Top ten reasons why law firms should consider selective legal outsourcing
In the last quarter of 2008, the United States faces economic challenges never imagined just a few months ago. How will companies manage and survive the limitations of credit, demand and growth? How is the economic downturn affecting attorneys and law firms serving the business community?
It is an obvious fact that companies can only look to modify two revenue streams, income and expenses, to increase profitability. If revenues drop and aren’t expected to increase noticeably any time soon, law firm clients will pick up the expense ax in order to survive. Legal fees will be under extreme scrutiny. Legal outsourcing, while still a nascent industry, is gaining momentum and is being considered in more corporate boardrooms. As pressures to outsource mount, lawyers are questioning whether they should embrace or resist outsourcing legal work abroad. In the face of global economic challenges, coupled with mounting job losses in the United States, why would an American law firm even want to consider legal outsourcing? Are there valid reasons why all US law firms should consider specific legal outsourcing?
Several weeks ago I received an email from an attorney who was considering outsourcing some of his law firm’s legal work. Facing resistance and challenges from many in his law firm who wanted to maintain the status quo, he asked my advice on what he should tell his partners. Why should the firm outsource legal work abroad, a practice some see as adventurous and risky, instead of staying the course, doing it “as we always have”? I responded with the top ten reasons why every law firm should consider selective legal outsourcing:
1. PRUDENT AND TARGETED OUTSOURCING WILL RESULT IN A REDUCTION IN THE LAW FIRM’S OVERALL EXPENSES
Outsourcing some of the legal work to qualified providers in India will result in significantly lower overhead for the outsourcing law firm. In evaluating comparative costs, the law firm will do well to carefully estimate the actual costs of hiring an attorney or paralegal. Those costs include salary and bonus, health insurance, vacation and holiday pay, sick leave expenses, FICA, office space and equipment for the attorney, paralegal, and secretarial staff assigned to that attorney, pension, and profit sharing, car and parking expenses, CLE seminar costs, and other employment benefits, such as life and disability insurance. The true annual cost of an attorney earning an annual base salary of $150,000 to $175,000 is more likely to be in the range of $250,000 to $300,000 per year. NONE of these usual costs increased for a law firm using complementary offshore legal providers.
2. OUTSOURCING WILL IMPROVE THE EFFICIENCY OF LAW FIRMS
Selective outsourcing will improve the efficiency of your law firm. Because Indian lawyers work while American lawyers sleep, it will be like your law firm running a full-time, fully staffed night shift. A partner can assign part of the work at 6 pm in the evening and complete the task at his desk when he arrives at the office the next morning. Litigation cases will move more quickly through the court system with less need for time extensions.
3. OUTSOURCING WILL RESULT IN IMPROVED LAWYER MORALE
As a child, not many of the sermons I heard from my pastor stuck with me. But one, when I was fourteen years old, still rings a bell. He said, “Ninety percent of any worthwhile effort is packing in the work, plugging in, day in and day out. Only ten percent of our work tasks are necessarily fun and enjoyable.” I have always remembered that statement. In more than two decades as a trial attorney, I have enjoyed strategizing and trying cases before juries. But I didn’t necessarily enjoy all the trial and deposition preparation, investigation and briefing, document review, and other mundane essentials of practicing law. A law firm that incorporates outsourcing into its practice will inevitably foster more satisfied attorneys who devote their time and energy to the more challenging, fun, and rewarding parts of practicing law. Only “homework” legal work is outsourced and “main” work is left on the ground. This allows more time for client interaction and development by the firm’s attorneys.
4. OUTSOURCING WILL RESULT IN OVERALL SAVINGS IN LEGAL FEES TO CLIENTS
Law firm clients, particularly business clients, are looking far and wide for ways to reduce their legal expenses. Many ask why they should pay, for example, $200 to $300 per hour for document review. Gone are the days when legal bills were simply paid without scrutiny. Also, annual increases in hourly rates will not go down well with customers looking to cut costs. Wise law firms put their clients’ interests before their own. What is good for the client will ultimately be good for the law firm itself.
