Think Before You In-source

We've all seen the headlines: Companies are cutting budgets. They're shedding projects and people alike in record numbers, including those from corporate legal and IT, leaving more work for fewer people. It's also no secret that the largest budget item for corporate legal departments is usually their outside counsel fees, a significant fact when the current economic conditions are creating extreme pressure to make significant cost reductions across the board.

In working with a number of corporate counsel and enterprise IT professionals, there is clearly heightened interest in investigating whether to bring more e-discovery in-house to reduce costs. What's not so clear, however, is what exactly to bring in-house, and just as importantly, how to do it in a way that won't overwhelm current budget and human resource limitations.

Thus, here are seven key factors and issues to consider before deciding to bring various e-discovery services and technology in-house:

1. What are your current discovery-related costs? Do you know how much is being spent in different categories, such as identification, notification, preservation, collection, processing, analysis, review and production? Especially consider review, because it is the largest cost component.

Before making investments in new technologies and services, it's important to understand what you're currently spending on specific tasks and services to better understand if bringing technology in-house is going to have a positive impact. This includes both outside and internal costs and burden rates as applied for internal labor.

Having useful financial data compiled from your service providers, including outside counsel, broken down into various categories will provide you with the necessary baseline from which to make meaningful short- and long-term cost comparisons. It will also help you identify appropriate opportunities with better accuracy by relying upon real-world information. This also tends to be much more persuasive with upper management, particularly in times when budgets are tight.

The challenge for some will be determining how to compile this information. Those using electronic invoicing systems may be able to take advantage of the various task codes, particularly with outside counsel invoices, and they should be able to generate meaningful reports. However, for those legal departments still processing paper invoices, I've often heard the comment from in-house counsel that there's no easy way for them to determine this. Rather than have someone go through all the invoices, which really isn't practical, consider performing some sampling or auditing of selected recent matters' invoices for which there were considerable discovery and review-related work. That can help form the basis for cost comparisons going forward.

2. Have you sought to obtain better discounts with your outside providers for these services?

In this economy, your outside counsel and service providers would likely prefer to offer significant discounts than lose your business or have it drastically curtailed. So before incurring the cost and burden of bringing work in-house, substantial gains can often be made by negotiating terms with your existing providers. One strategy for obtaining increased discounts is to negotiate prices by locking into longer terms, such as two- or three-year pricing plans or subscription models. Another technique is significantly reducing high review costs by utilizing outsourced or contract attorneys. While some counsel were wary of this just a few years ago, many companies are finding this option much more appealing in the current economy--especially as more have engaged these services in recent years and frequently found them to be acceptable, particularly for first-pass review tasks, and perhaps more, if appropriate for the matter.

3. Does your company experience sufficient levels of litigation to justify the additional investment of in-house software, annual maintenance costs, training and allocation of staff?

If the answer is "yes", then further steps are warranted. However, keep in mind that some "pay-as-you-go" or "scalable" in-house software offerings require a significant investment in purchasing and implementing the underlying platform's software and services. They also require the training and certification of your employees so that the work is done properly, repeatably, and defensibly. Beware of hidden costs that may not be clear to you at the outset.

4. What IT infrastructure and framework will be required to not only support it, but support it well? What technical and legal expertise will be required?

These are corollary questions to question number three. Do you have sufficient technological and professional infrastructure in place to handle the increased demands on storage, network bandwidth, support, response times and technical and legal expertise?

Also consider whether you have sufficient expertise and resources to provide competent project management of the entire process--from the moment you need to begin identifying and preserving data all the way through production to the opposing side. One of the key values that trusted service partners provide is experienced project management gained from handling hundreds or thousands of e-discovery matters.

5. Have you considered the economies and advantages of working directly with third party providers instead of going through your outside counsel firms?

In addition to avoiding any markups from your outside counsel, you'll have the benefit of having a consistent process and platform for handling all of your data once it leaves your company. Process consistency and repeatability are key elements for defensibility and reducing costs. And, with the right partner, you'll gain deeper insights into your discovery data sets across multiple matters, as well as gaining feedback on which outside firms review more efficiently and thus cost-effectively. For instance, with the right review platform and service partner, it's yet another value-add to know which firms and attorneys are reviewing a higher number of documents per hour. This provides yet another value-based factor to add to your outside firms' scorecards for comparing their performance.

6. Consider both the benefits and risks of having in-house personnel testify vs. having outside experts ready to testify, who are both knowledgeable about your processes and have worked with other companies in similar situations.

I often hear the concern from in-house counsel that they don't wish to put their most knowledgeable people in a deposition or on the stand for fear of opening Pandora's Box to opposing counsel. Or that they don't have someone knowledgeable enough to properly fulfill the requirements of Federal Rule 30(b)(6). Thus it's often advantageous to have a trusted service partner who can fill this critical role when needed, providing a more comfortable and strategic buffer between opposing counsel and your in-house personnel and who can best present your overall processes as reasonable and defensible.

7. How have your past in-sourcing initiatives fared? Have they exceeded your expectations?

Keep in mind, this discussion isn't advocating that various aspects of e-Discovery shouldn't be brought in-house. Obviously, many companies are doing just that with the goal to reduce costs, improve consistency and gain better control over their processes to improve compliance. Thus a better statement is that the decision on whether to bring eDiscovery tasks in-house shouldn't be made lightly or because you heard another company in your industry has done so. It needs to make sense and fit well with your particular company's abilities, goals, resources, culture, business processes, risk management, and more.

That said, however, I have recently heard from a number of companies who have been dissatisfied that what they've brought in-house from software providers hasn't lived up to the hype, delivered the best results or integrated with all the necessary data systems to address their needs. Some of those acquisitions are even being shelved or curtailed prematurely, well before realizing their return on investment.

Take a Step Back and Assess

So while the pressure to address e-discovery is very real and particularly urgent for companies who experience higher volumes and/or higher risk matters, it's important to take a step back and assess what you really need and what level of investment is reasonable under the circumstances. Ask yourself whether your goals can best be accomplished by in-sourcing some tasks, while understanding that others may be best served by a hybrid approach of outsourcing tasks and volumes beyond your company's current investment budget, technical infrastructure and capacity, staffing resources and/or expertise.

You may find that some of your difficulties can be addressed by better process design, which an experienced partner can work with you to provide at reasonable cost. If your situation is such that new in-sourcing projects are being severely curtailed or deferred, then a hybrid approach incorporating outsourcing where needed is a good way to bridge the necessary tasks and services, especially since your legal obligations continue regardless.

In the current cash-crunched economy, many of these outsourced services can be obtained on a pay-as-you-go basis without a significant up-front investment, which is a valuable strategy to ride out the recession. As some companies have already found, this hybrid approach provides the flexibility to in-source e-discovery in more logical steps and at a cost the company can more reasonably absorb. At the same time, it maintains the desired levels of flexibility and expertise in the process by utilizing experienced and trusted service partners. This measured approached helps maintain defensibility and quality while providing you with significant opportunities to reduce costs, which is on everyone's to-do list these days.


About the Author:

Mr. Beard is also the former head of Legal IT with Caterpillar Inc., a Fortune 50 corporation, and is a Six Sigma Green Belt. He has extensive experience with law department operations and supporting technologies, including matter management, electronic invoicing, and document and enterprise content management. He served on the ABA TECHSHOW Executive Board and is a frequent national author and presenter. His popular blog, LawTech Guru (www.lawtechguru.com), regularly covers new developments in eDiscovery. This article was authored in his individual capacity, and all views expressed are his own.

Contributing Author

Join the Conversation

Advertisement. Closing in 15 seconds.