Legal Outsourcing Services–More than a Hot Trend Right Now!

Legal Services Outsourcing (LSO)  

LOS2has been transforming the legal marketplace for the past five years, coming on the heels of the banking-led economic crisis of 2008.  Legal Outsourcing Services is the practice where law firms, to reduce costs, outsource components of their legal practice that are repetitive and non-core, such as legal review, transactional legal proceedings and other areas.

This was largely triggered by the post economic crisis focus on cost-cutting by corporation’s in house council as well as many company’s legal services provisions, in conjunction with the price-driven procurement-laden attempts by companies to convert traditionally variable legal costs to fixed costs.

In addition, law firm clients have put price pressure on their law firms and law firms, to be competitive, have migrated to outsourcing solutions. This is also consistent with another trend in legal, Legal Project Management, where law firms at the behest of their clients (or proactively to serve their clients), have committed to fixed cost/not to exceed project-based pricing models, again for certain repetitive or transactional-type legal matters, that can fit this model.

In short, law firm clients have taken back control over the client/vendor relationship, so ad hoc time and materials in perpetuity billing structures on many legal matters may be a thing of the past. Law Firm clients are now not above putting out an RFP for certain matters that can be practically estimated on a project basis,  similar to other formally procured service.

LSO however, requires a true partnership between the law firm and the outsourcing entity as law firm attorneys still retain the intimate client knowledge and subject matter expertise that they utilize to manage in a knowledge transfer arrangement with the outsourcing provider , necessary for a successful engagement.

Presently, according to industry experts, over half of all corporations and three quarters or more of law firms are outsourcing to some degree with the largest component being litigation-related document review. About half of all law firms outsource up to 25% of their legal work to LPOs, according to the experts.

The practice of billing in-house associates hours for this purpose and other low-level legal tasks is not longer practical, thanks to LSO. LSOs, like many outsourcing providers, can more easily scale up or down easily, based on resource needs, a lot easier than in house.

While attorney/client privilege and data security protection are two key issues that must continue to be tightly monitored in LSO, that responsibility falls largely on the law firm client.

Legal Outsourcing Services has been traditionally a very fragmented vendor market. While there are a number of large suppliers, traditionally, law firms managed other ad hoc outsourced legal services in a decentralized, informally procured process. This led to high turnover in eDiscovery and other outsourcing vendors as well as different attorneys and paralegals using different suppliers within the same firm. Indeed, RAS Consulting in its RFP review process, often noted law firms using half a dozen or more vendors just for off site litigation support services or imaging, let alone for higher end eDiscovery, where typically even more vendors were in use.

With providers differing significantly in their capabilities, experience and the breadth and quality of their offerings, in house teams are becoming more and more familiar with legal outsourcing and how to differentiate the good from the not so good providers.  It is likely there will be some consolidation in this space and only well-established vendors in the market who recruit, train and retain the best talent will be able to sustain the business model.

Leading LSO providers are well versed in managing costs and delivering per definitive time tables which enable law firms to better manage client expectations. Combined with these fixed costs, law firms are able to manage and develop bona fide budgets for these matters.

One key question is, where will the large Business Process Outsourcing providers like Williams Lea, Merrill Corporation, Novitex, DTI, Ricoh, Swiss Post, FSO Solutions and others fit in this picture. Not coincidentally, all of these providers for some time have seen the hand-writing on the wall from severely declining revenues from their original core Business Process Outsourcing services from the 1990′s and many have for years diversified into offering off site imaging operations, eDiscovery, Lit Support, Forensic services and other services.

Yet to a large extent, these outsourcing providers have not yet been able to penetrate deeply into providing Legal Outsourcing Services provisions (more akin to contract lawyers and services) to the extent they are targeting. Perhaps some of the operational issues they have traditionally experienced in the entry-level highly transactional (and high risk) outsourcing areas under Business Processes, mail, fax, reproduction, conferencing services, etc., have colored their clients against utilizing them for more specialized Legal Outsourcing Services areas, perhaps unfairly.

We will be exploring the capabilities of these large national outsourcing providers in future blogs to attempt to identify the differentiators.

The Seven Biggest Mistakes to Avoid Making in your Outsourced Office Support Services RFP Process #2

The Seven Biggest Mistakes to Avoid Making in your Outsourced Office Support Services RFP Process #2

Not providing the right or enough information in your RFP to the vendors for them to be able to provide a viable RFP response.

You can never provide too much information or data for an RFP. The more information you provide, the less guess-work, the less surprises later on!  Very often the vendor or consultant will provide you a complete list of the data and information that they require for the RFP.  So don’t hold back unless you feel it’s absolutely necessary.

