Legal Pressures in 2010

Projections for litigation in 2010 present a daunting picture to corporate counsel struggling with shrinking legal budgets. Fulbright and Jaworski's recent study suggests that 52% of large cap companies will see an increase in matters in 2010, up from 34% in 2009.

During the downturn, it is expected that labor and employment and bankruptcy actions increase. However, it is likely that the current downturn will bring with it new, multifaceted regulation (and accompanying whistle-blowing), leading experts to believe that complex litigation will also grow.

Because of the downturn, companies have sought alternative fee arrangements from their law firms, and many law firms have responded by reducing costs. They have also sought other ways to cut costs, including Legal Process Outsourcing for both litigation-specific and non-litigation matters.

Because of the opportunity to reduce back-office legal costs dramatically, offshoring of certain portions of their legal work has become attractive for companies. Many law firms, wanting to be a part of that "wave," have inked deals to manage such resources. However, law firms do not have a long history or wealth of expertise in managing the process of outsourcing, while many large-cap clients have built-in expertise in their business units, putting them in a position to more effectively manage their outsourcing suppliers.

Thus, it may be wise for a client company to develop its own outsourcing relationships with Legal Process Outsourcing service providers. Aside from the obvious control issues, client companies are likely in a far better position to manage the outsourcing relationship, monitor its performance, and, most importantly, ensure the supplier's compliance with critical company policies.

At LawScribe, we believe that a direct relationship between client company and outsourcing provider can offer the most effective and efficient legal services. We get to know your company, its policies and its concerns, and can help develop an overall strategy to improve legal business processes.

Feel free to contact us to discuss your legal support strategy for the upcoming year. It shaping up to be a doozy!

[read more...]

Managing Partner Releases Implementing a Successful Legal Outsourcing Relationship

Managing Partner has released what I believe is the first comprehensive publication addressing the legal outsourcing profession. Authored by Fronterion Managing Principal, Michael Bell and with contributions from among others, Ron Friedmann (Integreon), David Hickey (Winston & Strawn LLP), and me, the report entitled Implementing a Successful Legal Outsourcing Relationship also includes comprehensive legal process outsourcing case studies featuring leading U.K. law firms and corporations.

The report promises to:

“help legal professionals gain a comprehensive understanding of the industry, recognise new opportunities, discover insight from prominent experts in the field, learn the right questions to ask and then build successful legal outsourcing solutions based on leading industry best practices.”

Case study organizations highlighted in the report include:

Osborne Clarke
Pinsent Masons
ISS UK
MyHomeMove
Underwoods Solicitors

Download the table and contents and introduction.

[read more...]

UK Government Minister Interviewed on Future of the Legal Profession

I highly recommend reading the transcript of the CNBC interview of Lord Bach - Parliamentary Under-Secretary of State, Ministry of Justice.

Lord Bach covers many of the issues I have discussed on this blog numerous times in the past, namely: liberalization of the Indian legal profession; deregulation of U.K. and other common law jurisdictions; introduction of multi-disciplinary practices; access to justice via “Tesco Law” (commoditized legal services); technology and the legal profession; and of course, legal process outsourcing.

Click here for the transcript.

[read more...]

Low Value Personal Injury Claims Ripe for Outsourcing

The UK’s Ministry of Justice confirmed yesterday that a new streamlined claims process has been agreed for road traffic accident (RTA) personal injury claims valued between £1000 and £10,000.

According to the MoJ statement (click here):

“The new process would provide for early notification of claims; promote early admissions of liability and early settlements; and remove duplication of work from the process.”

The original manifestation of fixed fees for personal injury claims came into being on 6th October 2003. Let me digress for a moment and take the opportunity of explaining briefly how the fixed cost system works. Generally speaking, in the U.K., attorneys’ fees are not recoverable from a client’s damages. The fees are recovered from the losing party, in addition to recoverable damages. This somewhat archaic system is referred to as the “indemnity principle”. Following their introduction, fixed costs applied to pre-issue (i.e. cases which had not reached the filing of proceedings) road traffic accident cases (RTAs) where the ultimate value of compensation recovered by the claimant was less than £10,000. The amount of recoverable costs was calculated on the basis of a fixed fee of £800, plus 20% of the damages figure up to £5,000, and 15% of the damages between £5,000 and £10,000. So, if an RTA case was eventually settled for £5,000, the law firm received a £1,800 fixed fee.

