Can legal service outsourcing get adopted beyond document review?
From a business perspective, outsourcing legal services ought to be a no-brainer: Most modern businesses increase profits and productivity by outsourcing functions to third parties. But getting outsourcing services into law firm budgets has been a hard sell.
“I think the legal profession is built on norms that include the billable hour and wasteful, redundant ways of doing things,” says Ray Bayley, CEO of Novus Law, a Chicago-based legal services firm. “We don’t follow those norms, and the challenge for us is using our more efficient nonconformist approach in an industry driven by conformity.”
According to a recent study by Thomson Reuters and the Georgetown University Law Center, 51 percent of law firms and 60 percent of corporate legal departments use at least one outsourced service provider—but almost exclusively for document review. In those cases, the services can deliver large teams of document reviewers for large cases so that law firms do not have to hire and train the teams themselves.
“There was a time when outsourcing was completely unacceptable to most lawyers, but that ship has sailed,” says David Simon, a Milwaukee-based partner with Foley & Lardner who has used Novus’ services. “There comes a point where you will lose work because clients don’t like to overpay for a review.”
But a number of high-profile startups offering full-scale outsourced service have already come and gone. The virtual law firm Clearspire dissolved its legal division, in which remote lawyers collaborated with clients in a secure online environment.
Outsourcing businesses fail for several reasons. According to the survey, 59 percent of law firms that do not use outsourcing say data security is their top concern, while 54 percent cite poor quality of service. Bayley says that too many law firms use alternative fees without doing anything that is different from what they have done in the past. “If you don’t fundamentally change your business model, how can you change the way you charge for your services?” he asks.
Legal task outsourcing will likely never be a no-brainer as it is for many business functions. Most successful outsourcing services find ways to automate small, routine legal tasks. But to be truly useful, they must improve the workflow and processes within a law firm.
That goal is often at odds with the billable hour pay structure. After all, when tasks take less time, law firms have fewer hours they are licensed to bill back to clients.
And if outsourcing lowers costs in a matter, a law firm must then find ways to redeploy its assets and resources. That means offering subject matter expertise no outsourcing service can match.
“Law firms are an expert model; they get paid for delivering expertise,” says Suman Sarkar of Three S Consulting, who has written a book critical of outsourcing. “Outsourcing only makes sense as far as it lets firms focus on that part of their business.”
Until recently, the ABA Model Rules of Professional Conduct mandated that attorneys with supervisory authority over another lawyer ensure those attorneys maintain the highest ethical standards. However, the ABA Ethics 20/20 initiative relaxed those requirements, making it easier to bring third-party service providers into a matter.
Simon says that in his experience, outsourcing makes more sense for some matters than others. For example, in a fast-moving matter with many records, Novus was able to process, upload and index a large number of emails for Simon so he could review documents while flying to interview parties overseas.
“Novus is great for a matter where speed and volume is the biggest issue,” he says. “In a matter where you’re looking for a needle in a haystack or hinky numbers in a spreadsheet, it might make more sense to do it yourself.”
Most important, outsourcing providers can use technology that a law firm cannot afford to support. That will include artificial intelligence, contract management, process mapping and workflow technology.
“Outsourcing will work, but only if the service providers and lawyers can collaborate and find ways to truly change their processes,” says Simon. “That may involve alternative fees structures and things you are not comfortable with, but something has to give.”
CorrectionPrint and initial online versions of “Breaking In,” July, misreported the comments of Novus Law CEO Ray Bayley. Bayley was speaking about law firms’ resistance to internal changes. He did not say legal service outsourcers were not offering better approaches to law firms.
The Journal regrets the error.
This article appeared in the July 2017 issue of the ABA Journal with the headline "Breaking In: Can legal service outsourcing appeal beyond document review?"