Virtual lawyers or high quality temps?

Alex Aldridge talks to the 'virtual' law firms causing a stir in the legal market - and asks general counsel if this much-touted model delivers for clients

To date, clients' efforts to cut legal spend have largely focused on securing discounts on headline charge-out from advisers while incrementally weaning law firms off flat hourly billing.

Apart from Rio Tinto's headline-grabbing deal with outsourcing provider CPA Global - which sees the mining giant send certain tasks that would previously have gone to its panel firms to 10 CPA lawyers in India - there has not been much radical re-evaluation of the way legal services are delivered.

However, some see a solution in the form of the new breed of adviser that has emerged recently, which can be broadly defined as the 'virtual law firm'.

Undoubtedly, leading the way is 275-lawyer practice Axiom Law. Founded in the US in 2000 by Stanford University-educated entrepreneur Alec Guettel and former David Polk & Wardwell associate Mark Harris, the company (Axiom is not, in the conventional sense, a law firm) has been present in London - where it now has around 50 lawyers - since 2007. Axiom lawyers are not subject to hourly targets, working when they please and receiving payment on that basis. Major clients Axiom has worked for the in the UK include Morgan Stanley, Amazon and Bank of New York/Mellon.

One of Axiom's main rivals in the UK is Keystone Law, which was founded in 2002 and now employs 75 lawyers. Keystone operates along similar lines to Axiom, although it is a fully regulated law firm. Other players in the virtual legal services market include Lawyers on Demand (set up a year and a half ago by City firm Berwin Leighton Paisner - see box on page 16), Halebury (which operates small commercial, employment and immigration teams) and Oxfordshire-based Everyman Legal (launched in 2007 by ex-Clifford Turner lawyer James Hunt).

The sales pitch to clients is straightforward: no expensive offices (although there is a central office from which administration tasks are conducted), no support staff, and lawyers either working on site with the client or from home - in return for lower rates than those charged by a conventional law firm. "We've stripped away the unnecessary costs associated with traditional law firms to come up with a more efficient way of working," argues Axiom's Guettel. The standard of lawyers is typically high, with a glance through Axiom and Keystone's websites revealing some pretty impressive CVs. And the general counsel whom Legal Week spoke with reporting satisfaction regarding the service received. "Their people are good and I get the impression they are pretty careful about who they take on," says UBS EMEA general counsel Andrew Williams, who has used Axiom lawyers on several documentation projects.

Where clients are less convinced is over the scope of services which virtual firms are able to offer. Both Axiom and Keystone hold themselves out as genuine alternatives to law firms, capable of forging dispersed lawyers into cohesive teams ready to handle specific projects. But most clients still view them more as a collection of temps, albeit high-quality temps. "They're an excellent provider of quality legal support, rather than a law firm per se," says one FTSE 100 general counsel.

Keystone founder James Knight (pictured) contests this view: "Admittedly we often work as a flexible resource enabling in-house legal teams to plug gaps, but we also operate on a conventional basis assisting clients directly," he says.

However, he concedes that those clients tend to be small companies that do not have the resources to employ full-time in-house legal staff and medium-sized organisations needing advice on lower key pieces of work, rather than major corporations requiring assistance on big deals.

"Several start-ups use me as a kind of floating in-house lawyer," says Keystone lawyer Carolyn Bertin, formerly of Clifford Chance, who spends the rest of her time covering for McAfee's EMEA director of legal affairs, who is on maternity leave.

Another Keystone lawyer, Meriel Pymont, who was previously a corporate and intellectual property lawyer at Linklaters, acts for the Rugby Football Union (RFU) on smaller pieces of work as part of Keystone's ongoing relationship with the RFU that has seen it secure a place on its panel of regular legal advisers.

Axiom, on the other hand, focuses more on larger clients - with an impressive client roster that includes half of the US Fortune 100 and several FTSE 100 companies. But the service it provides them is primarily focused on filling holes temporarily. "Such work can extend to responsibility for instructing external law firms," says Axiom UK head of operations Al Giles, adding that teams headed up by an Axiom group head are often sent en masse to clients. Axiom also offers consultancy services to clients looking to reduce their external spend.