The new streamlined claims process imposes a lower overall recoverable costs regime and a defined timetable for the progression of relevant claims. The incessant downward pressure on recoverable costs, together with the tightening of the case continuum timeline, necessitates, in my opinion law firms embracing innovative models for case handling.

The process is divided into three stages, for which fixed recoverable costs (FRC) have been agreed as follows:

For stage 1 (including, broadly: provision of early notification of claims to defendants and insurers; inclusion by the claimant solicitor of all the information the defendant or insurers will need to make a decision on liability; the insurers will have 15 business days to respond. The FRC will be £400.

For stage 2 (medical evidence, offers to settle and negotiation, where liability is admitted, including, broadly: within 15 business days claimant solicitor to confirm medical report as factually accurate, prepare a settlement pack (including any claim for special damages and supporting evidence) and send settlement pack form along with an offer to settle the entire claim to insurer; insurer has 15 business days to accept or reject the offer and make a counter offer, which attracts an extra 20 business days for negotiation) the FRC will be £800 (base costs).

For stage 3 (where quantum cannot be agreed and the court has to determine) the FRC will be £250 for a paper hearing; £500 for an oral hearing.

Under the new system, for a case with quantum agreed at £5000 by the end of stage 2, the fixed recoverable fees would be £1,200. This represents a 33% reduction in recoverable fees in comparison with the existing system. The percentage reduction in fees recovered is more pronounced as the value of the claim increases. At £10,000 under the current system, the recovered fees amount to £2,550.00. If the case settles under the new system by the end of stage 2, the fixed recoverable fee of £1,200 would represent a reduction in excess of 50%.

Where does legal outsourcing come in? With the new system expected to be rolled out in April 2010 it will become counter productive for law firms earning their daily bread running personal injury cases, to conduct these cases utilizing U.K. qualified solicitors, while incurring the overhead associated with housing and employing such individuals. Particularly if one factors in the referral fees, paid by many, road traffic accident firms’ profit margins have been further dramatically slashed overnight. In order to remain competitive, and make a reasonable profit by running such a case load, it is obvious that these cases must be processed as efficiently, quickly and frankly as cheaply (without compromising quality of representation), as humanely possible. Without exploring alternative methods of processing large volumes of such cases, in time, many firms will be unable to survive. The most cost effective approach for law firms is the LPO route. LPO offers claimants’ firms, in effect, a blended model; incorporating the claims management, process reengineering and technological expertise on hand within the outsourcing community, together the requisite legal domain knowledge.

[read more...]

Globalization of the Legal Profession Two Day Symposium

I want to bring to my readers’ attention an extremely noteworthy upcoming event that if not for the imminent arrival of my first child, I would definitely be attending. Harvard Law School, Oxford University, Jindal Global Law School and the American Society of International Law are hosting a joint event, at Magdalen College, Oxford, on September 11-12. The Globalization of the Legal Profession two day symposium follows on from an earlier successful, related event, held at Harvard last November. I have consulted on several occasions with the organizers of these events, and several of the esteemed speakers and I have no doubt that the assembled faculty will ensure a thought provoking debate. For an overview of the event click here.

Speakers include Stephen Denyer (Allen & Overy), Ted Burke (Freshfields), Chris Kenny (Chief Executive, UK Legal Services Board), David Wilkins (Harvard Law School), Richard Susskind (Oxford), and Selvyn Seidel (Burford Advisors LLC).

Click here to access the full conference agenda. Alternatively if anyone wishes to contact me directly for further information, please feel free to do so.

[read more...]

Ohio Rules of Professional Conduct Do Not Prohibit Outsourcing

The Supreme Court of Ohio Board of Commissioners on Grievance and Discipline issued Opinion 2009-6 on August, 16 2009. The Opinion concludes that the Ohio Rules of Professional Conduct do not prohibit an Ohio lawyer from outsourcing legal services domestically or overseas. There is little novel in the Ohio Opinion, however, it does a reasonable job of bringing together some of the key ethical issues raised by earlier Opinions released by the ABA and various State Bar Associations.