You’ll be signing an NDA (non-Disclosure Agreement) as well as a confidentiality agreement with the vendors so whatever data, information you do provide is fully protected.

But don’t provide salary data or your in house (labor) costs! Don’t make it easy on the vendors. They will be able to estimate your resource costs based on the headcount and positions/job descriptions they will be provided.

Ultimately, you want to avoid “baiting” the vendor into accepting RFP terms that they, unknowingly, accept, only to come back to you later with contract creep and increased costs, claiming they were misled about the contract scope. That happens when you don’t provide the full information they are seeking or “hold back” on something during the data gathering or services review phase of the RFP process.

Most vendors will insist on having analysts spend hours even days on your premises reviewing the current operations. This can be awkward on your incumbent vendor and worse, deflating to your in house staff if you’re considering outsourcing.

If you don’t want multiple vendors and their analysts on your premises, it may make better sense to hire a consultant to do the same. They will only have to be on site one or two times and are typically much more sensitive to in house or existing staff to make the process less invasive. They can put together the data and detail for the outsourcing vendors less pervasively.

 

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The Seven Biggest Mistakes to Avoid Making in your Outsourcing Office Support Services RFP Process

The Seven Biggest Mistakes to Avoid Making in your Outsourced Office Support Services RFP Process

1)    Inviting the wrong or too many vendors to participate in the RFP.

Don’t fall victim to the aggressive sales approach of some vendors just trying to get a foot in the door.  You know, the ones that hound you constantly on the phone and the only way to get rid of them is to break down and agree to include them in the bid process. That’s a mistake in our view.

There is absolutely no point in tendering a bid to a service provider that is not qualified or does not have the market presence to service you.  Instead, it is better to only invite the vendors to bid on your outsourcing services that are capable of providing the services to your company and organization. How to do that? Via a Vendor Prequalification or Request for Information (RFI)

Prequalify your vendors so you don’t feel obligated to tender the RFP to a vendor not qualified to service you. Identify specific criteria to measure the vendors responding on their market share locally and nationally, their clients in your vertical, references, new clients, lost clients and try to get as much in the format as data as possible so you can do quantitative analysis.

You can tender a vendor prequalification or RFI to as many vendors as you want, even to the vendor with that nagging sales rep.  You can use a prequalification to build your industry knowledge. It may come in handy later. But ultimately, it is generally recommended that you decide on no more than 5 vendors to tender a bid or RFP to.  Use your analysis and your subjective evaluation of the vendors to narrow the selection choices down to that small circle via your prequalification. If you’re on the fence about any one vendor, check references that you would have requested in the RFI.

Good luck!

 

For more information on how to choose an industry consultant and what pitfalls to avoid in your outsourcing RFP process, please ask for our free white paper http://ras-consulting.com/ras-consulting-core-story/

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In Spite of Price-Driven RFP results, Clients Still Place High Priority on Business Process Outsourcing Services

Price Driven only RFP Projects May Result in Vendors Having Difficulty Providing High Quality Business Process Outsourcing Even Though Law Firm Clients Will Still Expect it via Challenging SLAs

With the focus on many client outsourcing RFP projects becoming more and more price-driven, as law firms try to cut costs in many areas,  outsourcing providers have seen their headcounts cut and more importantly, reductions in their profit margins. Indeed, vendors today admit to single-digit profit margins on some projects, particularly competitive displacements (replacing an incumbent vendor). These low profit margin contracts, many of which are for sizable, national outsourcing contracts covering multiple office locations and contract revenue levels above one million dollars annually, are difficult for a vendor to “offset” with more profitable contracts, a long-standing industry practice.

Outsourcing providers have complained that on many consultant-run projects today,  primarily price-driven pursuits have put pressure on employee wages and benefits plus forced vendor’s hands to have to deploy more and more temporary help to fill lower cost resource positions.

unhappy-24634951For years, clients pushed back on outsourcing providers using temps to fill gaps in open positions or for absent or vacationing employees because temps are generally considered to be less committed, less skilled and less familiar with a specific client’s operations. While this is the new reality for some law firms who engage in new primarily price-driven outsourcing contracts, and the impact of lower wages, use of temps on the overall quality of the operation will only be measured in time, several Firms RAS Consulting recently interviewed were concerned with this direction in the industry.

One of the logical conclusions one would make in primarily price-driven decisions is a diminishing desire by law firms to pay for “premium” level office support services as they have in the past. Vendors who made their living by providing a premium level service to law firms have taken their lumps on these price-driven RFP projects.  But in spite of the logical thought process that, to expect the same level of services for lower cost as not being realistic, law firms still pursuing these price-driven solutions apparently still expect the same (high) levels of service. The old cake and eat it too scenario.