But do these firms offer good value? Axiom charges between £75-£200 an hour for lawyers with a minimum of two years' post qualification experience (PQE). Keystone charges on average £220 an hour for lawyers with a minimum of five years' PQE - with views varying on whether such rates represent a good deal. Knight says that all of the lawyers on its books are currently at least eight years' qualified.

"What I've found with the big law firms is that you get four or five people working on an often pretty straightforward matter, which is delegated from partner to senior associate to assistant to trainee, and bills calculated accordingly," says RFU general counsel Karena Vleck. "Whereas the fees I get charged by my lawyer at Keystone for such things are a fraction of that."

Similarly, Axiom's investment bank clients have not tended to quibble about paying £75-£200 an hour when the alternative is instructing a magic circle lawyer for more than double that price. However, the recent recession-driven trend for law firms to second their lawyers out to banks free of charge has hit Axiom, according to some in-house lawyers at banks. And, more generally, the wider falls in law firm rates during the last year are clearly a threat to virtual law firms' business model.

"At the moment we are charged between £200-£300 for partners by firms on our panel, so £200 an hour for a virtual law firm doesn't look like great value," says BUPA general counsel Paul Newton. Newton also compares virtual firms' rates unfavourably with the fees charged by barristers, a group that he suggests could be better utilised by in-house lawyers looking to cut costs.

"We had an agreement with one set of chambers for a while, whereby we'd send work out to them on an informal basis - it was very attractive from a price point-of-view, but in the end fell down because we didn't have sufficient work of the same type to send them. But I'd be looking for virtual law firms to charge those sorts of rates," he says.

UBS's Williams is another who regards barristers' chambers as a convincing alternative to virtual law firms, citing an agreement which the bank operates with Minerva Chambers that sees it outsource derivatives work to lawyers at the set.

Good value or not, most GCs believe that virtual law firms have a future in a legal services market that currently lacks variety. And some, such as Coca Cola Europe general counsel Chris Barnard, suggest that virtual law firms could find themselves particularly well positioned to take advantage of a recovering economy.

"When the economy starts to improve, general counsel of legal teams that have had their numbers cut are going to face a question: do I recruit on the basis that there will be a full recovery or do I act cautiously and use teams from these virtual firms as I wait to see how things play out? I can see that the second option would be quite tempting, even if you are paying more in the short term," he says.

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The traditional law firm, but virtual

To date, Berwin Leighton Paisner (BLP) is the only 'conventional' law firm to have launched a 'virtual' arm - with its Lawyers on Demand (LoD) service providing freelance lawyers on a temporary basis to clients needing assistance with the sort of work that typically would not go out to a law firm.

The service was set up as a pilot two-and-a-half years ago - officially launching a year later - by Simon Harper, a BLP partner, and Jonathan Brenner (pictured), who co-founded legal recruitment agency ZMB Legal. It now has 30 lawyers on its books, all of whom have a mix of senior in-house and private practice experience (ironically only one of them ex-BLP). The business now has a turnover in excess of £1m.

"As we're badging our lawyers with the BLP brand, they've got to be at least as good as the firm's lawyers," comments Brenner, who says that he has interviewed over 350 lawyers for positions with LoD in the relatively short time it has been operating.

LoD's clients include Orange, UBS, BSkyB, Gucci and "a host of other well-established corporates", adds Brenner, to which it charges daily rates that are "significantly lower than private practice rates".

"The other major part of our appeal is the fact the general counsel are able to bypass human resources when bringing in an LoD lawyer," he continues, "which is proving useful at the moment, with the headcount issues many companies are facing."

Does Brenner see other firms following BLP's lead? "As far as I know we're the only law firm operating such a service," he responds. "It's strange, as LoD is not only doing well financially but is a highly effective way of developing relationships that can lead to larger mandates for the firm."

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