Strategic Legal Technology

Will legal process outsourcing (LPO) grow in 2007? Will LPO vendors consolidate? When will law departments and law firms “go public” with their offshoring? These are some of the questions addressed in a new article. 

Legal Process Outsourcing (LPO): 2007 And Beyond by Mark Ross, with contributions by Ron Friedmann and Neeraja Kandala address these questions. Mark Ross is a UK solicitor and Director at LawScribe and blogger at http://blog.law-scribe.com/; Ron Friedmann is Senior Vice President, Marketing at Integreon and Neeraja Kandala is a Senior Research Analyst with ValueNotes, a company that has done an excellent job tracking and analyzing the LPO market. This article first appeared at Mark Ross’ blog and was subsequently published by Immigration Daily (ILW.COM) in January 2008.

In it, I predict that the LPO market will consolidate because (1) maturing markets usually do, (2) the operational and strategic advantages of scale, and (3) lawyers’ preferences to avoid small suppliers that may not be stable. I also suggest we will see more public acknowledgment of offshoring because of the usual legal market “tipping phenomenon” where no firm wants to first (or 2nd or 3rd) but after a half-dozen, all rush to follow.

Fellow blogger Jordan Furlong has an excellent blog post about the potential role of legal secretaries. I’ve written about this topic as well and am glad to have another voice join in. 

In Legal secretaries 2.0 at law21.ca, Furlong picks up on one firm’s idea of assigning secretaries specialties. He suggests that “allowing secretaries to focus on and develop expertise in one particular area creates clear channels through with assignments can flow much more easily and efficiently.” Moreover, he believes in “up skilling” and that secretaries should be “trained professionals with the talent and motivation to constantly move up the value chain.”

I agree completely and have made similar suggestions:

In Powering a KM Windmill ("Baking KM into the System"), Chris Boyd of Wilson Sonsini and I suggested that secretaries could play a much bigger role in manual knowledge management work.

In The Future of Legal Secretaries – Working Groups?, I observed that “working groups would also allow specialization by function and/or seniority.”

In The Business Case to Outsource Secretarial and Document Production Tasks I suggested that outsourcing document-intensive work would allow secretaries to re-focus on higher value tasks.

If firms lay-off lawyers, as some already have, staff may not be far behind. It’s a potential opportunity for firms to re-consider the role of secretaries, focusing on keeping the ones who really add value. Of course, firms don’t have to wait for bad times to execute good ideas, but exogenous shocks often force change.

The Knowledge Management Peer Group of ILTA (International Legal Technology Association) is hosting a reception at Legal Tech NYC on Thursday, February 6th. 

For event details and to register, click here. See also details on Legal Tech 2008 in NYC.

Legal process outsourcing and offshoring remain hot topics judging by two recent articles. And both illustrate on-going perception issues. 

In GCs Embrace Outsourced Work (The Recorder, 25 Jan 2008) a BigLaw partner objects to offshoring document review because it is “better for lawyers who are working on the case to review related documents.” Absolutely. But few think associates should review every document. Whether contract lawyers or ones offshore conduct the first pass review should have little impact on what associates end up seeing. The key is having a process - human and software - that quickly, accurately, and cost-effectively filters what the case team sees.

Legal Outsourcing to India Is Growing, but Still Confronts Fundamental Issues (New York Law Journal, 23 Jan 2008) reports on a recent conference on legal offshoring. The reporter observes that the economics of offshoring are not as simple as may first appear because

“Maintaining a group of lawyers in India imposes significant infrastructure costs on the outsourcing companies. Aside from office space and computers, the leading companies also have U.S.-trained lawyers working in both India and the United States to supervise the work of Indian staff. They also maintain client development teams to market services to U.S. companies.”

All true but little different than the economics of contract lawyers in the US. Last time I looked, domestic litigation support and staffing companies also maintain sizable client development teams. And let’s all hope review lawyers have space and computers somewhere (and space is generally cheaper offshore).

But yes, it’s probably true that offshore providers have more lawyer supervision. Some of the “delta” (the additional use of lawyers) stems from transactional costs of being offshore but most likely reflects the amount of attention any document review should receive. That is, the problem is not that going offshore mean over-investing in lawyer supervision; rather, it is that in onshore reviews, clients and firms often UNDER-invest in lawyer supervision and project management.

I have oft stated that these are empirical questions, subject to testing. In my post Honestly Held Beliefs May be Wrong I point out that lawyers often operate from honestly held but mistaken beliefs about the way things work. Much of the discussion in the legal profession about offshoring to date strikes me as based on speculation about possible problems of working offshore. The dialog would be much better if more lawyers and reporters commenting on the topic do so based on empirical data and a comparison of alternatives.