One large law firm based in Boston who is running a closed bid process with a consultant indicated they were expecting some cost savings in their new contract with their incumbent, and would put the project out for general bid if they did not get the results they were looking for But the Firm indicated that in spite of diminishing mail, fax, copy and other service volumes, the services provided by their outsourcing providers, though diminished in volume, as still perceived as critical to the Firm.

Another west coast law firm based in Silicon Valley that RAS Consulting recently spoke to, that also underwent a recent closed bid process to renew with their incumbent provider also remarked that while cost savings are an on going target, especially in contract renewals, a high level of service is still paramount. In spite of corporate downsizing, reduced service volumes, reduced hours or operations, this west coast firm re-affirmed the critical nature of the services. “The Firm still places high value on the services that remain, in particular litigation copying and imaging,” according to this firm.

Law firm revenues are also under attack, as clients are increasingly questioning traditional office services costs for mail, fax, reproduction, courier and other services, making it more difficult to continue to turn these outsourced services into a profit center.

One thing is certain, price pressures will force outsourcing providers to look to lower cost options which will lead to a dilution of the services. Many law firms would object to this reality and should consider this when they negotiate their outsourcing contracts.

For more information on how to choose an industry consultant and what pitfalls to avoid in your outsourcing RFP process, please ask for our free white paper http://ras-consulting.com/ras-consulting-core-story/

Please also visit our website at www.ras-consulting.com   To sign up for our blog, please click here.

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How Much More Can Some Consultants Squeeze out of Outsourcing Services Contracts

With the advent of more and more consultants in the Office Support Services Outsourcing Providers space and their approach treating traditional outsourcing services like a commodity, it’s resulting in retreating margins for outsourcing providers and potentially harmful effects on the quality of the services that come out of these new contracts.

It’s a well-know fact that in its hey day of the late 90′s and earlier part of this decade, it was not uncommon for Office Support Services outsourcing providers like Merrill Corporation, Williams Lea, Pitney Bowes Management Services, OCE, IKON, DTI and others to enjoy profile margins that exceeded 20%.  But since the economic collapse in 2008, resulting in mega downsizing and cut back in services, headcount and equipment, those margins have shrank.

In practicality, it was unrealistic for law firm clients to expect outsourcing providers to reduce their costs in earnest for their on site operations, as that would result in lower revenues, hence lower margins.  Many of those firms turned to consultants like RAS Consulting back in the late 1990s and 2000′s to execute competitive bidding processes via RFPs to secure savings.

Then in the past three years or so a new crop of industry consultants have come along, like Profit Recovery Partners as well as a new approach by existing industry consultants like Mattern & Associates who treat these services entirely as a commodity, like office supplies. For these consultants, price alone is the driving force, pressuring participating vendors in an RFP to reduce their pricing on levels so extreme by pitting one against the other, it has resulted in single digit profit margins on these projects.

While the consultant no doubt met their “savings” targets to justify their considerable fees,  they often leave the vendor and the client with a residual arrangement that is unsustainable.  As someone who has worked both on the corporate side and for outsourcing companies, unlike most of my competitors, there’s an old saying that a bad business deal is no good for either side. In RAS Consulting’s view, a vendor/client relationship has to be a win/win for both, meaning sustainable, healthy profit margins but cost effective services and a true partnership that continuously strives to be cost effective.

The vendor, in order to meet the miniscule profit margins left on the contracts, was forced to cut wages, use temporary personnel, reduce training, benefit packages to employees, a myriad of cost cutting moves that hurt not only the employees, their morale, but the services themselves. These less qualified, less compensated, less motivated personnel often result in more mistakes, errors and less dedication that in the legal business can be catastrophic. This is where one lost package, misplaced document original can result in loss of a client or case costing tens of thousands of dollars or more.

How does it work? The traditional competitive bidding process, the nexus of these processes even before consultant’s involvement, was to bid out and throw out the highest bid and the lowest bid. Now the lowest bid, often unattainable, is now becoming the benchmark for all the other participating vendors are being forced to reconcile to in these processes.

Vendors interviewed by RAS Consulting acknowledge that the industry is changing in terms of its revenue source from the traditional “bodies and boxes” now to more of a consultative, strategic resource offering as law firms look to outsource more and more functions to save money, especially in legal areas like eDiscovery, document production, document review, etc.

But as the current feeding frenzy and trend of consultants who continue to apply extreme pressure on pricing for outsourcing services–essentially taking money out of the pockets of these entry level employees–outsourcing will no doubt take its share of blows as service issues mushroom in frequency due to this dehumanizing process.

As one senior management person at Pitney Bowes Management Services (now Novitex) told RAS Consulting,  these consultants want to ruin the business by forcing vendors to accept ridiculous low margins and providing low quality services.  Senior members of other major outsourcing providers have echoed this statement.