The most interesting discussion point that I gleaned pertains to the current modus operandi within law firms of engaging with, and subsequently marking up the cost of domestic based contract attorneys, and the lack of disclosure of this practice to clients. According to the Supreme Court of Ohio the scenario whereby disclosure, consultation and informed consent is not necessary when a law firm engages a contract attorney, is in a situation when for example a sudden illness of an employee requires a temporary replacement who functions as an employee of the law firm. The Opinion states that,

“Outside this narrow circumstance, disclosure, consultation, and consent are the required ethical practice”.

Although the Opinion does not reference the common practice of engaging domestic based contract attorneys for large scale document review projects, as I interpret it, that would not fall within the “narrow circumstance” detailed above.


This appears to somewhat contradict a Legal Blog Watch piece that I recall reading a few weeks ago. The article, A Post About Ethics Rules, Offshoring and Mark-Ups on Contract Attorney Fees was first written back in 2007, but referenced again more recently in the article, Is Marking Up Contract Lawyer Costs Worse When Plaintiffs Lawyers Do It?

The author comments early in the piece:

“As a general matter, virtually every state bar allows lawyers to mark up the cost of legal research and writing services, so long as the overall costs are reasonable. However, firms are not required to disclose the cost differential for legal work performed by U.S. lawyers, whereas disclosure of mark-ups are required for foreign lawyers.”

Stephen Gillers, a Professor of Legal Ethics at New York Univeristy School of Law in Manhattan comments further, stating:

“Law firms can earn more by using labor they can mark up without disclosure,'' said Stephen Gillers, professor of legal ethics at New York University School of Law in Manhattan.”

I appreciate that the Legal Blog Watch articles are dealing specifically with the lack of any requirement to disclose the level of mark up to clients, rather than the very existence of the contracting relationship. However, it isn’t a huge leap to assume that oftentimes, in practice, law firms are also failing to “disclose, consult and obtain consent” as to the very existence of the temporary attorney engagement.

[read more...]

Better, Faster, Cheaper. The Recipe for Law Firm Success!

Law.com’s legal blog watch references a recent article featured in the Canadian Bar Association publication, National.

The article’s author Mitch Kowalski, envisages a hypothetical acceptance speech in 2020, by Canada’s Legal CEO of the year, the fictional Nancy Kwan. Ms. Kwan is CEO of BFC Law Corporation, formerly the law firm of Bowen, Fong & Chandri. She jokes that, “some of our lawyers and staff playfully yet proudly suggest that BFC actually stands for better, faster, cheaper.”

She sums up her company's success as being due to four factors. These include the elimination of the partnership structure, outsourcing, the promotion of knowledge management and fixed fee billing. I want to avoid doing the article any disservice by simply regurgitating what Mitch has so expertly penned, however I will sum up a couple of the main points. I do however highly recommend that you read the entire piece as it is both well written and in my opinion, remarkably on point. To access the full article click here.

Elimination of the partnership structure

BFC eliminated individual ownership rights and created a separate corporate legal entity, with the decision making process in the hands of a board of directors comprised of independent company GCs. These GCs were paid a directors’ fee as well as owning shares in the company itself. Senior lawyers, formerly would be partners, were now Senior Vice Presidents recompensed by an annual salary, bonus, and of course shares in the company.

Outsourcing

BFC identified HR as their biggest expense, and set about minimizing these costs. They unbundled their legal services into separate constituent tasks. Anything routine was outsourced to low-cost legal services providers. Nancy reveals that BFC outsource to India legal research, document preparation and due diligence work. Furthermore, the tasks previously undertaken by the law firm’s night staff, were now outsourced by the company to support staff in the Philippines. In addition to utilizing offshore resources the company also contracts with a pool of “work from home lawyers” domestically.

[read more...]

Law Society Cautions Against Career in Law

The Lawyer.com reported recently (click here for the full article) on the U.K. Law Society’s information campaign targeting law students, warning them off a potential career in the law. According to the article the campaign will target university and secondary school students, and contain information about the cost of legal training as well as the shrinking number of training contracts of offer. The article quotes a Law Society spokesperson as saying:

“We’re not telling people not to be a solicitor, but we are warning them about the risks and cost implications attached.”