[Disclosure: I am not disinterested. I started working for Integreon in Sept 2007. But regular readers will recognize that my changing hats has not changed my analytic and empirical approach to the questions here.]

I’ve previously posted about the convergence of corporate information life cycle management systems and the e-discovery market, including the entry of EMC into the market in February 2006. Now, the next move. 

In the current (Jan 2008) issue of American Lawyer magazine EMC has a white paper as a 4-page inserted advertisement ("A Practical Approach - Ten-step framework for effective policy management and in-house eDiscovery"). It’s targeted toward inhouse counsel with a message about managing information to avoid EDD problems. The same insert also appears in the January Law Tech News.

Ads do not equate to market share but can serve as an indication of intent. EMC may be poised to invest more in the discovery market. That said, SAP placed an 8-page essay in the September 2005 American Lawyer and I did not see a subsequent push in legal.

Speaking of ads as indicators, CRA International also has ads in the current American Lawyer offering “legal business consulting” for “running a corporate legal department.” That’s the first I’ve seen of this company targeting corporate law departments for legal operations and other services.

Alas, we may never know the legal standard of care for an e-discovery vendor. 

A pair of lawsuits that could have made for some great drama and established a vendor standard of care has been settled. I previously blogged about a dispute between Sullivan & Cromwell and EED. Both S&C’s initial suit in NY state and EED’s countersuit in Washington state have been settled according to Sullivan & Cromwell, E-Discovery Vendor Settle Lawsuits (National Law Journal 18 Jan 2008): “The short-lived clash was believed to be the first of its kind between a major law firm and a leading vendor in the growing area of electronic discovery services.”

Fear not - given the volume of EDD, I suspect it’s only a matter of time before we see another such suit.

In this Roundup: the decline of law as a profession, small firm tries a new approach to legal secretaries, glimmers of hope for alternative fees, and Microsoft Vista woes. 

The Demise of Lawyers?
The Falling-Down Professions (New York Times, 6 Jan 08) reports on the declining prestige - and satisfaction - of lawyers and doctors. Must reading for anyone working in the legal market.

New Secretarial Model?
Law firms reorganize workflow with new models (Business First of Buffalo, 4 Jan 08) describes how a Buffalo (NY) law firm “recently revolutionized its firm structure by assigning to each secretary a specialty for which that secretary is chiefly responsible, and from which she or he is rarely distracted, rather than assigning each secretary to a specific attorney or two.” I’ve long suggested that law firms need to re-think the role of secretaries; this sounds like one good approach.

Glimmers of Alternative Fees
When it comes to alternative billing, there’s been more smoke than fire for 20 years. Two new small firms have been founded, in part, on the premise of new billing approaches: Valorem is described in Chicago Startup Touts Alternative Billing Structure, Lower Fees (National Law Journal 14 Jan 2008); Optim Legal in Australia offers “Premier lawyers for around 40% less”. If this trend continues (and that’s a big if), it can only help advance legal technology. Fixed fees and other structures would help provide incentives for lawyers to use technology to practice law more effectively and productively.

Microsoft Vista - Should You Upgrade?
Not from what I read. The reviews I’ve seen are generally negative or, at best, neutral. Ross Kodner is one of the leading legal technology consultants and experts. In his blog post Vista – a/k/a MOPH (My Own Personal Hell), well, I think the title says it all. After reading the litany of issues, I’m not sure what would persuade me personally to take a chance on Vista.

Live from the ACI Legal Process Outsourcing conference in NYC. Session: Best Practices for the Ongoing Management of the Outsourcing Arrangement. Speakers: Angelo Paparelli, Managing Partner, Paparelli & Partners LLP and Elizabeth Foster
Partner, Business and International Services Groups Luce, Forward, Hamilton, Scripps LLP. 

Paperelli Offers a Case Study in LPO

In my firm’s practice - immigration for large companies - we faced severe price pressure. At the same time, we faced escalating costs (rent, associate compensation). It became clear that to operate profitably, we needed to find less expensive ways to work. I also was concerned that young lawyers spent too much time on writing and research and not enough time with clients. So I looked at offshoring….

Offshoring strikes fear in associates and staff. You have to think carefully about how you introduce the concept to your firm. If you don’t do it the right way, offshoring will be sabotaged. Thought that one meeting was enough to make everyone comfortable. It turns out that was NOT the case. It takes time to get people comfortable. The senior lawyers on each team have to champion offshoring. The right way is explaining facts to team: the economic challenges, for example, the challenge of scaling up and down as work flow ebbs. Explain all the reasons why LPO can solve the problems without threatening jobs (in fact, it will let existing team do higher value work). It did not go over well initially.

As part of offshoring, you have to make sure your processes are in good shape. You also need metrics in an LPO agreement, with real-time access to work status. To get the right LPO metrics, you first need the right metrics in your own firm. Otherwise you can’t reliably compare your own work with the offshore work. Both sides should measure performance and regularly compare notes.

