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5 Things to Consider During the Class Action Settlement Administration Bid Process

Asking these questions before finalizing your settlement agreement and filing for preliminary approval could save you time and money in the end, and they will help provide an apples-to-apples comparison between bids.

The bid process to find a class action settlement administrator doesn’t need to be frustrating. There are several steps you can take, and questions you can ask, that will lead you to an apples-to-apples comparison among administrators and their pricing. Asking the right questions early means not having to go back to each administrator repeatedly to ask for revised bids while you are working under tight timelines.

The steps of the bid process are even more important if you’re filing in the Northern District of California. The Procedural Guidance for Class Action Settlements, which are in fact requirements, mandate the Court’s increased examination of settlement administrators, during the selection process, at the final approval hearing, and in the post-distribution accounting. The court requires transparency at preliminary approval by asking counsel to explain the proposal process and how competitive it was. They also want insight into specifics such as how many administrators submitted proposals, what types of notice and administration programs were proposed, and lead class counsel’s firms’ history of engagements with the settlement administrator over the last two years. By requiring this, the Northern District is hoping to ensure a transparent process in which the class is protected by a sound notice and administration plan. Be prepared to include this information in your motion for preliminary approval.

So, what questions can you ask administrators up front to achieve an informed and hassle-free bid process?

  • Do the administrators have an in-house, qualified, notice expert?

If you’re handling a high-profile case, it’s important to make sure the administrator you’re considering has a notice expert with vast experience successfully defending notice plans, testifying, and providing an expert opinion. Notice is a very easy target for objectors and having the right person defend your plan could be crucial in getting final approval. You will want to also find out if an administrator’s notice expert ever had a notice plan rejected by a trial court at final approval or by an appellate court.

  • What other services are offered in-house?

Are there any processes that are outsourced? If services such as contact center or IT are outsourced, it could impact not only the bid bottom line but also data security. In-house services create efficiencies not only in processes but also with communication and tight timelines.

  • Don’t be afraid to ask for a new bid if assumptions change.

To truly get an apples-to-apples bid comparison, it’s important to provide all bidders with the same case assumptions. Typically, proposals for settlement administration services are prepared prior to finalizing the settlement agreement. However, once a settlement is reached there is the potential for assumptions or facts to change.

Understandably, questions will arise at the end of the administration process if the cost of the administration has increased considerably over the original proposal. It’s important to keep an open line of communication with administrators about changing assumptions and facts. Changes to key assumptions and facts, such as class size, claim rates, call volume, deficiency audit processes and even the number of pages for the notice package, can significantly impact costs. Don’t be afraid to go back to administrators prior to accepting a proposal with new assumptions and request new bids. Doing so may avoid unpleasant surprises down the road.

  • Is the relief taxable?

It’s important to think about whether your settlement’s benefits are taxable when you’re drafting your settlement agreement. This could potentially increase the cost of the administration and create a taxable event for class members. For instance, if W-9 forms need to be mailed or if the administrator needs to send 1099’s to class members. Settlement administrators can answer these questions up front and include this pricing in the bid process, especially if they have easy access to affiliated tax services.

  • Is the pricing realistic?

If you’ve received proposals that are based upon the same assumptions but are wildly different in price, it’s time to dig deeper. Ask your potential administrators if there are caps on pricing, or if there are services that will be charged at a higher rate later. Beware of the proposals that look inexpensive up front, perhaps due to unrealistically low assumptions, but use language that leaves the door open for cost surprises in the end. Make sure to read the fine print.

The more complete the information you provide potential settlement administrators at the outset, the more meaningful and realistic proposals at the end. Engaging in the bid process prior to finalizing the settlement agreement could alleviate frustrations down the road by identifying problems before they occur, offering a fair chance for comprehensive proposals, and avoid the risk of return trips to the court with amended agreements.

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David Kaufman
David (“Dave”) Kaufman has spent his entire career in the legal field, consulting with clients to develop class action settlement solutions in the securities, antitrust, consumer, mass tort, employment and insurance practice areas. Drawing from his 15 years experience, Dave specializes in pre-settlement consultation, enabling clients to better identify their needs to more efficiently and cost-effectively execute settlements.


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