Live from the ACI Legal Process Outsourcing conference in NYC. Session (9:45am): Panel Discussion: First Hand Experiences on Making the Business Case for Outsourcing Offshore – Qualifying the Viability and Benefits to Overcome Stakeholder Resistance. Moderator: Jonathan Goldstein of Pangea3; Donna Webber, Chief Counsel, CIT Capital Markets; Shannon Copeland, Practice Group Manager, Kilpatrick Stockton LLP; (2 scheduled panelists not present; bold comments reflect what I found most interesting) 

What is your internal situation?
– Three years ago, firm hired former consultants to help manage the law firm business. This is new move in the southeast. In Fall of 2005, one of our first projects was legal outsourciing. It was obviously coming. There are 4 MBA types in our firm; we look for business opportunities and advocate for change. Lawyers are skeptical but our clients are addressing that head on. My group keeps the pressure up in our firm.
We do use contract lawyers which we pay $80 to $90 and we bill at $150. We can get $30/hour in India with better quality.
– Our experiments internally are still too small to have material impact on our lawyers. Some of our experiments – via LPO vendors – include offshore work for Home Depot and GE. We compared results of equivalent briefs written in our office and in India – the briefs from India always came back better. [Update, 1/31/08 – Mr. Copeland clarified this point in an e-mail message: “Kilpatrick Stockton’s experiments, especially with higher level litigation work in India are nascent. KS sent a single previously written brief assignment to India and the results were much better than expected. Further exploration has therefore been encouraged by our partners and our clients.”]

– We are up to $100k in fees to offshore providers so far.

– Law department headcount was frozen but we had new tasks we had to do. So outsourcing was natural to evaluate. But American lawyers are innately skeptical of lawyers elsewhere to do the work. When we first approached offshoring, we were skeptical. When we saw quality, we were relieved.
– Given the offshore savings, making the decision was easy.

What types of work are going offshore?
Webber: All of our NDA for deals are drafted and/or reviewed by offshore lawyers. We found that inhouse counsel spent inordinate amount of time doing this. WE developed extensive guidelines on provisions to include and how much we were willing to bend. We provided this detailed guidance to offshore lawyers. So far, our business clients are very happy. The other offshore project is to conduct surveillance of e-mail. They sort out junk from 500 to 600 e-mails a day so that fewer need review inhouse.
Copeland: environmental research, mortgage backed securities document prep, due diligence for global construction projects.

How did you screen and select vendors?
Copeland: Two of my peers came from Accenture offshore arm. We had a lot of sophistication. We signed MSAs with two vendors. We demanded a variety of certifications and security. We got very good results from our LPO. We want to deal with LPOs who can talk very specifically about their work and experience. We looked at the 2 vendors who came knocking on our door. We started using ValueNotes in summer of 2005; we used that report to identify top vendors.
Webber: We went with first vendor we contacted; it came highly recommended to us. We felt strongly that people running the LPO had a very good understanding of American client demands and law. I find formal RFPs less useful than client references. I feely share my experience with peer inhouse counsel.

How do you measure success of LPO work?
Copeland: We provide services now, at a cost that client demands, that we could not do without offshore resources. We look very innovative to our clients.
Webber: The value for us is the time freed up for inhouse lawyers to do higher value work. This helps reduce outside counsel fees and keeps our lawyers happier. We avoided a new hire by using LPO services. We also so spot quality checks and are happy with what we found. We did this much more in first 6 months; now we are comfortable with quality so we do less. Need to recognize that lawyers are not good at formal, quantitative metrics.

What are your views on build versus buy (captive versus vendor)?
Copeland: We considered building early in our evaluation process. We knew how from Accenture experience. But seeing many providers, build did not make sense. Were work to grow to $1mil or $2mil, we might re-visit build v. buy decision.

What factors do new vendors pitch that are NOT relevant?
Webber: I have not been pitched very much, mainly because I’m not the obvious target in my organization
Copeland: We don’t have formal pitches we get. Vendors should be specific.

Were concerns of key stakeholders well-founded?
Webber: Inhouse clients were skeptical because on the NDA project, they were used to talking to business unit lawyer. But resistance was easy to overcome. Moving to e-mail was an easy transition. In the end, the quality and service level is better from India than from local business unit lawyer.
Copeland: Ethics, security, and quality were initial concerns. Bar association opinions allayed ethics concerns. We have examined mark-ups (upcharges) for offshore lawyers. We bill Indian lawyers at $70/hour when we pay $30 or $40/hour. It took effort to overcome upcharge hurdle but we have costs to cover. We disclose to our client use of offshore lawyers and what our upcharge is. We are focused on making this an innovation initiative.

What work cannot go offshore? How do you decide what to offshore?
Copeland: Not sure what the limit is. We may have to do more training. But our senior partners say judgment cannot be offshored. But we think we can push a lot of issue identification offshore. Our clients don’t want directly to manage LPOs. We go back to skeptics repeatedly with success stories.
Webber: Where knowledge of business is critical, we cannot move work offshore. But that is work we cannot easily send to outside counsel in US either. Also, some issues require immediate action – this can be impossible to offshore, especially for delicate issues where we are the trusted adviser. We did go directly to LPO. We use traditional big, NYC law firms. I don’t see them offering offshore services the way Kilpatrick is doing. I would be very receptive to a firm that offered to use offshore service.

How do you manage LPO projects?
Webber: Each project has an inhouse primary contact. If any issues come up, inhouse contact raises with vendor.
Copeland: We are no more sophisticated managing vendors than other AmLaw 100 firm. We haven’t done anything with Pangea3 other than vetting agreements and informing clients. Lawyers still manage the vendors.

How important are state-side lawyers in choosing an LPO?
Webber: Very important for us. Critical in our decision.
Copeland: Critical for us to. But video with Mumbai is very easy. And our lawyers find service from India is very good.

– What is impact of fixed fees on offshoring? Webber: CIT does not demand fixed fee work generally; sometimes on a matter basis. Copeland: Absolutely, fixed fees would push us to more offshoring.

Update, 1/31/08: embedded in text above