Pass it on

Outsourcing is quickly becoming mainstream at law firms. But what do clients think about having their work sent on to third-party providers? Alex Aldridge reports

As legal process outsourcing (LPO) continues to gain momentum among law firms and managing partners discuss their new cost-saving strategies to send work offshore, it is easy to forget the challenges to successfully export legal work.

Clients of the increasing numbers of law firms operating outsourcing arrangements may find themselves concerned by a recent survey by Kroll, which canvassed more than 700 senior executives worldwide, which concluded that companies often make the decision to outsource "without a thorough assessment of the risks involved in determining what is to be outsourced, and to whom". Law firms, which are newer to this game than most corporates, are arguably even more susceptible to making such mistakes.

Perhaps a surprising element of the debate regarding legal outsourcing is how little focus there has been on clients' comfort with their external counsel outsourcing their work.

One potential area of concern is the relatively short track record that the main providers have in the legal arena. CPA Global, for example, which has clients including Clifford Chance, Eversheds and Rio Tinto's legal division, expanded into legal outsourcing in 2005 (previously it had been an intellectual property renewals service) when it acquired the intellectual property support company Foundation IP and purchased a controlling stake in Intellevate.

However, many law firms involved in outsourcing argue LPOs' relative youth is not a cause for concern. "Providers are doing projects all the time so they gain experience very quickly," says Lovells partner Neil Mirchandani, who has played a key role in formulating the firm's outsourcing strategy, under which it uses several different LPO providers.

The Kroll survey also warns that companies should not assume that the outsourcing provider they hire has the same security procedures as their own - giving the example of the 2008 case involving the Bank of New York Mellon, when the bank was the victim of a data breach while under the responsibility of an outsourced company. In that instance, tapes containing personal banking information of some 12 million customers disappeared during transport to an offsite facility. The bank ended up paying for an internal investigation as well as credit monitoring and other protection for the affected customers, although no misuse of the information was found.

This is not a tale that overly troubles Simmons & Simmons head of finance litigation Jonathan Kelly (pictured), one of the lead partners involved in the firm's recent signing of an outsourcing agreement with LPO Integreon.

"The top providers have very strong physical security systems, with separate secure rooms for teams working on certain projects and biometric recognition procedures. On top of that there are random tests and a whole series of double-checking systems, plus stringent ‘one breach and you're out' policies acting as a further buffer against data leakage."

Rio Tinto managing attorney Leah Cooper has plenty of experience with the security standards of LPOs, having this year entered into an agreement with CPA which sees the company send certain legal tasks to a 10-strong team of CPA staff in Noida, near Delhi.

She echoes Kelly's view: "The key is eliminating risks from the outset. CPA has its procedures, which we're happy with, while from our side we've set up a secure virtual data room where we upload information for CPA staff who then access it and put it back in there after they're done."

Quality control

Cooper says her major concern is over quality, an issue she describes as "the real risk, and the biggest leap of faith in legal outsourcing".

This tallies with the results of a recent Legal Week Big Question survey of law firm partners in which half of those questioned said they thought the general standard of work currently on offer at LPO businesses ‘could be better', and a further 7% termed it as ‘poor'. Set against that, 14% thought it was ‘good' and more than a quarter (27%) thought it was ‘OK'.

According to Cooper, ensuring quality requires: "a lot of time, deep-dive analysis of projects and training of CPA lawyers to the same level we train our junior associates".

Cooper says that Rio Tinto has recently sent its London-based senior corporate counsel Tim Lane to assist the CPA team for at least 90 days. "The idea is to work more closely with the CPA team and give them a direct line into Rio," she continues.

There seems to be a consensus emerging that while outsourcing can be an important solution, it's not an easy option, requiring upfront time and investment to reap the benefits later down the line.

True to an extent, says Lovells' Mirchandani, but such an analysis is an over-simplification: "Doing outsourcing well is about knowing the market; a market which contains a whole range of LPO providers with various strengths and weaknesses. Some have less of a legal slant and high staff turnover [of around 40%], but they charge 10p a document, so they're a good choice for very basic processing tasks," he says.

"Others, however, are exclusively legal-focused with lower staff turnover and better career paths for their staff. Having said that, turnover of staff at an LPO isn't always a great guide - it is sometimes just a sign of underperformers hanging around. You really need to look at all the factors."

Skin in the game

For Mirchandani a key requirement for successful outsourcing is "everyone having skin in the game" - in other words, the law firm and the client working together to select the most appropriate provider for the job in hand and sharing the risk if things go wrong. "Outsourcing saves clients money, but that doesn't mean they don't still have to spend a greater amount of management time to make sure the whole process works and delivers what they want. Parceling everything off to the law firm or LPO is risky in itself as you can then get into the realm of lack of communication and differing expectations," adds Mirchandani.

Not all clients favour this approach, though.

"I'd assume the firm's name would stand behind whichever LPO provider it used, with full responsibility taken for the work done by its staff," says Novartis general counsel Thomas Werlen.

Simon Dodds, general counsel for UK and Western Europe at Deutsche Bank, takes a similar view: "I'd encourage my law firms to be creative and look at more cost-effective ways of doing work, including outsourcing, but I'd expect the law firm to be the guarantor of quality, too."

Advocates of outsourcing cite this need for guarantees as a reason for warning that law firms must be ready, in most instances, to invest sufficiently to secure the services of the high-end LPOs which boast better staff quality and give superior service quality.

Simmons is among the firms taking this approach, operating an exclusive agreement with Integreon, which provides six staff in India in a separate room at the LPO's facilities in Mumbai with the option to call on further Integreon employees when workflow necessitate.

