Outsourcing A Beneficial Business Source for Law Firms

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If you deal with even a handful of companies today, you have undoubtedly encountered some version of outsourcing. Law firms should take note.

The principle of outsourcing is fundamental: Do what you do best and let others do what they do best, most efficiently, and at least cost to both you and the client.

Outsourcing is not an entirely new principle for law firms. Many firms for years have outsourced mailroom services and records storage, for example. But outsourcing today can go in any number of other directions, with positive impacts on firm costs and client value.

Service outsourcing

The most dramatic and high-profile development, service outsourcing, entails using high-speech Internet technology to connect U.S. law firms to the growing pool of highly educated talent in developing countries where the use of English is widespread.

Such offshore legal service providers can reduce the cost of the following:

  • Transcription of voice files from depositions, trials and hearings

  • Accounting support in the preparation of time sheets and billing materials

  • Paralegal and clerk support for research and file management

  • Data entry for marketing, conflicts and contact management

  • Litigation support graphics

  • Legal research, including case citation summaries

  • Review and due diligence of business documents

  • Patent review and searches

Because the work is delivered electronically and is produced under the firm's supervision, it is transparent to the client. Clients often get angry with their attorneys for charges they consider overhead and part of the cost of doing business. Given that reality, the outsourcing of legal services is sure to grow.

Outsourcing to contract lawyers

Many firms, both large and small, use "contract lawyers" to provide legal counsel at a reduced cost.

One crucial question determines the extent of cost savings: When you have a contract attorney work for you, how do you bill your client? This issue has been litigated, and the conclusion is that the contract attorney is not an out-of-pocket cost for billing purposes.

Firms are not required to bill the client at the cost to them for the contract attorney's time. They may bill at an "attorney's rate," a standard flat rate or any rate that is established in the engagement agreement and is acceptable to the client.

From the firm's perspective, it is important to set a contract billing rate high enough to cover all overhead expenses, which would then include all of your own staff, such as secretarial help, paralegals, word processors and so on.

Contract lawyers can contribute to work and cost efficiencies if used correctly. They can be a transparent resource — again, thanks to technology — that offers a win-win solution for firms and clients.

Outsourcing commodity legal work

Outsourcing doesn't always flow from law firms. Many firms have benefited from the outsourcing flow coming to them, from increasing numbers of in-house legal staffs.

General counsel have realized that standardized and predictable legal work can be performed using skills and experience readily available in the market. Economies of scale and experience present at outside firms benefit corporate America. When this work is outsourced, the high-volume specialist can often perform it at a lower cost and at a quality at least equivalent to an in-house team.

For in-house counsel, regular review of the balance between externally and internally outsourced work is critical to secure value for the money.

The cost/value dynamic

Technology is generally the driver that makes all three forms of outsourcing possible. Increased technology creates greater efficiency but also greater costs of operation. Thus, a new pricing paradigm must be developed.

To the extent that law firms provide the service their clients need at the price clients are willing to pay, they will grow. Otherwise, they will be challenged to stay in business.

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