Boston Business Journal

Ever-rising costs are forcing a growing number of law firms to offshore legal work

by Mary K. Pratt Special to the Journal
August 1, 2008

Globalization has hit the legal field. Law firms are increasingly turning to outside providers, many of them with delivery centers abroad, to handle work once exclusively done by partners, associates and in-house paralegals. And all signs point to firms sending more work to outside providers, both domestic and foreign, as clients continue to push back on the ever-rising cost of legal work.

“There’s been a huge surge in demand,” said Ron Friedmann, senior vice president of marketing with Integreon Managed Solutions Inc., one of a growing number of companies hired by law firms to handle legal processes on an outsourced basis.

Friedmann, who is also president of Prism Legal Consulting Inc. in Arlington, Va., and author of the blog Strategic Legal Technology, has helped track the growth of legal process outsourcing, or LPO.

His numbers are telling. In 2005, he identified about 20 outside providers. The latest list of vendors providing outsourced or offshored legal services contains 111 names. Outsourcing generally refers to work sent to an outside provider that performs the work in the United States, while offshoring refers to work that’s sent to abroad.

Other statistics are equally compelling. ValueNotes, an Indian research company that studies outsourcing trends, said in a 2007 report that revenues in India from legal services offshoring are expected to grow from $146 million in 2006 to $640 million by 2010, while the number of people employed in the industry in India will grow from around 7,500 people in 2006 to an expected 32,000 in 2010.

ValueNotes — as well as leaders in the LPO industry — identified eight broad areas of work that law firms outsource or offshore. They are legal transcription, document review, litigation support, legal research, intellectual property-related services, contract-related services, secretarial work and legal publishing services.

Cost control seems to be the biggest reason why firms are willing to hire outside providers.

“The main driver behind the emergence of the LPO industry is undoubtedly cost. It is the ever-increasing cost of U.S. and U.K. attorneys coupled with the increasing commoditization of many aspects of the legal function, and that goes hand in hand with the increase use of technology in the legal profession, the explosion of e-discovery, and the improved connectivity to vast pools of talent in countries such as India, the Philippines and South Africa,” said Mark Ross, vice president of sales and marketing at LawScribe Inc. and chairman of the International Association of Outsourcing Professionals (IAOP) Legal Outsourcing Chapter.

Although lawyers have talked publicly about cost pressures and other firm business, this is not a subject Boston-area lawyers seemed eager to discuss. In fact, a number of law firms did not respond to or declined requests for statements on the trend.

Friedmann confirmed that most lawyers don’t want to talk about this. Indeed, he said he is allowed to release the names of some client law firms only during discussions with prospective new clients and then only late in the process and in confidence.

Jeffrey E. Stone, a Chicago-based partner at McDermott Will & Emery LLP, was willing to talk, though. Stone, head of the firm’s trial department, said his firm hasn’t engaged in outsourcing to any extent and has not sent any work offshore. But Stone acknowledged that clients are indeed watching escalating bills with concern.

McDermott Will & Emery earlier this year rolled out a new option for clients to help them contain costs without the need to send work to outsource providers. The firm has built a department of lower-paid staff attorneys who perform some of the more routine work, such as document review and due diligence services, that associates have traditionally handled, Stone said.

Stone said this new program mirrors the outsourcing trend’s appeal of lower prices — he would not disclose actual pricing — while enabling the firm to retain control over access, quality and security of the material being handled.

Stone touched on several areas that seem to be sticking points for many when it comes to outsourcing work, particularly legal processes. Critics of outsourcing and particularly offshoring often question whether providers can guarantee the same quality and security that the original companies can promise.

Friedmann, who is himself a lawyer, acknowledged that these are common concerns among critics as well as potential clients. But he said leading LPO companies, like outsourced providers in other fields, have put in place safeguards to ensure security, quality and continuity.

He pointed out that Integreon, with offices in New York City and Los Angeles and delivery centers in North Dakota, India and the Philippines, uses both keypad and biometrix entry systems to restrict access to sensitive data. The company also bans cameras onsite and saving documents on unauthorized media — i.e., saving work on a thumb drive to take home to finish up.

Friedmann said LPO providers also have had great success in attracting and retaining top law school grads in countries such as India, where it’s often more difficult to land work with top firms.

Moreover, Friedmann questioned concerns that this is a sort of shake-up in the legal profession (although some have questioned what it might do to the job market in the future). Friedmann said he doesn’t see the LPO industry as a wholly new trend but rather a 21st extension of what has been happening for a long time in the legal field.

“This is part of a natural, long-term trend of lawyers delegating work,” he said.