Look Out for the Potential Ramifications of Outsourcing

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Two recent media interviews by leading consultants illustrate again that the legal services market continues to move away from the Big Law model of high rates and excess staffing:
  • A Zeughauser Group consultant told Bloomberg that legal process outsourcers are going after the crown jewels of large law firms, handling entire merger and acquisition transactions, not just the due diligence aspects of deals. Smaller clients, rather than pay $1,000 hourly partner rates to get associate-level expertise, are hiring LPOs to do the work and simply asking higher-priced outside counsel to oversee it.

  • Bruce MacEwen, writer of the Adam Smith Esq. blog on law firm economics, referred in a European publication to an outsourcing firm that applies Six Sigma processes to document review, demonstrating quality that is far superior to that produced by Big Law associates working on the same document sets. MacEwen quoted the head of that firm: "For every dollar of revenue we gain, Big Law loses three."

There is no question that outsourcing is the wave of the future for providing legal services that once were the exclusive purview of Big Law.

Perhaps the clearest sign of that is that the American Bar Association's House of Delegates last year quietly approved several changes in comments to the ABA Model Rules to "clarify" the ethical obligations of lawyers when outsourcing legal services. These clarifications follow common sense, but still notable:

  • A comment to Rule 1.1 on competency states that an attorney should ordinarily obtain informed consent from the client before retaining outside services, and should "reasonably" believe the outside services will contribute to the competent and ethical representation of the client.

  • A new comment on Rule 5.3 states an attorney may hire non-lawyers outside his firm but must ensure that the engagement is compatible with legal ethics obligations.

  • A new comment to Rule 5.5 clarifies that attorneys cannot engage in outsourcing when doing so would facilitate the unauthorized practice of law.

The message here is clear: In an outsourcing relationship, the client must know of and approve the contract arrangement, and the contracting lawyer retains final responsibility for the client relationship. The attorney who engages the outsourced service becomes responsible, in a malpractice sense, for any errors committed even in a seemingly simple case. But that is when lawyers themselves do the outsourcing. The examples cited in the above articles focus on something quite different — the clients are engaging the outsourcers and thus are not bound by ABA rules.

For this reason Big Law likely will continue to falter. They may serve the 1 percent of the corporate world that can afford, or at least justify, paying top dollar. But there will be a large group of unconvinced and willing customers that are a prime market for outsourced service providers.

As technology facilitates their capabilities, these small break-away groups from Big Law will cater to the 99 percent — small to midsized businesses, professionals like physicians and architects, and individual consumers — who don't fit the culture or fee structure of Big Law.

There is a lot of work available for those who are flexible enough in their cost structures and use of technology to be competitive. And there will be more in the future.

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