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The economy has taken a beating. Its impact on the corporate world has been catastrophic. Wall Street giants have toppled while American industry mainstays, including Detroit’s Big Three automakers, are so far in the red that they had to beg for government dollars.
As a consequence of the dismal market, many CEOs and CFOs are putting unprecedented amounts of pressure on their employees to slash spending. And because corporate executives have historically viewed legal departments as major money pits, in-house counsel are feeling the squeeze more than most.
"Companies are in freeze mode," says Abhi Shah, CEO of ClutchGroup, a legal process outsourcing provider. "People are panicked by the tsunami that has hit them, and corporations, particularly large financial institutions, are trying to figure out their strategy."
That strategy may very well include outsourcing. In today’s global market, there is little work that can’t be outsourced on the cheap. And with costs of outside counsel escalating, general counsel are realizing the benefits of sending work to independent outsourcing firms, many of which are located in regions with cost-effective labor, including India and the Philippines.
"In the last month alone, we have seen a significant peak in lawyers reaching out to us—as opposed to us reaching out to them," says Jennifer Brewer, executive vice president of American Discovery, a document review outsourcing firm. "A lot of companies are dabbling in it."
Whether it is minimizing the document review monster or sending contract drafting, legal research or intellectual property work to outside vendors, outsourcing likely will become a crucial component of every legal department’s practice, at least as long as the economy remains tumultuous. For legal departments weighing the outsourcing option, the following guide can help general counsel build out a foundation for an effective strategy.
1. Document Review
In recent years, the exponential growth of electronically stored information has sent litigation costs skyrocketing. The e-discovery process has in-house counsel scrambling to find alternative models for producing digital data. Because document review represents the overwhelming bulk of e-discovery expenses, outsourcing the work has become a booming industry.
"The need to produce electronically stored information is a reality now," says Eric Bartko, resource manager for BZResources, a provider of e-discovery services. "You have to come to grips with this, and that it is a new expense category. A lot of companies have been resistant, but this is something you will be regularly required to respond to."
Initially companies left document review up to their outside counsel. These firms would bring on contract attorneys to review thousands of documents for relevance and privilege. But even with the use of contract attorneys, who are significantly cheaper than associates, the cost became too much. That’s why many companies, especially those that experience high volumes of litigation, began looking for cheaper alternatives.
Business technologies provider Trilogy Enterprises Inc., for example, initially tried to build out its own document review center in India.
"That didn’t work because you have to have some very strict processes in place and well-defined specifications," says Lance Jones, vice president, general counsel and corporate secretary of Trilogy. "Instead we contracted an outsourcing provider who does business in India and did a pilot project to gauge the quality of their work."
Jones was satisfied with the result and has been outsourcing document review ever since. His service provider, Tusker Group, estimates that by using Indian attorneys, who charge around $25 an hour, legal departments can slash document review expenses by as much as 80 to 90 percent.
But it’s not just cost that in-house counsel should consider when deciding whether to outsource document review. Quality is also a major factor. Erring during the review process can sink a case, if not an entire company. Inadvertently producing privileged documents is a major concern, while courts are increasingly doling out hefty sanctions to parties that fail to take reasonable efforts to produce all relevant documents in a case.
This is why it is crucial for in-house counsel to vet their document review outsourcing providers.
Brian Schrader, president of e-discovery provider Business Intelligence Associates Inc., which outsources document review to Israel, says in-house counsel should ask the people actually working on documents about the training they’ve received and whether the outsourcing provider hired them at random. "These questions go to the merit of the work product itself," Schrader adds.
In addition to quality, security is a major issue. Because document review service providers handle sensitive materials, including privileged documents and proprietary information, it’s important to ensure the company maintains top-level security standards.
"I think you’ll find that with all offshore providers, there are incredible security measures taken to make sure there is no possible breach," says Jennifer Brewer, executive vice president of American Discovery, a document review outsourcing firm with operations domestically and in the Philippines. "We have biometric lock access for every single room in our facility. And at the front desk, all employees must turn in their cell phones and all other electronic devices, which are kept in a locked container."
As internal clients continue to demand that in-house counsel stick to a budget, outsourcing the document review process may become a necessity.
"Today, companies can’t afford to spend $500 million on legal fees," says Abhi Shah, CEO of ClutchGroup, a legal process outsourcing provider. "It is no longer a question of whether this is a fad. It is inevitable."
2. Contracts
Contract work has become another hot area for legal outsourcing. The work can vary from a simple review of existing contracts to the creation of contract templates, a more highly specialized service.
The most popular form of contract outsourcing is review. This is when a company hires an outside vendor, often located overseas, to review the terms of a set of contracts and flag any abnormalities.