RAS Consulting believes there are more creative and strategic ways vendors and clients can partner to reduce costs, re-engineer services, increase recovery revenue that doesn’t necessarily have to result in severe reductions in wages, benefits and quality of the outsourced workforce, to say nothing of the impact on their morale.

Above all, in outsourcing, you do get what you pay for and to expect to hold an outsourcing provider to unrealistic SLAs–while you’ve cut their margins and employee compensation levels might look good on paper, but it will likely back fire.

There’s certainly a place for good traditional procurement methods in running an RFP process, but let’s not forget, these are operations, they employ people, systems and procedures. Price pressure only dilutes the effectiveness of all of these. and when you diminish the compensation of human resources you rob their dignity, effectiveness and dedication.

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Consultants Treating Outsourced Support Services like a Commodity is not the right way to go and can really result in a negative solution

Some of our consultant competitors are all about dispassionate cost cutting in their outsourcing RFP processes, treating office services outsourcing as a commodity. But the only people being hurt are you the customer, as these companies force suppressed wages on the staff that do the work, resulting in higher turnover, mistakes, low morale and service levels failure.

Of course in today’s environment, cost cutting is critical for non-revenue generating support areas and every reasonable cost cutting measure must be explored, and unfortunately, because the vendors earn margin on every person, every piece of equipment they provide, they have a dis-incentive to cut costs in your outsourcing contracts. But don’t compromise everything to save a few dollars that could end up costing you in the end by reducing these services to a mere commodity, like office supplies or library services.

What some of my competitors will do as their primary strategy in their RFP processes, is pit an incumbent vendor against one or two others in a competitive bidding scenario, but rather than letting the competitive bidding scenario drive pricing via market conditions, these companies come up  with arbitrary “savings” targets they claim are based on benchmarking, but it really isn’t, as office support services is an organic, operational service, not about the old “bodies and boxes” theme.   How the services need be provided depends on a number of operational nuances and your culture, not just benchmarking. Do these companies understand that? I think not.

The result of these scenarios, is the client finds a new vendor willing to essentially absorb the incumbent vendor’s personnel at below market rate, thus reducing costs, but with two very negative by-products:

1)      The “winning” vendor ultimately writes a deal that is barely above costs because they can’t in practicality reduce the incumbent employees’ salaries to the level of the consulting company’s arbitrary targets—so the vendor’s margin shrinks.

2)      Secondly, the incumbent vendor’s staff are now paid less, with less benefits, to do the same work, which is not only bad for them, but bad for the industry in general as it will prevent good talent from pursuing careers in this field, resulting in lower employee standards, poorer quality work and ultimately, to you the client, mistakes and service failures. It could lead to outsourcing of the labor pool to these outsourcing companies, now competing for lower cost temporary staff to fill the inevitable staffing void, which in the past has had mixed results at best.

All it takes is one late package, mis-delivery, lost FEDEX and bungled copy/print/scan job that can mean the difference between making a filing, losing a case, or worse, a client. Is it worth it?

What’s the better solution? The combination of sound procurement procedures in a competitive bidding process AND the understanding of the operational and people elements of servicing to forge a reduced-cost but still functional solution that is a win-win for the vendor and client alike.

Whoever is telling you that it no longer necessary to have a win-win scenario between you, the client and your vendor, isn’t likely going to be around six months after your new contract when it collapses. By then, the predatory consulting firm will be long gone on to another client repeating this process.

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The Fallacy About Cost Plus Outsourcing Contracts

There is a large national law firm outsourcing RFP project that is in progress now where the RFP project management vendor is prescribing a Cost Plus Model for the contracted services. Generally, labor costs make up 75-80% of an outsourcing services contract, so this is primarily in an attempt to “reign in” labor costs. The theory behind a cost-plus labor contract model (or any cost plus model) is that you know what the supplier’s true costs are and you can control their overhead and profit on top of those costs.  The problem is, that’s rarely the case.

Outsourced labor costs as provided by outsourcing provider are laden with a bevy of miscellaneous costs all that fall under the umbrella of “fringe benefits”  which include anything from leave/vacation costs to guaranteed replacement costs (to replace out/sick staff), investment plans, training plans, education reimbursement, facilities costs, etc., some of which get plugged into a nebulous “overhead” cost, which may also include sales commissions.

But how does one know how many of these “benefits” apply to the rank and file staff members actually assigned to the client? And the salary figures, which are often “plugged” numbers (because the actual salaries of the employees are unknown until they are actually hired) are also not carved in stone. Are they revised when the actual names/faces are hired at whatever those wages are?

