In the current economic environment, especially, General Counsel resist paying high fees for routine, repetitive functions. They realize that some tasks don’t require lawyers, or at least high priced lawyers in traditional law firms, to complete them. Therefore, in order to hang onto as much business as possible, smart law firms minimize the cost of lower level and repetitive work through the use of technology, insourcing, downsourcing, and outsourcing. To cut costs, consumers of legal services increasingly disaggregate and unbundle their legal business. Rather than using just one high billing law firm for the entire project, they break down projects into components, and send each to the most efficient and cost-effective provider competent to handle the work.
Commoditized work now is handled by project lawyers, staff attorneys, both offshore and onshore outsourcing, and legal project outsourcing (LPO) companies. With technological tools such as e-mail, online legal research, remote document retrieval, secure extranets, and the like, it makes little difference whether lawyers are on another floor in the same building, in another city, another state, or halfway around the world. These alternative vendors charge hourly or project rates which, when compared to the billing rates of several hundred dollars per hour charged by most American lawyers, result in enormous cost savings. Clients use alternative legal services providers directly, and expect their outside counsel to work faster and cheaper through them, as well, with those savings reflected on their legal bills.
Cost-cutting staffing strategies typically used are:
- Outsourcing – sending work outside the law firm or corporation to low cost providers or to legal process outsourcing (LPO) companies either inside or outside the U.S. These companies started in India, but now spread throughout the globe and in lower cost areas of the US.
- Insourcing – keeping the work inside the organization but providing the services through a firm subsidiary or affiliate, or through temporary staffing.
- Downsourcing – utilizing lower-compensated non-partnership-track attorneys either on site, or transferring work from the law firm’s major urban area offices to remote centers in areas with lower labor and operating costs. Or, in consultation with the client, sending discrete tasks to lower billing law firms, with the original service provider acting as project manager.
Outsourcing of work by law firms began with back office functions such as word processing and proofreading and gradually moved toward paralegal and lower level legal work. Originally, most outsourced legal work was relatively uncomplicated and repetitive. Over time, outsourcing and LPO companies bid for more sophisticated work, making further inroads into traditional law firm territory, adversely affecting US-based legal professionals, particularly paralegals and junior associates. While some aspects of a lawyer’s practice probably never could be outsourced, such as depositions, trials, and high-level corporate transactions requiring face-to-face contact, LPO’s increasingly affect the traditional pyramid law firm structure.
Although they impact the number of lawyers hired by traditional law firms, alternative providers themselves are potential employers of attorneys. In better economic times, lawyers resisted taking lower paying LPO jobs handling less sophisticated work. With the downturn squeezing the legal market, out-of-work associates often had few options; thus, legal process outsourcers had more opportunity to hire licensed lawyers with legal process experience. Moreover, this segmentation of legal services also requires that either the client or one of its outside counsel or providers acts as project manager to coordinate the work done by multiple sources. Legal process management is, in itself, another career path for lawyers. Some law firms train their lawyers in project management and provide them with tools necessary to budget and track projects effectively.
Critics of alternative legal service providers cite problems with client confidentiality, quality control, and the unauthorized practice of law. Proponents counter that those concerns are manageable. Secure technology protects information transmitted to the vendor through the use of secure extranets, in addition to stringent employee monitoring and security measures at the LPO location. Quality control and the issue of unauthorized practice of law are handled by keeping the work inside the law firm, but using less expensive personnel, possibly at lower cost locations. Alternatively, US-licensed attorneys can interview, hire, and supervise the overseas lawyers and review completed work before signing off on it. Thus, US attorneys assume responsibility for the legal work and don’t violate ethical guidelines. Some law firms and companies are reluctant to send work overseas because of additional oversight costs and, especially with patent work, concern about 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.) Of course, using domestically located LPO’s eliminates that problem.
While traditional law firms suffer, alternative legal services providers thrive. An April 26, 2012 New York Times article predicted the LPO industry would surpass $2 billion by the end of the year and reach $4 billion in 2015. There’s considerable room to grow, as users of LPO’s thus far sent out only about 5 percent of what they potentially could outsource. In the past, most of the LPOs’ work came directly from corporate clients (effectively bypassing law firms); some firms now work collaboratively with LPOs to hang onto the work and improve the law firms’ overall leverage.