Ron Friedmann, Prism Legal Consulting, Inc. and Joy London, co-editor of Law Librarian News / excited utterances[1]

In early 2005, the authors started tracking legal market outsourcing and offshoring. Two trends sparked our interest. First was a spate of articles about law firms and departments outsourcing legal work. Second was a seemingly rapid rise in the number of offshore companies offering legal outsourcing services.

We created a list to track what seemed like a growing phenomenon; it includes

• Law firms and law departments that, according to press reports, were outsourcing, offshoring, or “near shoring” either substantive legal work or back office support. (“Near shoring” refers to moving operations to a low-cost domestic location, for example, Orrick Herrington’s Wheeling, WV operations center.)

• Offshore vendors that seemed to reflect a trend in new types of services offered, particularly legal research, patent and IP support, and document review, among others

We did not include several types of service that have been offered for quite a few years (e.g., litigation coding, transcription, and IT outsourcing). We maintain the list based on articles we read and e-mail messages we receive alerting us to new offshore legal service companies. The list is available at prismlegal.com.

Our first list in March 2005 included just over 20 entries. As of the October 2006 update, it includes just over 60. What does the growth in number of entries mean? How much and what types of legal work have actually moved offshore?

Though some market research[2] on offshoring is available, in our experience, these questions cannot be answered so easily. The market research data so far have looked at a single point in time and, with the apparent rapid evolution, that has limited value.

Our impression, based on reading and talking to onshore and offshore contacts, is that the volume of work moving offshore is not as large as the growth in our list might suggest. One sign of “more smoke than fire” is that several companies on the original list are no longer in business. Another sign is an absence of visible consolidation, which typically accompanies rapidly growing markets. (Just look at the e-discovery market for a great example of consolidation in a growing market.)

So what then is happening in legal outsourcing? For substantive legal work, patent-related work appears most active. Patent review requires deep scientific and engineering expertise. Lawyers are accustomed to delegating aspects of patent review to scientists and engineers. The hurdle to using highly trained professionals in India, especially given the cost savings and relative availability, is not that high.

Almost a dozen vendors on our list indicate that they perform document review. With e-discovery volume continuing to grow and the new Federal Rules concerning Electronically Stored Information taking effect December 1, document review seems a growth area. Retaining US lawyers to review every item is not economically sustainable. We can’t see corporations continuing to pay for armies of US associates or contract lawyers. Even if software conducts a first pass review, the remaining volume may still require offshore review. Though ethics concerns are a consideration, the recent NYC Bar Association opinion (Formal Opinion 2006-3) may lower the barrier.

Offshore legal research seems unlikely to flourish. Several long-standing domestic companies have long provided outsourced legal research. Our sense is that they have not grown much. Lowering the price of research even more by performing it offshore seems unlikely to increase demand much. Structural issues more than price constrain outsourcing research.

The growth of other substantive legal areas moving offshore is a question mark. Contract (including leases) drafting or review seems feasible where volumes are high and language variations limited. Immigration and other high-volume, price sensitive work could also move offshore.

Bigger opportunities probably lie in outsourcing secretarial support and document processing and other law firm administrative functions. Already, several companies on our list offer outsourced word processing. The continuing merger trend among law firms will, we think, ultimately lead to more outsourcing of all sorts. Right now, many newly merged firms are dealing with lawyer and operations integration issues. Once full integration has occurred (which can take several years), outsourcing will likely increase.

The new behemoths (“BiggerLaw”) already see the challenge of supporting global offices. To achieve cost-savings, firms will have to give up myths and start deciding based on facts. Once they do, the imperative to centralize is clear. For example, Clifford Chance recently announced that it will move 300 finance and IT jobs to India[3]. Once BiggerLaw understands the value of centralizing, deciding between owned or outsourced facilities is easier. Setting up an offshore operation is not trivial, so outsourcers have a good shot at more administrative business. BigLaw is not the only beneficiary, however, of outsourcing; small law practices can also take advantage of outsourced services.[4]

If the legal market follows the pattern of other markets, offshoring and outsourcing is sure to grow. And just as surely, they are likely to be “bumps in the road.” Some big domestic IT outsourcing deals have gone sour and some offshore support operations have been pulled back to domestic offices. But the economics of outsourcing and offshoring are so attractive that additional growth is all but certain.

Notes:

[1] Law Librarian News / excited utterances is a global electronic newsletter for law librarians and legal knowledge managers (for subscription information, Joy London)

[2] ValueNotes published a study in December 2005; Forrester has also published a study (for a report on it, see The Next Wave in the Economist, December 14, 2005.

[3]See CC to transfer 300 jobs to India in bid to save £30m in legalweek.com (10/2/06)

[4]John Tredennick, a lawyer and CEO of Catalyst Repository Systems, discusses the merits of small practices outsourcing in his upcoming article, Outsourcing for the Small Law Office: Lessons from “The World is Flat.” slated for publication in Trial magazine in early 2007. In it, he observes

“the ease with which lawyers can outsource work to remote parts of the globe. Today, you might consider hiring a paralegal or secretary who lives in another state or even a different country (and people are doing just that). You can speak with them over the Internet without incurring a long distance charge. You can also send files to someone thousands of miles away faster than you could walk down the hall with a dictation cassette.”

And he points out this is as true for small firms as for large.