In short “cost-plus” model contracts rarely accurately depict the vendor’s actual cost due to the tendency to “bury” all kinds of costs in the figures, therefore is not an effective tool in reducing or controlling/managing those costs in an RFP process. But what’s worse is, the cost plus model may identify the initial costs but what happens over time if the supplier doesn’t turn over the staff at the client site? The Cost Plus model, merely allows the vendor to give raises/increases to staff with impunity because the client will simply pay the increase. Moreover, the client also pays the increases in medical or other costs. And all of this would have to be perpetually verified by the vendor/client (where’s the consultant now?) in an on-going basis unless you continually pay a vendor to do it for you, every quarter or so.

In contrast, the traditional “bill rate” model, where the vendor combines all their costs into a proposed bill rate, hourly, weekly, monthly, for each employee position/rank, which can be bench-marked against similar vendors in similar markets is the model that has gotten far more traction in recent years. This is for a good reason–the bill rates are locked in for a 3-year term with only a margin, indexed increase (typically the CPI, generally 2-3%/year).

So indexed increases minimize the up charges to the contract and actually puts the onus on the vendor to contain costs at the client site, by promoting prominent staff to other sites and even by turning over staff, to stay within their costs and margins.   There is simply no better alternative to benchmarking costs through a competitive bidding process.  In conclusion, in RAS Consulting’s view, cost plus is not an effective tool for limiting cost increases when those costs are highly variable.

 

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State of the Office Support Services Outsourcing Industry Today: One Man’s View

State of the Office Support Services Outsourcing Industry TodayOffice Support Services Outsourcing Industry

The office Support Services outsourcing industry has seen some consolidation in recent years with Ricoh acquiring IKON (which no longer exists as of Jan 2013) as well as Canon’s acquisition of Oce Business Solutions (also, no longer, as of January 2013). These unions have changed the landscape a bit in the office support outsourcing arena, as well as the equipment arena as clearly neither Ricoh nor Canon are equipment agnostic, like the companies they acquired were.

In recent years, on site office support services (Mail, Distribution, Document Production, Fax, Repro, Supplies, Conferencing, etc.) has become more price-driven and handled more like a commodity at law firms, unfortunately, in our view. This diminishes the reality that on site outsourcing services is still largely about people; human beings, and the management of them in providing the services and that career paths, training, benefits are important part of their offerings, same as if the staff worked for the firm.  There is also a cost to managing these resources and bringing expertise to the market place and customer by the outsourcing provider that has also sometimes fallen off the radar and is not accounted for, due to commoditizing of these services.

One key valid reason for onsite office support outsourcing services are  becoming more commoditized and price-driven is the continuing diminishing of transactional activities handled by most law firm mailrooms, distribution, fax and reprographic areas.

Volumes in these service areas have diminished by as much as 80% in the past 5 years (fax, copy) and the perception to many Firms is it simply isn’t economically feasible to continue to pay a premium for high level services in these areas, which are becoming less and less critical to the Firm, in particular as distribution means, with fax and interoffice mail volumes all but disappearing. Other areas like conferencing, litigation support services (paper based primarily) have seen increases i services needs, in contrast.

In addition, most documents are now digitized with legal staff doing far more scanning and document conversion work themselves at decentralized copier/MFDs than in central copy/repro centers, where volumes have been greatly reduced. However, this has opened the door for former Copy/Repro shops to now operate like digital document management services departments, offering a wider breadth of more specialized and higher caliber offerings (that require higher caliber trained staff as well).

In the domestic onsite office support services outsourcing space there are perhaps 10 or so major national players, along with some regional players in the Northeast.  They are;

Merrill Corporation: a company that specializes in legal office support outsourcing services, with 98% of their clients legal. Merrill is a solid company that invests in its employees through training programs and offers solid employee benefits. However, recently, that has put them in the cross-hairs of some of their clients, particularly the larger national or multinational law firm clients of theirs where Merrill’s often premium pricing (compared to some other players in the market place) has been subjected to pricing pressure.

In particular this has happened with Merrill law firm clients who retain consulting firms like Profit Recovery Partners (PRP), who treat outsourcing primarily as a purely price driven commodity–forcing Merrill to lower their margins and reorganize the client contracts downwards.  This trend is saving law firms money, but potentially jeopardizing their vendor/client relationships and has led to unattainable service levels and SLAs for the money in the contract.  True process reviews and or process re-engineering are rarely in the scope of these evaluations–how things can be done more efficiently with less people, vs. simply reducing the costs of those people of headcount overall based on a ration of staff to support benchmark. Of course, the customer and the vendor are left to manage the relationship long after the consulting firm is gone (and the consulting firm does not participate in change management, leaving that to the customer and vendor).