A government rule change caused a substantive change in how work had to be done…. certain work now had to be done in a shorter time frame. When the firm tried to return work to client, client made noise about discipline. That brought religion to staff, who then saw there was no choice but to consider offshoring in order to deliver what the client needed. The fact that we had laid the ground work was critical though.

I thought I could build own facility offshore but realized it is much harder than anticipated for a smaller law firm.

Elizabeth Foster

My firm has not yet done any offshoring. For providers, it should be helpful to hear the perspective of a mid-size firm as it considers offshoring. Draws analogy to finding a US lawyer in another state. It’s done by word of mouth with few reference checks. Thinks that the same will eventually be true for offshore work.

Live from the ACI Legal Process Outsourcing conference in NYC. Session: Avoiding the Ethical and Liability Risks Associated with Outsourcing Legal Services, Speaker: Lawrence Schultis, Partner, Pillsbury, Winthrop, Shaw, Pittman LLP. 

The New York City Bar ethics opinion is the leading one for ethical issues in outsourcing and offshoring. In the eyes of the bar, any lawyer not licensed in NY are not considered lawyers for purposes of NY law (and is thus a non-lawyer). Lawyers must adequately supervise non-lawyer . Any time a licensed lawyer delegates work to a non-lawyer, she must assure the work is properly conducted.

For offshore work, lawyers must be “vigilant and creative” in supervising non-lawyers. Of course, these words are not defined and provide little guidance on their face. The NY opinion provides some guidance though:
- get background information on workers
- conduct reference checks
- interview workers for suitability
- ensure non-lawyers understand assignment and expectations

Factors showing supervision include:
- Discipline and termination for improper conduct
- Adjust compensation for poor performance
- Contractual right to get workers off your matter
- Lawyer provides training
- Lawyer reviews ethics and practices
- Discretion to confine areas of work or scope or responsibility
- Thorough review of work product. (MOST IMPORTANT)
- Lawyers MUST NOT delegate authority over strategy, question of judgment or final content.

Arrangements with LPOs are contractual, so contract must say the right things. In contrast, with US lawyers, ethics rules govern and create obligations. For example, confidentiality is protected by US ethical rules for US work; the LPO contract must contain confidentiality provisions. Customer must also follow strict conflict checking rules. The contract should have an explicit conflicts checking plan. There is no law yet on how far back an LPO needs to look for conflicts. Even in US, there is not a clear cut rule about how far back to look.

Disclosure and consent is not required unless:
- Non-lawyer will play a significant role
- Client confidences must be shared
- Client expects that only personannel employed by the law firm will handle the matter
- Non-lawyers are billed to client on a basis other than cost
NY bar uses “should” but this should be read as “must.”

Absent specific agreement, non-lawyer services should be a pass through cost. The mark-up rule does differ between a contract “lawyer” (meaning the person is a licensed NY lawyers) and offshore workers assuming. In practice, there is much “winking” at fact that some contract lawyers are NOT licensed in NY. If the contractor is not licensed in NY state, then rules concerning mark-ups would the same as for an offshore worker.

Draws analogy to initial ethics rules regarding use of e-mail. Some early opinions said e-mail waived privilege because message traversed the net. Thinks the rules will eventually change for LPO work, as they did for e-mail.

Live from the ACI Legal Process Outsourcing conference in NYC. Session: Initiating an Offshore Legal Services Operation, a presentation by Nancy Laben, Deputy General Counsel, Accenture. 

Laben has, as a lawyer, negotiated many outsourcing deals over 15 years. Five years ago, she was involved in setting up a captive LPO. It works for us. Manages 400 lawyers as Deputy GC. We expect to grow but we can’t keep growing at same rate because of economics and span of control. So I am looking for the next new thing - outsourcing may be it.

What factors should you consider when deciding to outsource? This is my GC / user perspective. You have to have measurable processes to prove success. A lot of prep is required. Start by defining business requirements (what is your scope?). Is it one project or a strategic relation? Must also define risks.

Be prepared for change management. If outsourcing affects your team, they must understand the new goals and impact on them. Communicate clearly what the rationale is and expectations are. For example, is it about cost or doing a bigger volume of work. I start with quality and figure out how I can get that level. Don’t expect a Lexus at Yugo or Nano (Tata) prices.

Make sure you have the right cultural fit - does the outsourcer understand how you want your work done. When I ask how do you work, I don’t want to hear “Anyway you want.” I need to know what the intrinsic culture of a supplier is. I need to make sure it fits. I am especially interested in supplier flexibility.

Communicate your priorities to the vendor. Don’t do a wish list; make clear what the requirements really are. Most LPOs disclaim that they are providing legal services. So how does that fit with the required legal Q&A. Be sure you understand how this could affect legal privilege.

