This is a live post form the International Legal Technology Association (ILTA) 2010 Conference. Session: “Outsourcing: Safety First”. Speakers: David Stanton, Partner, Pillsbury; Nathan Hayes, VP Technology & Infrastructure Services, Integreon. For additional session reports, see Twitter hashtag #ILTA10. This session is also Tweeted with the hash tag #INFO7.  

Agenda: what can law firms outsource, outsourcing issues and risks, outsourcing alternatives, and “safe outsourcing”.

WHAT LAW FIRMS CAN OUTSOURCE: Chart shows penetration curve of outsourcing across IT, banks, law firms, and law departments. IT started in 1990s, banks around 2000, law firms around 2004, corporate law departments a bit later. Segment outsourcing into “Legal Support” and “Middle Office”. Latter includes all the support services for lawyers and law firms; former helps lawyers directly in their practice. Document review is probably the most prominent example of an outsourced legal support service. Increasingly, Stanton says market is seeing more and more outsourcing of contract support services such as review; also legal research, due diligence.

Middle Office services inclcude document services, library/KM, business development support, CRM DB management, finance and accounting, procurement management, IT services, and HR administration. Hayes says law firms are particularly interested in library outsourcing because many feel they do not have adequate scale to offer internally. Law firms face cost / profit pressure that is forcing them to look at middle office outsourcing. “Law firms need to run as businesses – this is a new idea.” Middle office outsourcing allows lawyers to focus on practice rather than running firm.

Outsourcing Examples:
1. CRM database management: systems development, user support, report and analyze, data cleansing. Stanton emphasizes the importance of good CRM to law firm business development. In many law firms, ownership of CRM is not always clearly defined. The opportunity with outsourcing is to fix this problem. This is easier than cajoling multiple lawyers and staff to work on CRM.
2. IT Services: consulting and planning, governance, programs and projects, held desk, training.
3. Document Review in litigation: sample work flow diagram. Not clear that law firms, when they do doc review internally, how quality and process is defined and assured. With credible outsourcer, process is better defined with clear QC metrics. Law firm partners assume that associates do good job on doc review but TREC and other studies show that without a lot training, process control, and metrics, associate doc review is “horrible.” More rigor is required for doc review and outsourcing can achieve this. With a more controlled and documented process, productions are more defensible. Need to approach doc review in more business-like manner.

OUTSOURCING ISSUES AND RISKS. Lawyers have long delegated work to more junior lawyers and to staff. Lawyers ability to supervise is not that different based on location. As distance grows, however, supervision needs to be more formalized and tracked. Delegation outside the firm is not that different than delegation inside – it just needs a more formal process and rigor.

Issues include defining support lawyers need, appropriate supervision, which functions are strategically core, and whether the support model should be inhouse v outsourced, central or de-centralized, and onsite or offsite.

General outsourcing risks include loss of control or knowledge. In dealing with any vendor relationship, firms need to make sure provider is financially stable. Operationally, firms have to make careful transition plans if they outsource.

Additional considerations: location, shared v dedicated delivery, vendor selection, service level agreements (SLA), metrics and reporting, ramp-up time, business continuity, and regulatory compliance. Many firms are not accustomed to SLAs, so moving to outsourcing means that a firm has to develop these – this can add to ramp-up time.

Start with a reality check. Outsourcers are measured against a theoretic standard rather than in comparison to how law firms actually perform today. Many firms don’t measure performance – other than financial – so have not basis of comparison. For example, many firms don’t have a measure of how often errors occur. Are costs reasonable now? With outsourcing? Where does management focus: on keeping trains on time or or strategy. What is sacred cow and how does that fit with professional management, whether outsourcing or upgrading internal firm services? You have to answer these questions before you can consider outsourcing.

Third Party v Captive. Examples of firms doing 3rd party and captives. About same number of each. Pros and cons of captive versus outsourced versus “build, operate, transfer” model.

Additional Issues with Alternatives: outsourcing does not equal offshore. Internal expectations versus formal provider SLA. Investment capabilities. Economies of scale and repitition. Ability to scale up or down.

Contracting is key. Need a master service agreement (MSA) with service level agreements (SLA). Need reporting to monitor delivery and compliance with SLAs.
Firms also have to consider insurance – what is the coverage, does the firm need a rider, and what are the risk management issues?
Protecting client information. To answer this, firms must assess whether their existing systems are robust.
What are the security measures, encryption, access controls, policies, etc.
Governance – set up a strong governance model

Will law firms embrace or resist outsourcing? Market will decide but seems like pressures will lead to more embracing and less resisting.