Merrill recently lost one of their largest customers, Bingham, to competitor DTI, when PRP was brought in to drastically cut the outsourcing services costs and Merrill eventually lost the business to DTI in a closed bid scenario. Essentially, according to Merrill, DTI absorbed most/all surviving Merrill staff members but at lower wages and benefit costs to achieve PRP and Bingham’s cost reduction objectives.

DTI has been growing, and indeed added Bingham and others recently to the fold. DTI has an outstanding track record in never losing a customer and like Merrill, most of their customers are law firms. DTI has been rumored to be up for sale for some time, something DTI fiercely denies, with several larger suitors like Williams Lea or Swiss Post the likely buyers.

DTI was perhaps the first outsourcing provider that really honed the onsite/off site it support services offering in the industry, having started out as an offsite lit shop in Atlanta some 14 years ago. DTI has made numerous acquisitions that have strengthened their position as a leader in eDiscovery and Lit Support Services. They provide onsite lit support services for many of their customers and generally do it well.

Pitney Bowes Management Solutions (now Novitex) continues along. PBMS formed a Legal Solutions Division some years back to solidify their on/off site lit support offerings and legal outsourcing services in general, but has never really made this a successful strategic offering to the extent they anticipated. PBMS too acquired a coding house and other eDiscovery companies to compete in the space. Pitney does run numerous successful on site lit shops for large law firms such as Foley Hoag in Boston and Snell Wilmer in Phoenix.

IKON/Ricoh, is now Ricoh, with the IKON brand all but gone, other than some of the IKON software products used in scanning and eDiscovery. Ricoh has taken over IKON’s former Management Services brand, appearing to be more polished and corporate in their approach. But partnering with Ricoh, likely leads down a path of only using their equipment. How the two cultures, IKON and Ricoh, will assimilate is now largely done. IKON/Ricoh has never been strong in legal, especially in the Northeast, though they have made some recent inroads like Fried Frank in the northeast.

Oce/Canon is now Canon USA, with the OCE brand finally discontinued in January 2013 officially. The cultures appear somewhat in contrast. Many of the OCE people have been with that company many years, even in the days it was still Archer Management Services before the Oce acquisition. It is expected that there may be turnover and people leaving once the Canon management team takes on more of a prominent role, though the former Oce President will lead the new combined division. Oce has done well in recent years, winning Weil Gotshal’s mail services and it will be interesting to see how the Canon take over impacts going forward.

Williams Lea continues to target large banking customers and some large law firms (although they lost Dewey LeBeouf in 2012). As a UK-based company, they had some challenges coming into the US market but that appears settled. Still a very viable player in legal outsourcing, though they tend to target large, national/international law firms only,  who also has made investments in eDiscovery companies and has diversified into IT outsourcing.

Swiss Post Solutions is one of the stronger outsourcing providers in terms of their financial strength (thanks to the backing of Swiss Post, one of the more profitable national postal services) who have been making inroads in legal and strengthening their overall market share. They offer diversified outsourcing solutions but are not quite as strong as some of the others in lit support and eDiscovery offerings, though getting stronger.

FSO, which bears Mitch Weiner’s moniker, has experienced tremendous growth thanks to the Chief Happiness Officer’s persistence and marketing and innovative approach. While they have added some recent law firms, it is still not their strong suit nor is providing lit support services or eDiscovery to the extent of some of the other players. They recently were awarded the Price Waterhouse Coopers national outsourcing contract which has FSO poised for a national thrust.

IST Management Services has recently made a push at being a national player with over a dozen offices now open throughout the country though legal is not their strength.

There are a few other largely regional players additionally such as MCS Management Solutions (based in Philadelphia) and the Millennium Group who now has a national presence and has typically targeted smaller mid-size markets and has done well there.

Most of the above players, especially DTI, Merrill, Novitex and Williams Lea offer an onsite/off site strategy for providing end to end litigation support services, for both paper and electronic discovery. However, in evaluating whether this program can be effective at your firm, there are several key discussion points:

1) There must be sufficient, detailed data on litigation support services and eDiscovery spend (both on and off site) so that a) the frequency, b) the volume, c) the nature of the work and d) the expected turnaround times can all be analyzed to determine what percentage of the work could be done on site, and what percentage off site by the outsourcing provider’s own off site lit shop. Even with this data, there is no guarantee that an onsite/off site program can be determined that can handle 100 % of the lit support work or eDiscovery going off site. The data is typically individual invoices that detail specific work.

The Firm and the vendor would come up with a profit/loss budget to determine a) how much lit support work could be done on site b) what the transaction/setup fees would be to the vendor c) savings to the customer vs. sending off site d) cost recovery rules (very often it is easier to get a standalone off site lit support invoice paid and rebilled to the customer than it is to present that same customer with an internal invoice/bill for those same services, even at a lower tariff, because clients tend to question external invoices less than internal ones). Don’t forget that in many cases, a key but often overlooked cost block in performing lit support services is not just the transactional costs such as blowbacks, coding, scanning, etc., but the setup or project management hours involved. Plan to include this in your pricing tariff.

