Outsourcing is “In” … But Be Sure to Demonstrate Value

  • March 13, 2014
  • Edward Poll

The concept of outsourcing is a fundamental business strategy. It allows individuals and organizations to focus on what they are best at, their core competencies, without diluting those capabilities by pursuing other, less productive areas.

Mega-corporations often forget this principle when they try to become all things to all people. (See Pheffer’s The Knowing-Doing Gap.) When financing (and profits) become more difficult to attain, they look for ways to shed unprofitable activities. That's when "returning to our core skills" becomes an accepted way to say, “we’re going to focus on what we know how to do.”

Outsourcing and Legal Support

Just as with corporations, outsourcing is not a new principle for law firms. Many firms for years have locally outsourced mailroom services and records storage, for example. There is a growing use of virtual assistants—paralegals or other administrative specialists who work offsite and online, creating work product to the lawyer’s specifications and tailored to the law firm’s practice. High speed Internet makes such arrangements possible, and now the reach of such support service outsourcing has spread worldwide.

In this sense today’s legal support service world is figuratively flat. People the world over have the same aspirations and capabilities, and can achieve them anywhere through digital and electronic technology that makes the “playing field” flat and level for everyone. The growing pool of highly educated talent in countries where the use of English is widespread (such as India, the Caribbean and Ireland) can reduce by up to 80 per cent the cost of:

  • Transcription of voice files from depositions, trials and hearings
  • Accounting support in the preparation of timesheets and billing materials
  • Paralegal and clerk support for research and file management
  • Data entry for marketing, conflicts and contact management
  • Litigation support graphics
  • Legal research, including case citation summaries
  • Review, and due diligence of business documents
  • Patent review and searches

This is not the practice of law. It’s the provision of high quality, low cost legal support products for licensed lawyers. Because the work is delivered electronically and is produced under the firm’s supervision, it is transparent to the client. It is thus a solution to the problem of clients becoming angry with their lawyers over charges they consider overhead and part of the cost of doing business – whether it be photocopies, file management or word processing.

Outsourcing and Contract Lawyers

Many firms, both large and small, hire contract lawyers to provide legal counsel on matters for which the outsourcing lawyer is unavailable to handle. In a contract situation, the outsourcing lawyer should contribute oversight of the outsourced legal work and communicate with the client on how the work is applied. The lawyer who engages the contract “pinch hitter” becomes responsible, in a malpractice sense, for any errors committed even in a seemingly simple case. The CBA Code of Professional Conduct addresses the contract relationship in these two key areas:

Rule 11 (Fees), Commentary 6: A fee will not be a fair one within the meaning of the Rule if it is divided with another lawyer who is not a partner or associate unless (a) the client consents, either expressly or impliedly, to the employment of the other lawyer and (b) the fee is divided in proportion to the work done and responsibility assumed.

Rule 16 (Responsibility to lawyers and others, Commentary 11: The lawyer who is retained by another lawyer as counsel or adviser in a particular matter should act only as counsel or adviser and respect the relationship between the other lawyer and the client.

The message is clear—the client must know of and approve the contract arrangement, and the contracting lawyer retains final responsibility for the client relationship. However, what about the relationship between the lawyers themselves? Common sense says it is vital that the participants in a contract agreement have their own fee arrangements in writing. Courts have ruled that split fees cannot be collected in full without complete documentation from either the client or the attorney side. The arrangement may be at an "attorney's rate," a standard flat rate, or any rate that is established in the engagement agreement and is acceptable to the client. The rate can be high enough to cover "overhead" expenses of the firm’s own staff, such as secretarial help, paralegals, word processors and so on.

Lawyers who don’t get written confirmation when they have accepted another lawyer’s outsourcing assignment are like the cobblers’ children who go without shoes. The contract lawyers obviously have failed to take care of themselves if their only recourse to secure an undocumented special appearance fee is to sue. And when there’s money involved, even lawyers can have selective memories.

Outsourcing and the Internet

The web increasingly facilitates legal outsourcing in ways other than as a conduit for work done remotely. Here is just one example—General Electric’s aircraft sales force negotiates deals around the world. They submit purchase contracts to their prospective customers. When terms or the words of the contract need to be changed to meet customer requests, the sales force formerly had to send the proposal back to GE lawyers for review and change. This process often took weeks and sometimes resulted in lost sales. Then, GE has created a “tool kit” of clauses available on the company’s extranet for use by its sales force to address situations just like this. Allowing the sales force to make contract changes has apparently saved GE $12 million in legal fees as well as increased the speed of the negotiation process and their “closing” rates.

Think this is just an isolated phenomenon for one of the world’s largest companies, and not something that affects the typical lawyer? What about “do-it-yourself” websites purporting to offer advice, research and forms in such areas as family law, probate, real estate closing, even filing a patent? Clients and potential clients live their lives at Internet speed, and increasingly have little patience for the pace (and cost) of traditional lawyering. The increased outsourcing of legal services to online “providers” is the result.

The Outsourcing Dynamic

Legal outsourcing can contribute to work and cost efficiencies if used correctly as a transparent resource. However, that transparency must still include proper oversight and quality control. The outsourcing of any aspect of legal practice should never be undertaken cavalierly. The financial incentives of cost-saving or fee-splitting may be offset by a host of ethical and client service problems created by inadequate oversight.

When it comes to outsourcing, value is determined by the client, not the lawyer. But, it’s the lawyer who must educate the client about “value.” This, of course, brings us back to the need for communication and trust and rapport between client and lawyer. Outsourcing can obviously benefit all sides in the legal service equation. The key is to understand the value and convey it to the client.

Edward Poll (edpoll@lawbiz.com) is a certified management consultant and coach in Los Angeles who coaches attorneys and law firms on how to deliver their services more profitably. He is the author of Attorney and Law Firm Guide to the Business of Law: Planning and Operating for Survival and Growth, 2nd ed. (ABA, 2002), Collecting Your Fee: Getting Paid from Intake to Invoice (ABA, 2003) and, most recently, Selling Your Law Practice: The Profitable Exit Strategy (LawBiz, 2005).