For example, a company will engage its various vendors via a standard contract. The vendor will then make modifications to the contract, which then are sent to the outsourcing provider for review. Based on the training the company provided the outsourcing provider, the outsourcing team will flag any changes to the contract. If the change is within the scope of what the company normally allows, it will be flagged as green and the negotiated modification will go through. If it does not fall within the parameters, it will be flagged as red and sent back to the company for further review.
"I’d say we do about 80 percent of the work so that our clients can go back and negotiate the more important elements of the contracts," says Abhi Shah, CEO of ClutchGroup. These types of contract outsourcing providers handle a wide range of contracts, including vendor and employee contracts. Companies that have a high volume of contracts and spend significant time and money on managing them are most likely to benefit from such a service.
On the other end of the contract outsourcing spectrum is contract drafting. Traditionally outside counsel assist in the creation of contracts and contract templates. But a small number of independent contract language experts, such as Ken Adams, can do this work as well.
"I’m not sure the benefits of using a law firm to do this work warrant the costs," says Adams, who runs AdamsDrafting, a contract consulting business. "Also, law firms are more geared toward getting the deal done, rather than producing an optimal piece of work that is going to withstand the test of time and offer the greatest efficiencies."
3. Legal Research
magine paying a law firm to compile a 50-state survey on a particular area of law. The work, although fairly basic, could take hours and end up costing thousands of dollars. That is why legal research is a prime target for offshoring to a legal process outsourcing vendor.
"Performing legal research offshore can be dramatically cheaper than using a law firm associate and can free up internal legal resources to do more sophisticated legal work," says Abhi Shah, CEO of ClutchGroup.
For example, a retail bank with operations throughout the U.S., Europe and Asia contracted ClutchGroup to develop a Web-based portal of banking-related legal issues to assist with retail transactions. The client had a number of employees dealing with government orders, specifically garnishment orders. In most cases, these employees would need to consult the legal department with how to proceed with the orders.
"It created a huge bottleneck within the legal department because attorneys had to spend so much time dealing with these inquiries," says Paul Mandell, president of ClutchGroup. "In many cases, there were similarities with the orders, so the company thought they could handle things more efficiently."
For three months, ClutchGroup’s offshore team digested the law in each state from which the company received the orders and created a database of answers to frequently asked questions. This way company employees could find the answers to their own questions without having to use in-house counsel’s time.
"The client was very pleased, and the impact was a significant increase in efficiency and a reduction in the burden on the legal department," Mandell says.
Besides cost, there is another major benefit to offshoring legal research. Because most legal research offshoring is done in India, offshore teams can vastly accelerate the turnaround time for a project.
"If an issue arises in the evening for an in-house lawyer, it would be too much of a burden to have someone spend eight hours at night working on this," Shah says. "But their night is our day, so they can offshore it and have the work in their hands in the morning."
4. Intellectual Property
Outsourcing intellectual property work such as patent applications can provide substantial cost savings while freeing up internal IP resources to focus on more sophisticated work.
Some legal process outsourcing providers offer patent application services, such as prior art searches and application drafting. Much of this work is offshored to reap the benefits of cheap labor. Assignments may be staffed by recent law school graduates or patent engineers who have worked in local law firms. Smaller boutique IP law firms that don’t have the internal resources to serve as patent agents often use these services.
"We do everything a patent agent would do all the way up to the final draft of a patent application," says Gregory Aube, director of legal process outsourcing services at iBridge, a legal support provider.
"We aren’t practicing law, but we are practicing patent work. We do the ground work for our clients."
Each prior art search takes roughly two to three days to turn around and costs about $500. iBridge does not actually submit the application to the patent office, but does work with clients throughout the course of a project so that they feel comfortable submitting it to the patent office themselves.
Work related to the early stages of patent clearance, like the kind iBridge provides, makes up the bulk of outsourced IP projects because it is considered a commodity and does not require the expertise of U.S. attorneys.
"This kind of work is often repeatable tasks that don’t require any sort of specialized skill sets, at least not until you get to the latter stages of the patent process," says Jim Paine, counsel at Kilpatrick Stockton and a member of the firm’s outsourcing team.
Of course, security is a major concern when outsourcing IP work, especially because so much of the information flowing between the client and the outsourcing provider is proprietary. That’s why companies including iBridge rely on multiple forms of security that cover physical facilities, IT systems and personnel.
"We use secure FTP file transfers and encryption," says Mark Porter, director of product development and consulting services at iBridge. "We meet all international security standards for content security. It’s our bread and butter. We have to have that in place."