2) In general, the rule of thumb at most major law firms re: lit support work has always been to give the onsite outsourcing provider all the paper-based lit support work but the electronic discovery work, which is more diversified and is typically fulfilled by a multitude of specialty vendors, is usually vended to each paralegal or lit support team member’s preferred vendor. Generally speaking it has neither been viewed as desirable nor effective to try to go the one-stop shopping direction on electronic discovery work due to the specialization of the work, even though this is what every office support services outsourcing provider craves—a chance at all your business.

3) One stumbling block at many law firms has always been the law firm’s reluctance to give all the lit support work to the onsite outsourcing provider or to any one vendor in general. Because the nature of this work is such that any mistake can be tantamount to a disaster, it remains difficult procedurally or by policy to enforce that all lit support personnel at a law firm must use only the onsite outsourcing provider as the single source for most/all lit support work.

Getting the buy-in from the lit support specialists at the Firm, plus litigation partners, associates and paralegals across the board to use predominant providers is challenging. Often, lit support vendors will be used until they make a mistake, then another vendor will be used on the next similar job to avoid a repeat.

4) When considering an on/off site lit support solution with your incumbent outsourcing provider, make sure your service provider has the ability to prepare an invoice and capture chargeback on all the on and off site lit support work so that it can be billed to the client in a format they won’t question, and can be integrated within the Firm’s client chargeback mechanism (usually at a profit as the Firm can typically negotiate far more aggressive rates to your onsite vendor, for on and off site lit support work than the street charges. It becomes a profile center).

 

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Closed Bid Renewal Process for Outsourcing Services

If you’re engaging in a closed bid renewal process for your outsourcing services there are a number of keys to remember and to operate by:

In any renewal process, in the current economic environment where all business are trying to cut costs and increase their revenue opportunities, nothing should be off the table. Labor reductions, equipment right sizing, changes to service levels that result in cost savings as well as changes to print management workflows that change end user habits to redirect print output to the lowest cost device should all be on the table. At the same time, the renewal process is NOT all about beating up the (incumbent) vendor to get them to reduce their costs to such a point where their margins are untenable and the operation becomes a burden on them financially.

While your outsourcing provider is your partner, remember that in outsourcing, outsourcing providers make margin on head count, the number and size/productivity levels of equipment, more challenging SLAs as well as expanding their services, e.g., lit support services, electronic discovery and other support services areas such as reception, word processing, catering/conferencing, etc. Therefore, don’t expect your outsourcing provider to come to you with the maximum head count and equipment reductions that you can accomplish, it is in the provider’s best interests that the opposite occur. They have a dis-incentive to reduce headcount, downsize equipment and reduce service levels as it reduces the overall revenue base of the operation and consequently, their margin. You may want to consider a clause in your contract that shares any cost savings through headcount, services or equipment reduction initiated by the vendor. This way, they do have an incentive to come to you with cost savings.

But a successful renewal process can’t be all slanted to the customer and against the vendor/partner. Outsourcing vendors today acknowledge that their traditional revenue basis in labor and equipment are drying up. That’s why they are pursuing other services such as lit support, print distribution/management cost recovery and output maximization schemes and other services areas to broaden their reach and revenue base. As a Firm, you should look towards these opportunities to reduce your own head count, reduce costs and achieve additional client chargeback where prudent. It is definitely not a one-way street.

Remember that office support services are NOT all commodity-based and if you have an incumbent provider, you no doubt have tenured outsourced staff and other operational cost blocks that have evolved over the course of time. If you have had the same vendor more than 8 or 10 years, contract creep has no doubt occurred in your contract.

Remember that you pay a high price if you require the vendor to keep staff turnover down, keep ramped up office equipment and insist on unnecessary service levels. Don’t let your outsourcing provider strong arm you into perpetuating high staffing costs buy appealing to your desires for low turnover and keeping the same familiar faces. Outsourcing providers are supposed to be cycling in/out non critical staffing positions (aside from site management) to reduce costs and keep staff fresh. Turnover is good to bring in fresh blood and lower costs. Complacency and familiarity breeds high costs and lesser productivity.

Finally, don’t fall into the trap that you must have the same copier models all over the Firm. Right size the fleet that is based on the output volumes for print, scan and traditional copy volumes. Remember that convenience copier volume is decreasing by as much at 10% per year with the push towards digital documents and decentralized scanning. Chargeback for decentralized scanning, especially by Corporate and litigation practice areas open up new areas for revenue enhancements too.