"The main things we looked for in a provider were quality, value and relevant experience - exactly what our clients want from us," says Kelly, who adds that approval is always sought from clients before work on a matter is sent out to Integreon. "It's part of the standard dialogue on a deal or case," he adds.
Interestingly, while law firms usually profess to be very careful to flag up to clients that they are considering outsourcing some elements of their work, in-house heads seem in general far less clear on whether their advisers are using outsourcing. It appears something is getting lost in the communication process.

There is no such ambiguity regarding the tactic of firms like Baker & McKenzie and Clifford Chance, setting up their own offshore service centres in the Philippines and India respectively - in both cases separate, but wholly-owned subsidiaries of the firms - where support work is sent.

"Having an internal offshoring operation as a foundation for these services gives us more control over quality and means we can give clients greater predictability on their legal spend," says Greg Walters, global chief operating officer at Bakers, which has run its Philippines centre (known as Global Services Manila) since 2000. The centre initially provided back office support services, but since 2002 has handled some legal work as well. This year its team of 460 staff - among them a large number of paralegals - has done around 200,000 billed hours of work.

Understanding what outsourcing options are on offer from firms - and working out which is most appropriate for a particular job - inevitably means more work for in-house legal heads, even if they opt against active involvement on an outsourcing project.

But then, Dodds argues, the days of general counsel having the simple choice of a handful of City firms to send work to have now passed.

"One of the interesting things to emerge from recent developments involving legal outsourcing and more generally from the financial downturn is that it can make life much more complicated for in-house lawyers," argues Dodds.

"In the past, we tended to rely on the services of a small number of City firms for the greater part of our UK work. Going forward, while the City firms will continue to receive a significant amount of work, we're thinking much more carefully about which is the right firm for a particular job, considering both the quality and cost aspects."

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The regional option

Outsourcing work to cheaper offshore jurisdictions is a strategy firms are increasingly keen to be associated with. "We positively shout about it to clients," said one partner at a leading City firm. One of the main reasons for this, no doubt, is the recession. But reading between the lines, there also seems to be an enthusiasm among firms to associate themselves with outsourcing because it fits with the international image many are eager to project.

"In terms of understanding our motivation for running a centre in the Philippines, I'd emphasise the global nature of our firm. Our de-centralised international structure means sending work to the team in Manila feels natural to us," says Baker & McKenzie global chief operating officer Greg Walters.

Of course, fashions change - plus there is not always much rational thought behind them. So take away the incentive of the current penchant for seamless multi-jurisdictional coverage, and does outsourcing to India, in preference to sending work out to regional firms or UK-based LPO providers, still make sense?

Simon Dodds, general counsel for UK and Western Europe at Deutsche Bank, which has affiliated offices handling certain documentation work not only in India, but also in Birmingham and Jacksonville in the US, argues that law firms should use a range of solutions. "India remains an attractive location, but Birmingham is clearly attractive because its proximity to London makes management more straightforward. The key point is that the right location for a piece of work depends on the job."

Many legal teams, including those at the Belgian Post and ITV, currently use regional UK law firms for lower-level work that could potentially be outsourced to LPOs - and they do not seem in a great rush to change things.

"We have an arrangement with two firms which enables them to sub-contract work of a more commoditised nature to local partner firms, with the main firms bearing the risks and responsibilities. I've considered other options, but for the level of work we're dealing with this is the most efficient solution," says Belgian Post general counsel Dirk Tirez.

"Our relationships with law firms with regional offices, where overheads and rates are obviously lower than in London, often sees day-to-day advice serviced out of Leeds or Manchester when appropriate. It's a strategy that works for us and obviously comes with minimal risk, given the broader relationship with those firms," says ITV director of central legal Paul Lewis.

Add in the results of a recent Legal Week Big Question survey showing that 74% of law firm partners believe domestic arrangements are better than foreign outsourcing - and the fact that LPO staff costs in India will rise as standards of living improve - and the continuing status of outsourcing as an international phenomenon is far from certain.

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Outsourcing - a junior in-house lawyer's perspective

"In an industry that has seen plenty of redundancies recently, and as a result has one of the largest pools of good-value junior manpower on the market, it is surprising how many top law firms are looking to outsource junior-level work to lawyers overseas. And it is not just the decision to ignore all the idle talent that I find odd. What has happened to firms' desires to train up their junior members to ensure they have knowledge of fundamental tasks such as document review and due diligence?

"Yes, we've all moaned when faced with the task of a 100-folder data room, but in order to develop as an associate solicitor we have to know how to do the basics well. We also have to know how these tasks work in order to effectively monitor and supervise.

"Which brings me to another issue. Just how closely supervised will lawyers at legal process outsourcing centres be? And how will firms know that these lawyers have full understanding of the case at hand? Ensuring that there is ‘seamless service' when partners are so many miles away is not easy. It is difficult enough to get people working together smoothly across one department, let alone cross-border.

"Then there is the legal content of the work being outsourced. Surely knowledge of the particular jurisdiction and legal nuances are prerequisites to any legal advice? Would you knowingly, for example, go to an English lawyer for advice on French law? So why do firms feel that they can get away with passing work to people trained in the laws of another country?

"With pricing for legal services becoming increasingly competitive, I suppose it's natural that firms are turning to alternative strategies to deliver better value to clients. However, it may come at a cost to quality, consistency, training and investment in learning and development."

Natalie Salunke is a legal counsel in Travelex's retail team, having trained with Taylor Wessing.

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