There is more value if you see beyond mere vendor relationship. Seek synergies, understand where your interests and vendors align. Work toward a real partnership. Assess future scalability. Know the cost of managing the outsourced relationship.

Accenture is metric driven, so we look at base case that includes all our costs. We look at cost by function and level, including recruiting cost. Have a realistic view of the quality your inhouse department provides. Most don’t measure this - if you don’t how can you compare to an LPO? If you are asking for more quality than you currently provide, you should at least know you are doing this.

Trust is critical. If you change your mind, tell your supplier.

Choosing a provider: Start with referrals; consider reputation; look at 3rd party benchmarks; ask your law firms (especially those with a positive view of LPOs); check with chambers of commerce (some, particularly in NY, track outsourcing).

What goes into RFP? Avoid something too long. Key terms and conditions: confidentiality. service levels, metrics, reporting, conflicts checking, privilege, security, and export control, termination provisions, background checks of team, hours and time zone availability, audit rights, compliance with local law, volume discounts, rates, expenses. Accenture wants “completed enclosed” service providers (dedicated center). Understand depth of vendor bench.

I just came back from India to visit with LPOs. I was very impressed generally with security (and Accenture focuses on this in its business) .

How should you conduct due diligence? Reputation, referrals, financial strength, insurance, facilities, certifications, disaster recovery, data security, training, how employees are evaluated, quality, litigation history, technology in use. If tech is important, bring a tech expert for due diligence. Get a micro look at vendor work processes. Understand how LPO hires and retains its employees. Don’t overspecify. Attrition may be ok if work is highly proceduralized.

Accenture’s own legal outsourcing initiative: Five years ago we found a shift in our business and we had our IPO. We needed to figure out how to measure lawyer productivity and increase it. Our own lawyers were not happy with spending so much time on low value work. We considered India we thought (five years ago) it was too immature. We decided we could not buy ready-made services so we would have to build. We set up a small team (<10) in Mauritius. Metrics: timeliness, quality, types of contracts reviewed, utilization (productive hours worked), total volume, amount of savings. I would expand if I could but the amount of legal talent in Mauritius is limited - we are big employer of choice there. We save $55k per month over US operations.

Why not expand? We are now looking at India LPO because market has matured. We will set up our own in India if we don’t find a vendor we like.

Live from the ACI Legal Process Outsourcing conference in NYC. Session: Comparing and Contrasting Different Models for Offshoring Legal Services. Moderator: Andrea Lee Negroni, Esq. Of Counsel, BUCKLEY KOLAR LLP, plus four panelists. 

Chris Veator of CPA
- Background: CPA started in IP and now has contracts and document review. We have 40 years experience in legal outsourcing work. Founded by lawyers 40 years ago; 40k customers around the world; 1100 employees; global footprint; multiple locations.
- Business options: captive, US-based, India-based, 3rd party LPO.
- Within legal, captives can never gain the requisite scale to gain outsourcing benefits. A sub-scale LPO will hae trouble attracting and retaining employees. Attraction of LPO to Indian lawyers is career advancement - captives cannot offer this without scale. Also, you cannot gain cost efficiency at a small scale. And finally, innovating requires sufficient scale to invest.
- Law firms or departments have to be careful of “captive fatigue.” Do you really want all the headaches of running your own offshore center?
- Where should you do outsourcing? It does not matter if you partner with the right LPO company, your vendor can craft a solution that meets your needs.
- Key competencies:
(1) Recruitment and training [if you need a team, a good LPO will not have people on the bench but will know how to hire good people for you];
(2) Project and contract setup (make sure the transition is well managed and contract is clear);
(3) Legal expertise, project management, and structured teams;
(4) Building Delivery Communication, Reporting, and Metrics (you only have an illusion of control with local employees).

Ed Burke, Bodhi Global
- Founded by a top Indian law firm (AZB & Partners)
- Patni Family, owners of NYSE listed Patni Computer Systems and PCS Technology are involved. They bring IT and security expertise
- We combine law, process, and technology
- Our model offer credibility and financial stability.

