Engaging Third Parties

Firms often engage third parties in relation to matters they handle. These can range from private investigators to engineers, loss adjusters, doctors and accountants.

It must be realised that without a proper process to manage the third parties engaged, the firm may significantly increase its risk exposure.

Selection
First and foremost, the firm needs to clearly set down the criteria for selecting and approving third parties that are engaged by the firm. Where appropriate, the criteria should include the need for the third parties to hold an appropriate level of professional indemnity cover.

Firms should maintain a register of third parties that it instructs, as well as a register of third parties that the firm has decided not to use.

There must be a person responsible for maintaining the register and no third party should be added or deleted from that register without following a defined process agreed upon by senior management. The register should also be regularly reviewed.

Instructions
There should be clear procedures for instructing third parties and all fee earners should be aware of these procedures.

All instructions to third parties should be confirmed in writing. The written instructions should include:

• the extent of the retainer, time scales, deadlines and expected cost;
• whenever possible, a cap as to the cost involved;
• clarity as to what the firm will provide to the third party; and
• clarity as to what the client will provide to the third party.

Firms should take special care with respect to the selection of third parties in sensitive cases.

Client's Agreement
The client should be kept informed, before the third party is engaged, with respect to:

• the name of the professional third party engaged;
• the scope of service to be provided;
• the nature of service to be provided;
• the cost that will be incurred and the client's liability for that cost;
• possible limitations in respect of the advice sought; and
• a disclaimer of liability by the firm in respect of the third party's advice.

Completion
The fee earner responsible should ensure that the advice given by the third party complies with the instructions given. The fee earner should report any variation or problems encountered to his supervisor or the partner in charge. This will be critical where the third party fails to comply with the firm's requirements.

Where the third party fails to comply with the firm's requirements, a note should be made on the firm's register of third parties. Following which, senior management will have to make a decision as to whether this third party ought to be used again in future.

Where a third party is used for the first time, their performance should be evaluated with comments recorded on the register. The firm should regularly review their performance and service standards, even where third parties are often used.

Effective management of services provided by third parties is an essential part of a firm's risk management.

Stanley Jeremiah
Goodwins Law Corporation