GC: General Counsel, General Contractor, or Both?
Incisive Legal Intelligence (formerly ALM Research) recently released a legal outsourcing study. I thought The Law Deparment Legal Outsourcing Study, 2008 would quantify the rapid growth of legal process outsourcing (LPO).
In fact, it focuses exclusively on law departments outsourcing legal work to law firms. Incisive found that general counsels (GC) outsourced 40% of legal spend in 2008, down from 46% in 2007. The study does not quantify other law department outsourcing such as e-discovery.
With GCs outsourcing almost half of legal work, why do some seem nervous about legal process outsourcing? Many lawyers conflate “outsource” with “offshore”. Offshore is a fine option but several reputable LPOs offer onshore service as well. Perhaps GC misgivings are more about the type of resource than the location. Other than inertia, it’s hard to understand GC reluctance to expand the already broad scope of law department outsourcing by deploying more LPO services.
Law departments can reduce costs by explicitly acting as general contractors to solve company legal problems. Like any GC (general contractor that is, not general counsel), a law department should consider what resources it employs full time and what it sub-contracts. With this mindset, law departments would select a broader range of resources that better meet corporate objectives. As I explained in my post The Right Resources to Solve Legal Problems (May 2008), law departments should think about the complexity and volume of work in a 2-by-2 grid and choose the most appropriate resource.
Delegating resource selection decisions to law firms means missing out on cost savings. Aside from the usual economic conflicts inherent in an hourly billing and cost pass-through system, GCs likely have more bargaining power than their firms. Law department management consultant Rees Morrison notes in Three reasons why legal departments are better positioned to negotiate arrangements with suppliers (15 April 2009) that
(1) GC have more bargaining power than law firms,
(2) GC are more motivated than firms to save money, and
(3) GC can provide better direction to sub-contractors than can firms.
Morrison’s blog post further supports the idea of GC = “general contractor” as well as “general counsel.”
A general contractor approach to meeting corporate legal needs is one of the easiest and least painful way to get more bang for the buck.
[This post adapted from a similar entry I wrote for the Integreon KPO and LPO blog.]
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