Live from the ACI Legal Process Outsourcing conference in NYC. Session (9:45am): Panel Discussion: First Hand Experiences on Making the Business Case for Outsourcing Offshore – Qualifying the Viability and Benefits to Overcome Stakeholder Resistance. Moderator: Jonathan Goldstein of Pangea3; Donna Webber, Chief Counsel, CIT Capital Markets; Shannon Copeland, Practice Group Manager, Kilpatrick Stockton LLP; (2 scheduled panelists not present; bold comments reflect what I found most interesting) 

What is your internal situation?
Copeland:
- Three years ago, firm hired former consultants to help manage the law firm business. This is new move in the southeast. In Fall of 2005, one of our first projects was legal outsourciing. It was obviously coming. There are 4 MBA types in our firm; we look for business opportunities and advocate for change. Lawyers are skeptical but our clients are addressing that head on. My group keeps the pressure up in our firm.
- We do use contract lawyers which we pay $80 to $90 and we bill at $150. We can get $30/hour in India with better quality.
- Our experiments internally are still too small to have material impact on our lawyers. Some of our experiments - via LPO vendors - include offshore work for Home Depot and GE. We compared results of equivalent briefs written in our office and in India - the briefs from India always came back better. [Update, 1/31/08 - Mr. Copeland clarified this point in an e-mail message: “Kilpatrick Stockton’s experiments, especially with higher level litigation work in India are nascent. KS sent a single previously written brief assignment to India and the results were much better than expected. Further exploration has therefore been encouraged by our partners and our clients."]

- We are up to $100k in fees to offshore providers so far.

Webber:
- Law department headcount was frozen but we had new tasks we had to do. So outsourcing was natural to evaluate. But American lawyers are innately skeptical of lawyers elsewhere to do the work. When we first approached offshoring, we were skeptical. When we saw quality, we were relieved.
- Given the offshore savings, making the decision was easy.

What types of work are going offshore?
Webber: All of our NDA for deals are drafted and/or reviewed by offshore lawyers. We found that inhouse counsel spent inordinate amount of time doing this. WE developed extensive guidelines on provisions to include and how much we were willing to bend. We provided this detailed guidance to offshore lawyers. So far, our business clients are very happy. The other offshore project is to conduct surveillance of e-mail. They sort out junk from 500 to 600 e-mails a day so that fewer need review inhouse.
Copeland: environmental research, mortgage backed securities document prep, due diligence for global construction projects.

How did you screen and select vendors?
Copeland: Two of my peers came from Accenture offshore arm. We had a lot of sophistication. We signed MSAs with two vendors. We demanded a variety of certifications and security. We got very good results from our LPO. We want to deal with LPOs who can talk very specifically about their work and experience. We looked at the 2 vendors who came knocking on our door. We started using ValueNotes in summer of 2005; we used that report to identify top vendors.
Webber: We went with first vendor we contacted; it came highly recommended to us. We felt strongly that people running the LPO had a very good understanding of American client demands and law. I find formal RFPs less useful than client references. I feely share my experience with peer inhouse counsel.

How do you measure success of LPO work?
Copeland: We provide services now, at a cost that client demands, that we could not do without offshore resources. We look very innovative to our clients.
Webber: The value for us is the time freed up for inhouse lawyers to do higher value work. This helps reduce outside counsel fees and keeps our lawyers happier. We avoided a new hire by using LPO services. We also so spot quality checks and are happy with what we found. We did this much more in first 6 months; now we are comfortable with quality so we do less. Need to recognize that lawyers are not good at formal, quantitative metrics.

What are your views on build versus buy (captive versus vendor)?
Copeland: We considered building early in our evaluation process. We knew how from Accenture experience. But seeing many providers, build did not make sense. Were work to grow to $1mil or $2mil, we might re-visit build v. buy decision.

What factors do new vendors pitch that are NOT relevant?
Webber: I have not been pitched very much, mainly because I’m not the obvious target in my organization
Copeland: We don’t have formal pitches we get. Vendors should be specific.

Were concerns of key stakeholders well-founded?
Webber: Inhouse clients were skeptical because on the NDA project, they were used to talking to business unit lawyer. But resistance was easy to overcome. Moving to e-mail was an easy transition. In the end, the quality and service level is better from India than from local business unit lawyer.
Copeland: Ethics, security, and quality were initial concerns. Bar association opinions allayed ethics concerns. We have examined mark-ups (upcharges) for offshore lawyers. We bill Indian lawyers at $70/hour when we pay $30 or $40/hour. It took effort to overcome upcharge hurdle but we have costs to cover. We disclose to our client use of offshore lawyers and what our upcharge is. We are focused on making this an innovation initiative.

What work cannot go offshore? How do you decide what to offshore?
Copeland: Not sure what the limit is. We may have to do more training. But our senior partners say judgment cannot be offshored. But we think we can push a lot of issue identification offshore. Our clients don’t want directly to manage LPOs. We go back to skeptics repeatedly with success stories.
Webber: Where knowledge of business is critical, we cannot move work offshore. But that is work we cannot easily send to outside counsel in US either. Also, some issues require immediate action - this can be impossible to offshore, especially for delicate issues where we are the trusted adviser. We did go directly to LPO. We use traditional big, NYC law firms. I don’t see them offering offshore services the way Kilpatrick is doing. I would be very receptive to a firm that offered to use offshore service.

