The Future Of Legal Outsourcing
The Future Of Legal Outsourcing: What Every Law Firm And Corporate Legal Department Needs To Know. That’s the topic of a panel discussion at the ALM Outsourcing Conference 515pm session.
[This blog post comes to you live from the ALM-sponsored Legal Industry Outsourcing Forum (May 23, 2007, NYC). Notes and comments are real time with minimal editing and posted as a session ends. I am taking notes in Microsoft OneNote, so use the outlining format.
This is the last post of the day. Hope that readers find this helpful. I realize the format is not great but that’s a price for being real time]
– Jason Brennan, VP, Legal Services, OfficeTiger
– John Croft, President, Global Sales and Marketing, Integreon
– Bradford W. Hildebrandt, Chairman/Founder, Hildebrandt International
– Peter S. Pantaleo, Partner, DLA Piper US LLP
1. Where is LPO going?
a. John Croft
i. Trend is unstoppable. Support is easier to understand. At Integreon, the LPO part has huge momentum. For example, at a top five UK firm…. The litigation partner at the law firm talked to his COO about a huge litigation matter for a long-standing client. He said I am competing for this client’s work in the open market. I have heard about offshore document review. While we could do this internally, I need to add value for this client. Our value is to win the case, we can let someone else do the document review. This is a firm that had not outsourced document review that is now doing so.
b. Jason Brennan
i. Firms are focusing on boosting revenue and reducing cost. They are thinking about new services to clients, enabling lawyers to work on higher value work
c. Brad Hildebrandt
i. The corporate law department is more apt to outsource substantive legal work. They look to their own corporations and Wall Street and are comfortable. Law firms are less likely to rush to outsource. The back offices of law firms are not as big a relative cost as they are for corporations. Not clear that law firms want to hassle with transition for savings. On the other hand, costs _are_ going up faster than revenues, so there are some pressures.
d. Peter Pantaleo
i. I founded an outsourcing company (CBF) five years ago that Integreon purchased. I am no longer involved. I am managing partner of NYC office and I am on executive committee. Law firms do not think that outsourcing their primary way of making a living is a good idea. There are 130,000 lawyers in NLJ 250. That is 200 millions hours that they have to bill. Billing them in Bangalore does not help them.
ii. That said, DuPont and GE, known as efficient consumers of legal services, can move commodity work offshore. Firms like mine do not need to intermediate this for them. But the first time a GE or DuPont vendor makes a discovery mistake a la Morgan Stanley, they will pull back.
iii. It makes more sense for law firms to focus on expense reduction. Law firms manage the back office very poorly. Firms today outsource backoffice work to Merrill or Bowne or others because they do not want headache of managing the functions. If you look at secretaries, they cost $90k/year. It costs my firm about $50/hour for each secretary. We need to make them more productive. Use outsourcing to rationalize that expense. It was hard at DLA to make the transition to moving work to CBF in Fargo.
iv. There is no viable business model for law firms to outsource legal work.
2. If outsourcers move up the value chain via law departments, will firms and vendors clash?
a. Brad – Law firms are turning work away now as it is. Firms should work with clients to figure out what work to send offshore. Points out the moderator firm Milbank is recruiting lawyers in Sydney. Firms have more work that they can handle
b. Jason – Firms are already using contract lawyers extensively.
c. Peter – It does not take a big percent of the market for outsourcers to thrive. We use contract lawyers on document reviews. Privilege and responsiveness review _should_ go to India.
d. John – it may not make sense to outsource every matter, but document review is ideal task to offshore. Young lawyers do not want to do this work anyone.
3. Will mid-tier but still high quality firms face different pressures? The very top firms may be able to avoid offshoring, but can smaller firms outside of major cities? Will firms band together for share services?
a. John- Orrick is stand alone example. Brad – other firms will not buy from Wheeling center run by Orrick
b. Brad – in event of legal market down turn, offshore work will be pulled back
4. Peter – clients spend huge sums on document review. It’s possible that this will go away in five years via technology. Within five years, we will be able to automate document review. This will eliminate a lot of commodity lawyer work.
a. We cannot increase productivity (utilization) much more – lawyers cannot bill more hours
b. We cannot increase rates that much more – we are reaching the limit
c. We cannot improve realization when we ask associates to work like maniacs
d. Increasing leverage is hard absent UK model of making lawyers retire at 55
e. The only lever is expenses – outsourcing can move it.
i. DLA has 36 conflicts clerks in the US. It still takes a week to open a matter. We can do better on leveraging this type of expense down.
ii. LPO talk may matter to clients but it’s not to law firms
iii. We retain Brad and he tells us every year to cut our expenses
5. Brad – In corporations, the internal clients want to see their lawyers. With SOX, they are risk averse and want lawyers nearby
6. What will be different in one year? In five years?
a. John – more of the same. Law firm support service is a big growth area as is corporate GC use of offshore lawyers
b. Brad – law firms will continue to seek ways to control expenses, onshore and offshore. Substantive work is not going to move
c. Peter – clients will beat us up on costs. We will see stratified law firms. Selling to law firms takes forever. COOs never get fired for saying no. This will slow down expense control
d. Jason – in one year, there will be aggressive offshoring but it will swing back five years out
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