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 constraints of credit, demand and growth? How is the economic downturn affecting lawyers and law firms serving the business community?
It is an obvious fact that companies can only seek to modify two income streams, income and expenses, to increase profitability. If revenues are down and not expected to rise significantly anytime 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 asking whether they should embrace or resist outsourcing of legal work abroad. In the face of global economic challenges, coupled with increasing job losses in the United States, why would a US 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 a lawyer 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 every law firm should consider selective legal outsourcing:
1. PRUDENT AND TARGETED OUTSOURCING WILL RESULT IN A REDUCTION OF THE LAW FIRM’S OVERHEAD EXPENSES
Outsourcing some of the legal work to qualified providers in India will result in significantly lower overhead costs for the outsourcing law firm. When evaluating comparative costs, the law firm will do well to carefully calculate the actual costs of hiring a lawyer 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 disability and life insurance. The actual annual cost of a lawyer 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 having a full-time, fully-staffed night shift. A partner can assign part of the work at 6 pm and the entire task on 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 IMPROVING THE MORALITY OF LAWYERS
As a child, not many of the sermons I heard from my pastor stuck with me. But one, when I was fourteen still rings a bell. He said, “Ninety percent of any worthwhile effort is packing up work, plugging in, day after day. 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 of the trial preparation and deposition, the research and briefing, the 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 the legal “task” work is outsourced and the “core” work stays 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 commercial clients, look far and wide for ways to reduce their legal expenses. Many ask why they should pay, say, $200 to $300 an hour for document review. Gone are the days when legal bills were simply paid without scrutiny. Also, annual increases in hourly rates will not be welcomed by 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. “A lawyer must seek to achieve a client’s legal objectives through reasonable and permissible means.” (Rule 1.2) b. “A lawyer 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 in the best interest of the client.” (Rule 3.2)
A lawyer is required to explore and discuss with his 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 further the client’s interests.
6. THE OUTSOURCING OF LEGAL WORK “TAREA” PROMOTES THE RETENTION AND DEVELOPMENT OF CLIENTS
Clients have long questioned ever-increasing legal fees for basic legal work and “homework.” However, they felt that they had no alternative. They needed legal representation and wanted good quality work. Since there was not a significant degree of fee variance from one law firm to another, clients tended to “stand still.” This trend is beginning to change as customers learn that they have options. Selectively subcontracting attorneys are reporting a more satisfied and loyal client base. Clients who perceive their lawyers 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 lawyers they refuse to subcontract).
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. OUTSOURCING US LAW FIRMS MAY CHARGE A REASONABLE SUPERVISION FEE
It is reasonable and acceptable for US law firms to subcontract legal work abroad to charge a reasonable supervisory fee along with the outsourced legal work. It is axiomatic that a lawyer who subcontracts legal work, whether to an associate, contract 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 ordinarily present the final work product to the court without review and supervision. The same goes for offshore legal outsourcing. Published ethical opinions of the San Diego, New York, and American Bar Associations indicate that an attorney who subcontracts abroad may charge a reasonable supervisory fee.
9. CLIENTS INSIST ON SELECTIVE OUTSOURCING TO ACHIEVE COST SAVINGS
Customers talk to each other. Executives of the main 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 at 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 better to ride the wave than to wait to be swallowed up, 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 what is necessary to survive. If that means outsourcing some US legal work for the sake of the entity’s own survival, then so be it. The model of ever-increasing salaries and expenses for law firms, followed by ever-increasing legal fees charged to clients, cannot be sustained any longer. Legal outsourcing is here to stay. The wise will realize, survive and flourish.