How do you manage LPO projects?
Webber: Each project has an inhouse primary contact. If any issues come up, inhouse contact raises with vendor.
Copeland: We are no more sophisticated managing vendors than other AmLaw 100 firm. We haven’t done anything with Pangea3 other than vetting agreements and informing clients. Lawyers still manage the vendors.

How important are state-side lawyers in choosing an LPO?
Webber: Very important for us. Critical in our decision.
Copeland: Critical for us to. But video with Mumbai is very easy. And our lawyers find service from India is very good.

Q&A
- What is impact of fixed fees on offshoring? Webber: CIT does not demand fixed fee work generally; sometimes on a matter basis. Copeland: Absolutely, fixed fees would push us to more offshoring.

Update, 1/31/08: embedded in text above

Live from the ACI Legal Process Outsourcing conference in NYC. Session (8:45am): Capitalizing on the Growing Trend of Outsourcing Legal Services Offshore. Speakers: Robert Glennie, Co-Founder and CEO, New Galexy Partners Limited; Russell Smith, Chairman, SDD Global Solutions PVT LTD. Bolded text reflects what I found most interesting. 

Glennie presents:
- The idea of legal outsourcing was unthinkable a few years ago but is now widely accepted. “Futurologists” should not listen just to customers, they need to think of new ideas. Before the advent of Model T, customers would have said they wanted a faster horse.
- Corporations seek to manage risk and reduce cost. They want to manage “hidden costs,” for example, the cost of training new lawyers.
- Benefits of Offshoring: Free highly paid lawyers to work on higher value matters.
- Whereas law firm lawyers often feel threatened by offshoring, inhouse lawyers don’t. But lawyers should not feel threatened because the work going offshore is work domestic lawyers don’t want to do.
- Reviews European work that New Galexy does: purchasing contracts for Dutch manufacturer; risk management of contracts for a global professional services company; commercial contracts and software licenses for the UK Head Office of a US-based global insurer; media and commercial contracts for a UK media company. LPO lawyers negotiated contracts for corporations. Offshore lawyers spend 2 to 3 weeks domestically at office of general counsel for one client.
- The Future: Most of our growth has come from existing clients. Thinks law firms will become customers as well (cites that Clifford Chance is already outsourcing back office work).
- Asked ValueNotes (analyst company) to interview customers and do market research. Highlights of an interim report: more complex tasks are being offshored as comfort level increases; LPO market will grow to $640 million (US) in 2010;
- Volume of judgment-based work is increasing
- One corporate GC heard from his management that he HAD to outsource because legal was only function in the bank that was not using outsourced services.
- Believes that LPO work will move from on-off projects to constant stream of work.

Smith presents (without slides!):
- Will talk about own personal experience with legal outsourcing.
- Has worked for 4 law firms, from very large to solo. I became disillusioned with the practice of law. As a partner, I was less happy than as associate. There was a low level war between partners and clients on billing. Took one year off. Missed law practice itself; realized the problem was HOW law was practiced. Started a solo firm and it grew - it was a very low overhead operation. Focused on media and entertainment.
- As a tourist in India, found it easy to do legal work from there. Read the ValueNotes report and found it eye-opening - thought that “I can do that.” Decided to open an Indian office. Started with 5 and now has 50 workers in Mysore.
- Four myths of outsourcing: (1) Indian lawyers don’t have the skills or aptitude to do high level work such as drafting pleadings, legal research. (2) There has to be a compromise in quality for low cost. (3) Ethics is a constraint. (4) Legal outsourcing is a threat to law firms.

• 1. Re skills and aptitudes: there is a high and improving level of skill in India. Law schools in India do not prepare graduates for law practice but the same is true in the US. My company provides a lot of training.

• 2. Cost - quality issues: Rent cost in Mysore is 1/43rd that of mid-town Manhattan. Clients are paying a lot for space, for training associates, for inflated hours ("let’s face it, there is inflated hours in time sheets"). The work we do in India is flat fee so time padding does not occur and clients don’t pay for training.
• 3. Ethics and confidentiality: Security in India is much higher than in most US law firms. “We have a Microsoft-free environment that is more hack proof.” The idea of unauthorized practice of law is a red herring. Most firms have lawyers who are not licensed in a particular jurisdiction. It’s all about supervision.
• 4. Not bad for law firms: LPOs are doing work that would not otherwise be done because it would be too expensive. My firm did a script review and multi-state analysis to determine shooting locations that would not have been affordable onshore. We had 20 Indian lawyers on project. The client would not have accepted 20 US lawyers doing the work. Another example: set a flat fee for litigation; could not have done this without Indian lawyers, who did most of the heavy lifting of drafting motions. A partner from a very big law firm called me about a pitch to a Fortune 30 company. A pre-meeting question asked about legal offshoring capability. This partner was forced to offshore but he was enthusiastic because he saw opportunity to use offshoring as marketing differentiator.

