Legal Services Outsourcing (LSO)

has 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.