Outsourcing for Law Firms – What’s Different?

June 26, 2011

Around 35 delegates, consisting of lawyers with experiences of various forms of outsourcing as well as suppliers and consultants, gathered at the London offices of CMS to discuss some of the practical issues relating to business and legal process outsourcing (BPO and LPO respectively).

A Partner’s Perspective

Proceedings were opened by Yuban Moodley, a partner in CMS’s Technology and Sourcing Group. Yuban drew on his first-hand experience of BPO, following his involvement in CMS’s outsourcing of a number of business functions to Integreon. The focus of his presentation was on the issues specific to any law firm considering outsourcing business functions. He pointed out that, while outsourcing has been around for some time, there are a number of considerations that relate to the partnership structure of a law firm (as well as accountancy firms and management consultancies) that make these types of project distinctive. For example, partnerships represent a unique community where the shareholders are also the users of the outsourced functions. In addition, partners will need to be kept well informed of all aspects of the project to avoid any nasty surprises when it comes to obtaining their approval. Yuban highlighted the fact that this will result in different considerations arising when managing the project, compared to a BPO carried out on a traditional company structure.

In Yuban’s view there are six key issues facing law firms considering a BPO: independence and control; flexibility; client opinions and confidentiality; protecting the firm’s competitive advantage; service continuity and exit; and systems and controls. Underpinning these, again, remains the fact that BPOs for law firms have lawyers as the end-user. This results in a lot of focus on the risks and what the results of getting it wrong might be and how to mitigate that risk. He also discussed different structures to protect law firm/client confidentiality and structures for law firms to maintain control and flexibility in their outsourcing arrangements. Yuban closed by highlighting some of the contracting issues presented by BPO for law firms being a nascent market. Of specific concern are elements such as the lack of competitors or similar services to benchmark outsourced services against. However, these elements in particular should dissipate if the market grows over the next five years, which Yuban believes it will.

A Look at LPO

Vince Neicho was next to speak, and presented the benefits and opportunities of LPO, specifically focussing on document review functions. Vince is a Senior Litigation Support Manager at Allen & Overy and has been instrumental in drafting their policy on document review outsourcing. A large part of the focus of Vince’s presentation was underpinned by the importance of a firm considering document review outsourcing looking at its clients’ needs and taking their requirements into account. In particular, clients want reduced costs offerings, without compromising on quality or security. Vince wholeheartedly believes that this can be achieved, in the sphere of document reviewing, through outsourcing. Indeed, he believes that the firm that embraces the need for outsourcing is more likely to get the work from clients. In relation to the quality of the work produced by outsourced document reviewers, Vince presented a strong case for why they often return work of a higher quality than when the review is carried out in-house. In his experience, many of the individuals carrying out document reviewing as a service are fully qualified lawyers, who approach the task in a more focussed manner than many trainees would. Vince then went on to dispel what he sees as another myth of outsourcing – security risks – by stating that the security structures in place at service providers are often more comprehensive than those in place at many firms.

Vince emphasised the importance of the role of the law firm in an outsourcing, pointing out that the out-of-sight, out-of-mind approach should be avoided at all costs. Firms should bear in mind that, regardless of the fact that the document reviewing is outsourced, the service provider is not carrying out a legal service and it is ultimately the firm’s name that goes on the advice. Firms that outsource functions like document review therefore need to take responsibility for the process and play an active role in managing it. Vince drew his presentation to a close by pointing out that document review outsourcing is not a new phenomenon – indeed firms have been drafting in teams of paralegals to assist with reviews for years. In his opinion, firms cannot get away from the need to increase efficiency and reduce costs and so should start to develop an awareness of the LPO offerings out there in case their next client requests it.

The Regulator’s Approach

To close the presentations, David Whitney, Relationship Manager at the SRA, spoke about developments to the Solicitor’s Code of Conduct, and gave a feel for what those firms considering outsourcing will be allowed to do under the new code (which is currently in draft form). David approached this from the perspective of the regulator that has been criticised in the past for not understanding the specific needs of larger firms. The new code is being brought in on 6 October 2011 and is largely principles based, without any of the underlying guidance of before. It deals specifically with outsourcing in a number of places. However, it has been tailored to deal with the issues that may arise from a broad spectrum of legal providers that may be considering outsourcing – not just those issues that larger firms may present.

The most pertinent issues in the eyes of the SRA were not surprising and related to the regulator’s main concern that firms should not be driven to outsource functions by cost savings without considering all of the risks – including the protection of clients – and ensuring firms considering outsourcing have properly thought through the competencies and appropriateness of the provider. It was interesting to hear that some of the other concerns the SRA has appear to be present as key elements of the successful outsourcings Yuban and Vince discussed, including ensuring that there is adequate supervision throughout and that the client is aware of the process. Going forward the SRA will be continuing to gather intelligence on the area and will engage with stakeholders and other regulators to identify whether any further guidance is required.

Discussion and Conclusions

There then followed a brief discussion on areas such as data protection and outsourcing, and whether the proliferation of cloud computing poses any particular issues for this kind of outsourcing. The speakers also gave their opinion on what the marketplace would look like in five years time. Yuban and David both came to the same conclusion – that the marketplace for BPO and LPO will develop considerably. Vince however believes that, through the advancement of technology and clients developing their own resources, the market for document review outsourcing may start to quieten down after five years.

Overall the evening provided a very insightful overview of the world of outsourcing for law firms. Delegates were left with an appreciation of some of the issues to look out for, from a commercial and regulatory point of view. Both BPO and LPO have benefits and the SRA has tried to develop a new code that will maximise firms’ access to these benefits, without compromising the protection of the client. Ultimately it seems this is an area that firms are going to have become more open-minded to as clients become increasingly concerned about cost and the rival  offerings in the marketplace increase.

James Besley is a trainee solicitor at CMS Cameron McKenna.