5. RULES OF PROFESSIONAL CONDUCT REQUIRE OUTSOURCING CONSIDERATION
The Rules of Professional Conduct require that: a. “An attorney should seek to achieve a client’s legal objectives through reasonable and permissible means.” (Rule 1.2) b. “An attorney shall explain a matter to the extent reasonably necessary to enable the client to make informed decisions about representation.” (Rule 1.4b) c. “An attorney will make reasonable efforts to expedite litigation consistent with the interests of the client.” (Rule 3.2)
An attorney is required to explore and discuss with their client all reasonable means to achieve the client’s goals. An attorney is not allowed to charge unreasonable or excessive fees. Arguably, a lawyer is required to discuss selective subcontracting as a way to reduce the client’s ultimate fee obligation and advance the client’s interests.
6. “TASK” LEGAL WORK OUTSOURCING PROMOTES CLIENT RETENTION AND DEVELOPMENT
Clients have long questioned the ever-increasing legal fees for basic legal work and “homework”. However, they felt they had no alternative. They needed legal representation and wanted good quality work. Since there was no significant degree of fee variation from one law firm to another, clients tended to “stay put.” This trend is beginning to change as customers learn that they have options. Lawyers who selectively outsource are reporting a loyal and more satisfied client base. Clients who perceive their attorneys as looking out for their entire interests, including fee costs, tend to remain committed to their existing law firms and even refer other clients (whose attorneys they refuse to outsource).
7. COMPETITION IS OUTSOURCING
If your law firm isn’t outsourcing, make sure your competition is. On August 21, 2007 Bloomberg. com reported that even long-established AMLAW 100 law firms like Jones Day and Kirkland & Ellis are outsourcing under pressure from clients.
8. U.S. LAW FIRM OUTSOURCING MAY CHARGE A REASONABLE MONITORING FEE
It is reasonable and acceptable for US law firms to outsource legal work abroad in order to charge a reasonable supervisory fee along with the outsourced legal work. It is axiomatic that a lawyer who outsources legal work, whether to an associate, contracted attorney, or offshore provider, remains accountable to his client for the quality and timeliness of delivery of the legal product. If an attorney assigns the research and writing of a brief to a junior associate, the assigning attorney will not typically present the final product of the work to the court without review and supervision. The same goes for legal offshore subcontracting. The published ethical opinions of the San Diego, New York and United States Bar Associations indicate that a lawyer who subcontracts abroad may charge a reasonable supervisory fee.
9. CUSTOMERS INSIST ON SELECTIVE OUTSOURCING TO ACHIEVE COST SAVINGS
Customers talk to each other. Executives from major golf companies and have lunch with each other. The Corporate General Counsel attends CLE meetings and seminars, sharing information and ways to increase efficiency and reduce costs. They know about offshore outsourcing and the significant cost savings that can be achieved. It is unacceptable, therefore, to ignore legal outsourcing and, as one managing partner of a law firm told me, “have no appetite” for it.
10. SUBCONTRACTING WILL OCCUR.
Doing nothing is not an option. Some are outsourced. Many more are considering it, whether motivated by keen business sense or financial realities. Outsourcing is like a big, ominous wave just a few miles offshore. It is preferable to ride the wave than to wait to be engulfed, overwhelmed by its power and left without knowing what happened.
British economist Herbert Spencer is credited with originating the term “survival of the fittest” in the mid-19th century. Although it also has application to biology, Spencer applied the concept of survival of the fittest to free market economics. In a free market, companies and businesses will do whatever it takes to survive. If that means outsourcing some US legal work for the sake of the entity’s own survival, so be it. The model of ever-increasing salaries and expenses for law firms, followed by ever higher legal fees charged to clients, cannot be sustained any longer. Legal outsourcing is here to stay. The wise will realize, survive and flourish.