On the one hand I applaud the sense of realism demonstrated by the Law Society and the recognition that without putting too fine a point on it, in a legal profession impacted by the forces of globalization and commoditization, there is simply not going to be the need for quite so many lawyers. However, perhaps the Law Society, and here in the U.S., the ABA, would be equally well served in liaising with academic institutions, which are in my opinion, still in large devoid of law school curriculum tailored to meet the requirements of a modern day, fast changing, and global legal environment.

I wrote almost a year ago, in my article Lawyer, Rainmaker, Candlestick Maker:

I believe firmly that there is insufficient emphasis placed on the development of rainmaking skills within the law degree………..Universities must take an increased level of responsibility in helping mould young attorneys so that they are capable of hitting the ground running on day one with an understanding of the requisite qualities necessary to succeed in the business that is law.

The J.D. adopts the Case (a method of studying landmark cases) and Socratic methods (a method of examining students on the reasoning of the court in the cases studied) as its didactic approach. I am not advocating for one moment the removal of this structured form of tuition, however I question whether it alone, ……… is sufficient adequately to prepare young lawyers for the real world. It is all well and good being able to regurgitate case law and to construct a written legal argument, but there are people all around the world who can also do this at a much lower cost and to whom we are now easily connected.

Insufficient time is spent on practical client interviews, networking skills, understanding the business of running a law firm, communication and negotiation techniques. Yes, all newly qualified attorneys are aware of the billing requirements soon to be incumbent upon them, but do they understand why these requirements exist? Are any law students able to learn about alternative billing structures, the history of the hourly rate, fixed fees, fee-capping arrangements and how billing accurately and clearly for the provision of legal services can actually be utilized as a marketing tool in attracting clients? Do any Law courses require their students to prove their mettle within a networking situation? Would it be impossible to replicate a networking event or to send students to such events with a variety of goals to be achieved?

While many of the skills highlighted above are in fact honed over time, that does not diminish their ever-increasing importance and the role that these skills can play in guiding young lawyers’ careers to the top of the ladder. By decreasing the focus on antiquated teaching methods, and improving law students’ understanding of the role that technology plays in the practice of law and the delivery of legal services, universities, Law Societies and Bar associations will greatly enhance law graduates’ long term chances of success.

[read more...]

Global 100 UK Firm Goes Public on Legal Outsourcing

The Lawyer.com reported on June 22nd that acclaimed Global 100, U.K. law firm Pinsent Masons, was to outsource litigation work to South African LPO, Exigent. Comments on the Lawyer.com article from interested readers, ranged across the entire spectrum, from negative fear mongering to positive endorsement. I have highlighted a few below. Click here to access the full article, entitled Pinsent, First Firm to Offshore Work of Qualified U.K. Lawyers.

“It WILL result in unacceptable drops in quality. Being unable to communicate properly with the people doing the work offshore will lead to the same frustration, errors and delays that arose when the callcentre industry started outsourcing.”

“How can any professional body be expected to protect the public from unscrupulous practitioners who cloak themselves through offshore arrangements?”

“If a document can be reviewed by a senior south African lawyer more cheaply than a junior English associate – or even trainee or paralegal – just how is the client suffering?”

Following the announcement of the Pinsent deal, and the subsequent wave of publicity, I’m delighted that Mark Surguy, Pinsent Masons' Legal Director, and one of the driving forces behind the firm’s outsourcing initiative has agreed to indulge me and be interviewed for the blog. I interviewed Mark on 9/7/09 while he was still in Cape Town supervising the recruitment of the offshore team leaders. My questions are italicized.

Mark, first of all, many many thanks for agreeing to contribute to my blog, I’m sure my readers will find your insight illuminating. Perhaps you could enlighten my readers on your own background and how you developed your personal interest in legal outsourcing and technology?

I have been a commercial litigator for over 20 years. My own interest in globalization, technology and how these two forces impact the legal profession goes back to my time working for the legal arm of Arthur Anderson. The innovative use of technology together with forward thinking colleagues and the way that they performed their work opened my eyes to the possibilities ahead. Since joining Pinsent Masons I have been banging the tech drum among my colleagues now for a number of years.

So why now, what has tipped your firm over the edge so to speak, not only to actively embrace legal outsourcing, but to do so publically?