- Is recruiting from the top dozen or so law schools. Also sees Pangea3 at these schools but not many other LPOs. Not sure how LPOs can do high end work without high-end graduates.
- Corporate counsel will lead the push for LPO work.
- Finds an increasing amount of cross-referral work among LPOs.

Consolidation of the e-discovery (EDD) market continues apace. 

Press Release excerpt: “Deloitte Financial Advisory Services LLP (Deloitte FAS) announced today that it has acquired certain assets of Barrasso Consulting LLC (Barrasso), a firm specializing in planning and executing litigation discovery programs, to further enhance Deloitte FAS’ existing national Forensic & Dispute Services practice…. Barrasso Consulting will be fully integrated within Deloitte FAS’ Forensic & Dispute Services practice as a new service line, called Document Review Services. Approximately 80 Barrasso Consulting professionals will form the foundation of this new service line, including Barrasso founder and president Diane Barrasso. Barrasso will join Deloitte FAS as a principal and national service line leader of the Document Review Services team.”

Law firms business intelligence has become a big deal (see my blog posts on BI). One of the leading BI software tools, Redwood Analytics, was acquired last week by LexisNexis. 

According to the press release, Redwood will join “the LexisNexis® Client Development Solution Line – already inclusive of a diverse set of solutions such as InterAction®, atVantage™, Martindale-Hubbell®, LexisNexis news and business sources and more”

The three large legal publishers - LexisNexis (part of Reed Elsevier Group), Thomson West, and CCH (part of Wolters Kluwer) - have acquired numerous software companies in the last decade and built some interesting products. It would be fascinating to know what percent of revenue each derives from software. Through the early 1990s, innovation from these companies seemed pretty much “we have a new database today.” Today, innovation is “we have a new software offering today” and the apparent goal is to compete hard for a much bigger share of the BigLaw wallet. The traditional players have successfully moved beyond publishing to legal productivity solutions. Now the question is, how far will it go?

Ten years ago, large US law firms thought strategy meant “we have quality lawyers.” In contrast, Australian firms were conducting serious market analysis and formulating real strategic plans. They are still way ahead of US and even UK firms. Here is yet another example. 

Minter Ellison is one of the top six firms down under, comparable to a a top NYC or Magic Circle firm. Being a big player in a relatively small but highly sophisticated domestic market, however, drives creativity and innovation. The A-Bomb of Differentiation (Lawyers Weekly, 16 Nov 2007) explains that the Adelaide office invested $5 million in case management and other software to enable it to handle - profitably - high volume work such as “banking, claims management, franchising, leasing, medical negligence and workers compensation.”

By investing in systems, sharing risk with clients, and offering alternative pricing, the firm achieved “double-digit” revenue growth for 5 years in a market generally considered stagnant. Nigel McBride, the Minters lawyers behind this, emphasizes that while technology is essential, the key is offering clients a total solution, a whole different model. While US firms continue to merge ("bigger is better"), Australia shows how innovation - from legal technology to publicly traded law firms - can change a market.

Minters is not the only top-six firm to innovate with technology. Blake Dawson was an early innovator with it legal technology practice; Mallesons has won awards for its TalentNet recruiting system.

Congratulations to Tom Baldwin and Reed Smith. 

Reed Smith Hires Two to Run Firm as Global Business (The Recorder, 9 Jan 2008) reports that Tom will be the new Chief Knowledge Officer (CKO). Tom has been a visionary at Sheppard Mullin, where he has been a KM pioneer and early proponent of firm-branded blogs. Tom is also a fellow KM blogger: Knowledgeline.

KM must be moving up in status. Not only a published article, but also a press release!

Microsoft today announced its acquisition of full-text search company Fast Search & Transfer ASA (FAST). 

Jeff Raikes of MS is quoted in the the press release: “Enterprise search is becoming an indispensable tool to businesses of all sizes, helping people find, use and share critical business information quickly. Until now organizations have been forced to choose between powerful, high-end search technologies or more mainstream, infrastructure solutions. The combination of Microsoft and FAST gives customers a new choice: a single vendor with solutions that span the full range of customer needs.” [Background: FAST is a robust enterprise search tool capable of handling very large data sets. I know of at least two legal market suppliers that use the FAST engine.]

What surprises me most is that “mainstream, infrastructure solutions” do not already offer robust enterprise search. It’s easier to manage and analyze numbers, but there is a lot more data and knowledge embedded in text.

