Across the Sea: Outsourcing and Offshoring

Across the Sea: Outsourcing and Offshoring

Once the legal profession accepted the concept of engaging contract attorneys to handle some of the more routine and repetitive tasks of law practice, outsourcing and offshoring could not be far behind. Outsourcing is the practice of paying a third-party vendor to do some aspects of your firm’s work, while offshoring is establishing your own office overseas to handle such work. With technological tools such as email, online legal research, remote document retrieval, secure extranets, and the like, it makes little difference whether the lawyers are on another floor in the same building, in another city, another state, or halfway around the world. In fact, the time differences between the US and popular outsourcing locations in Asia could be used to an advantage: assignments could be sent by a lawyer in the US just before leaving the office for the evening, and the completed work could be available the next morning. Corporate legal departments have increasingly embraced outsourcing and offshoring as an efficient way to cut legal costs. They will expect their outside counsel to work faster and cheaper through outsourcing, as well, and pass those savings back to their clients.

Overseas outsourcing of work by law firms began with back office functions, word processing and proofreading, and gradually moved towards paralegal and lower level legal work. A study by Forrester Research estimates that 1% of work traditionally done by US lawyers will be offshored in 2005, and 8% of such work will be done overseas by 2015. Thus far, most outsourced legal work has been relatively uncomplicated and repetitive, such as legal research and memo writing, document review, patent and trademark filing documentation, and litigation support such as scanning, coding, indexing and abstracting. Recently, some more sophisticated work, such as making determinations regarding responsiveness of the documents and privilege, drafting pleadings and briefs, conducting due diligence, document and contract drafting, and some simple negotiation has been outsourced, as well.

US-based legal professionals, particularly paralegals, will be adversely affected. According to the Forrester study, 18% of the work previously handled by paralegals and legal assistants will be outsourced by 2015. While there are some aspects of a lawyer’s practice that probably never could be outsourced, such as depositions and trials and high level corporate transactions which require face-to-face contact, offshoring will affect the traditional pyramid law firm structure. The lower level legal work that is prime fodder for outsourcing is just the sort of work that, traditionally, is given to new associates to learn the practice. This might mean that there will be less of a demand for junior associates in the foreseeable future, and that other methods for training them will need to be devised.

Currently, much of the offshore legal work is going to vendors in India. Several different business models are emerging. Some such organizations use Indian lawyers exclusively, others use a mix of lawyers and trained professionals. Other vendors specialize in intellectual property work and hire lawyers and Ph.D.’s with scientific and technical backgrounds. Several US law firms and corporations “offshore” their work by opening their own offices staffed by Indian employees rather than outsourcing it to a third-party vendor. India is especially attractive as an outsourcing and offshoring location because of the availability of highly trained legal and technical personnel with excellent English language skills at significantly reduced salaries. Other countries vying for outsourced work are New Zealand, Sri Lanka, and South Korea. New Zealand is particularly appealing for outsourcing intellectual property work as its patent rules are similar to those of the United States. Professionals in the outsourcing field are looking towards China as another major provider of inexpensive professionals.

Outsourcing dramatically reduces costs—up to 80% for litigation support. It is especially attractive to small firms or solo practitioners as it allows the flexibility to take on more and larger matters without the salary and overhead expenses of adding lawyers to their staffs. Outsource vendors charge an hourly or project rates. Hourly rates for work not performed by an attorney can start as low as $12, with more sophisticated work billed at $60-$80 per lawyer hour. Compared to the billing rates of most American lawyers of several hundred dollars per hour, the cost savings are enormous.

Critics of outsourcing cite problems with client confidentiality, quality control, and the unauthorized practice of law. Proponents counter that those concerns are manageable. Great care is taken to protect the information that is transmitted to the outsourcing vendor through the use of secure extranets, sometimes blocking out names or sensitive information, plus stringent employee monitoring and security measures at the outsourcing location. Quality control and the issue of the unauthorized practice of law are handled by having US attorneys interview, hire, and supervise the overseas lawyers, and review the completed work before signing off on it. Thus, the US attorneys assume responsibility for the legal work and do not violate ethical guidelines. Still, some law firms and companies are reluctant to send work overseas because of the additional oversight costs and, especially with patent work, the concern of abiding by US export controls regarding the transfer of technological information. (Particular types of data cannot be transmitted to specific countries and other information requires an export license from the Commerce Department.) Since outsourcing work is controversial, however, many companies do not disclose that they send work overseas, and law firms that do so require that the outsourcing vendors that work with them keep their clients’ identities confidential.

Outsourcing in the legal profession is not totally unprecedented, but sending it overseas is a new wrinkle. In the past, corporate clients looking to save on their legal bills have taken work away from their more expensive big firm outside counsel, or even from their in-house legal departments, if they found that the work could be done more economically by a smaller firm in a less expensive market, such as the Midwest. Furthermore, Orrick led the way with back office outsourcing when it moved its administrative operations to Wheeling, W. VA in 2002 to take advantage of lower rents and salaries. As a further sign that outsourcing is here to stay in the legal profession, in 2004 Hildebrandt, a premier legal consultancy firm, entered into a joint venture with OfficeTiger, a leading outsourcing vendor in India, to provide services to the legal profession.

Valerie Fontaine
Latest posts by Valerie Fontaine (see all)