant to the settlement at hand. The parties should consider both those aspects listed in this paper and others that are important to the settlement’s successful administration and write them into the request for proposal (“RFP”), seeking specific answers in writing before any decisions are made on an administrator.

Once proposals are received, review more than just the bottom line. Compare the responses and pricing estimates carefully, ensuring as much as possible that the comparison is “apples to apples.” For example, if the mailed notice costs proposed by Administrator A vary significantly from those proposed by Administrators B and C, compare the specifics (or ask questions if the proposals do not include specifics). Is postage included? Are the estimates based on the same quantities?  Will additional costs not listed in the transactional rates be incurred through time and materials?

Proposing different services altogether can be a significant differentiator between firms’ proposals on the same project. Administrators may include or omit cost estimates for services such as consultation, deficient claims processing, payment reissues, or any other under-the-radar aspect of settlement administration. If different services have been proposed, identify those that are essential to the administration of the settlement and ask all administrators to provide estimates on those alone. 

Such careful examination and comparison of proposals assembled by various administrators—coupled with the task of following up on them—can be a time-consuming exercise for the parties. Including specific requests as a part of the initial RFP is one way to ensure that the parties can more easily and accurately compare potential administrators’ cost estimates.

Summary

There is more to settlement administration than the printing and mailing of notices and checks; a quality administrator provides not only accurate and cost-efficient transactions—notification, in- or outbound calls, claims processing, fund distribution—but consultative input and managerial expertise. Missteps in the administration of a settlement can cost time, money, and even the approval of the settlement itself.

With so much at stake, the parties to a settlement would be well-advised to consider carefully their administrators for each settlement, taking into account each administrator’s data security, core competencies and experience, the assigned project team’s expertise and experience, and responses to key aspects of the RFP and follow-up questions. The resulting good match of administrator to settlement benefits the administrator, the parties, and the class.

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By James Parks, Senior Vice President, November 2009