I hope that this acquisition does not augur a consolidation in search vendors and technology. In my opinion, what’s needed more than tight infrastructure integration is a conceptual breakthrough in semantic processing and natural language processing. I agree with Craig Carpenter, VP of Marketing and Business Development at Recommind who commented that the value of “customized search applications (for eDiscovery, for BI, for expertise location, etc.) will grow dramatically as vendors like MSFT improve the ‘basic’ search they offer baked into their platform products.”

Working virtually may have a down side according to a study just released. 

Google’s Lunchtime Betting Game (NY Times, 7 Jan 08) reports on an economic study of a prediction market run internally at Google. Prediction markets use the wisdom of crowds, via individual bets, to predict outcomes (e.g., of elections, stock price, or where Google will open a new office). In analyzing the correlation of individual bets, the authors (3 economists) found that the

“strongest correlation in betting was found among people who sat very close to one another, trumping even friendship or other close social ties…. This is tangible evidence, the authors argue, that information is shared most easily and effectively among office neighbors, even at an Internet company where instant messaging and e-mail are generally preferred to face-to-face discussion.”

So much for working virtually or formal knowledge management. Maybe it does all come down to proximity! Or perhaps workers waste time in idle chit chat with neighbors. Take away the neighbors and then they have to communicate with actual co-workers. Of course, if you can group workers in close physical proximity, that indeed has value. But given global teams, that often is just not possible.

By the way, I have previously suggested that law firms use prediction markets to tap collective expertise. So, one article and three of my favorite topics in it (working virtually, knowledge management, and predictive markets).

Everyone who works in e-discovery knows it is a messy process and prone to errors. How many mistakes are too many though? We may soon find out. 

Sullivan & Cromwell Suit Against Vendor Highlights Problems With E-Discovery (National Law Journal, 7 Jan 07) reports that S&C is suing e-discovery vendor EED:

“In a complaint filed Dec. 28, 2007, in the Southern District of New York, Sullivan & Cromwell said, “untimely and inaccurate” work by Electronic Evidence Discovery Inc. (EED) hindered the law firm’s staffing arrangements and caused it to expend extra resources on discovery. The firm asked for a ruling that EED was not entitled to collect $710,000 in outstanding bills.”

In my experience, large law firms are not quick to become plaintiffs. While they don’t like to deal with vendor mistakes, they tolerate some errors and deadlines slipping generally, even more so for e-discovery. So the fact that a large law firm is suing a vendor suggests, in my opinion, particularly bad vendor problems, action to protect a client relationship, or heading off a malpractice claim.

Update (9 Jan 2008) On January 8th, EED filed suit against Sullivan & Cromwell. “EED seeks to enforce the terms of its contract with Sullivan & Cromwell and to recover outstanding fees for services rendered during early- and mid-2007.” The press release also quotes the CEO saying that this is “dispute regarding payment of a valid receivable.”

I write less now than I did a few years ago about online services. I’ve not lost interest; rather, it just seems there are few new developments to report. That said, over the last few months, some interesting items did cross my desk. 

• Linklaters launches new document drafting product (legalweek.com, 10/17/07) reports on an expanded offering of the firm’s Blue Flag product to allow “drafting of certain leveraged finance agreements.”
• Combining online service, social networking, and open source law, Tractis offers online contract management, shared templates, and e-signing. It’s mainly in Spanish right now, so hard for me to assess. More information, see the related blog, Negonation. Spotted at Robert Ambrogi’s LawSites. See also Doug Cornelius’s comments on Tractis; he’s tried it.
• Proskauer has put an entire book, International Litigation and Arbitration , free on the web, without registration. It’s not an interactive online service, but it’s a lot of deep content. An interesting move.
• British firm Denton Wilde Sapte has teamed with several other firms to offer guidance on European data protection laws: ”Information and Privacy Solutions provides registered users with comprehensive guidance and information on the local data protection regimes of several European countries. (Thanks to Joy London of excited utterances for spotting this.)
• DC-based Dickstein Shapiro offers PolicyPartner, a web service to “provide your company with compliant, current, clear, consistent and cost-effective human resource (HR) compliance guidance.”
• For the Australian market, HR Advance offers ” a website designed to make human resources (HR) management easy for your business… HR Advance gives you access to a comprehensive library of fully customisable HR documents including contracts, policies, forms, correspondence and checklists. All documents come with extensive notes on their use and application.” As I read the HR “About” page, it is a joint undertaking of an Australian chamber of commerce and law firm.
• My Dec 20, 2007 post, New Expert System Platform, describes a new legal market expert system platform.

Richard Susskind’s most recent round of predictions about the future of online services notwithstanding (see Will Lawyers Exist in 100 Years in the Times Online, London, late 2007), I am not holding my breath for an explosion in online services. I hope I am wrong though. Perhaps the public flotation of law firms in Australia or the UK Legal Reforms will dramatically change the market and lead to the development of consumer-oriented interactive online systems. If so, that might lead to more high end systems as well.