The last word when you renew is Service Level Agreement, KPIs and Performance Standards. In your renewal process, if you’re like most Firms today, you’re looking to cut costs, perhaps reduce service levels and really put your in house vendor to the test to deliver more for less. You want to be able to substantiate and regulate this. First off, you need meaningful management reporting and Key Performance Indicators that are tracked and reported, but are not just hallow numbers like many fall into–reports should show trending analysis.

Where are the KPIs headed: up or down; what is this telling me? Secondly, you want very detailed and descriptive Service Level Agreements. You MUST articulate and document all of the services, the service levels, the expectations, the unexpected–everything that you can think of to measure and that you want your provider to perform on paper so there are no disagreements or misunderstanding later on, no scope creep or “not my job”.

Finally, to substantiate, regulate and police these Service Level Agreements, you want Performance Standards in place that articulate the desired success rates in as many of the key and measurable services areas as possible. You want a risk reward system that puts the onus on the vendor to deliver, with penalties if they don’t, and yes, some reward if the provider EXCEEDS the standards. Note you are NOT rewarding the vendor for simply doing their job; subways and buses run on time because they are supposed to–you can reward the vendor when they go above and beyond the call of duty and perform to exceed service standards (assuming they are not overstaffed of course!) Again, you want strict, specific and strong control mechanisms to inspire and challenge your provider. Your provider will respect this and use this hopefully to make your operation the highest standard they can achieve.

You don’t need an RFP process to total revamp and revolutionize your outsourcing services. You do need to approach it with an open mind, make sure the provider knows everything is on the table and that you’ll listen to new services, it if makes sense to the Firm. As always, RAS Consulting is here to provide consulting and mentoring to help you achieve your Outsourcing Services Renewal Bid objectives.

 

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Be wary of the Business of Buying your business and treating Outsourcing like a Commodity

There’s been a recent trend in the procurement of Business Process/Office Support Outsourcing Services where to compensate for stagnant growth, Outsourcing vendors are “buying” a client’s business, typically in a competitive displacement. This is achieved by paying a large up front “incentive” or cash disbursement to the client, for a three-four year services contract. This upfront fee, which is some cases, such as was apparently the case re: the ill-fated Mail & Reproduction outsourcing services contract with the now defunct Dewey & LaBoeuf (according to several competitive vendors involved in the RFP process) exceeded $500,000, in RAS’ view, is fool’s gold. This kind of initial balloon “incentive” back to the client is typically difficult for a normal vendor bid structure, e.g., cost + margin, to overcome and is, in effect, analogous to “buying the book of business”, but with a significant value-diminishing upfront penalty.

Why would a vendor agree to such an arrangement (and in some cases it’s not the vendor actually offering the concession, it’s the customer, either independently, or through an unscrupulous RFP consultant demanding the concession and receiving it from a vendor willing to meet the demand) you ask, when it no doubt skews the financials and p&ls on the entire deal? Hasn’t business taught us that a deal with below market profitability is not a good one? This is an old procurement tactic that is consistent with the way some look at Business Process outsourcing–as a commodity instead of a management service, like widgets off a production line. This line of thinking basically asserts, the people/process do not matter; we can work within the narrower margins as the people are just empty place holders for services that are predictable and delivered without passion and strategy.

Some would argue that with most Business Process Outsourcing Services organizations today all espousing the same philosophies–that their people are their difference, that taking the “treat outsourcing as a commodity” is even justified. Have all the outsourcing provider vendors become so homogeneous that they deserve to be treated like a commodity? Not in my book and they will never be as long as there are human beings involved.

Treating outsourcing as a commodity, however, to use the literal adoption of the procurement method means the people, management and uniqueness of the vendor doesn’t matter–price alone should be the driving force in the decision-making for the services, or that price concessions are the end-all. But lowest pricing of course does have consequences–in the end you DO get what you pay for no matter what anyone says–providers all recruit from the same job pool, pay similar compensation rates, have similar training and technology budgets and provisions.

Again, to those that treat outsourcing like a commodity, remember that you or your customers are purchasing Managed Services and Outsourced Services. You’re buying the whole package, the management oversight, the technology integration and innovation, the corporate culture, the systems and procedures expertise, the cost savings initiatives, etc., NOT just the bodies and boxes. And when the consultant is long gone after negotiating that stellar pricing solution, who has to live with the consequences of a vendor, desperate to pickup additional revenue in any way shape or fashion to offset mediocre margins or that provides mediocre service or quality of employees that match the minimal margin earned with an offsetting level of apathy and lack of commitment in providing the services ? At the end of the day, no one likes being marginalized; put yourself in their shoes sometime and you will readily agree.

 

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