The decision was made partly due to pressure from clients, but primarily because of an internal desire within the firm to provide our clients with an innovative, cost effective solution to the legal problems they are facing. As far as the legal profession is concerned the recession/credit crunch is the most significant event by far over the last ten years. Corporations are now bypassing law firms and going directly to LPOs and contract lawyer agencies. As far as billing inflated, junior associate hourly rates for routine document review work, clients are now routinely saying to us “we won’t pay those fees to do this type of work”. I have personal experience of clients saying exactly that to me.

As to why we went public, we wanted to have the first mover advantage, offering something to the market that is more efficient and cheaper. After the initial press frenzy, we discussed internally the comments circulating for example, on the lawyer.com website, and yes there was a lot of negative feedback, but there were many positive comments as well.

Many law firm partners I speak to privately acknowledge that they view LPO as a threat. An operating model that takes food from the table that has traditionally fed them. You don’t see it this way, do you?

The desire to provide our clients with added value is paramount. Our model going forward will involve fees for the management and supervision of the services since we are taking responsibility for the work, we are supervising the work and we are assuming the risk. Of course this is all done with our clients’ consent and agreement. I see this as a way for the firm to make money and save our clients cost –a win win.

You’re in Cape Town right now, getting the ball rolling, so to speak. What particularly attracted you to South Africa as opposed to say India or the Philippines?

Correct, I am in Cape Town for an initial period of two weeks recruiting two team leaders and to all intents and purposes training the trainer. We chose South Africa because of our own existing relationship, the availability of common law trained talent, and the time zone similarity. Initially we are looking at document review work, however if it is successful, this might be expanded further to include other practice areas.

Mark, you mentioned that initially you are focusing on document review. Why did you choose this practice area as opposed to any other?

Document review - certainly at "first pass" level - is a relatively low level exercise. It is carried out by paralegal and junior staff already and the only issue has been supervision. A low level exercise that can be done by junior staff subject to the right supervision is ideal for offshoring. It is possible that we will expand the range of outsourced services in the future.

As I understand it, unlike in the U.S. there are very few, if any, domestic based providers of large scale document review staffing services. Do you have any thoughts as to why this might be the case, and do you anticipate that this market will also develop domestically?

Electronic disclosure is relatively recent in the UK compared with the US. The market is therefore less well-developed. Furthermore, clients have been happy to have all aspects of the litigation or investigation process carried out by one firm on UK soil (or at least within a branch network environment). However, the volumes of ESI have been increasing substantially which has in turn increased the legal costs. That combined with the economic downturn has been sufficient to bring about change. There is every chance a market will develop domestically as there are many lawyers now out of regular work who if innovative might look to develop this area.

What has the feedback been like within the firm following the announcement?
As regards internal feedback I have already conducted a couple of roadshows and will be doing several more following my return to the UK. We have received mixed reactions ranging from “we’re exploiting poor people in Africa”, to “are people in the UK going to lose their jobs”. We have explained to our employees that neither is the case.

If I can indulge you for one final question, and please feel free to prophesize, looking into your crystal ball, where do you see the document review practice area, the LPO industry and the legal profession as a whole five years from now?

There is no doubt in my mind that the volumes of ESI is a real problem. The volumes are continuing to increase and I see no reversal in that trend in the next 5 years. What will change is how corporate clients and their advisers will respond to the problem, which has been an ever increasing problem for 5 years or more. A more targeted and proportionate approach will develop and the use of technology will increase. Technological development may automate more of the document review process but it cannot be completed without some human intervention. The Courts will require the parties to adopt suitable technology and will penalise lawyers who do not. Document review will become more organised, streamlined, acutely measurable and hence increasingly commoditised. Document review will perhaps therefore become a specialist area for specialist service providers. The technology companies may also expand their services to offer review services.

As far as the LPO industry and the wider legal profession is concern, we’re looking at a serious restructuring of the profession, driven by the market. You can’t just withdraw from the market. The market will decide. We will see less people employed on a full-time basis, more people employed on a project basis, some firms will merge and some will go bust. As far as LPO is concerned I believe the industry is set for huge growth.

[read more...]

U.K. Law Society Pressures ABA to Allow Alternative Business Structures

I have blogged on several occasions about the implications of the U.K.’s Legal Services Act on the legal profession on both sides of the Atlantic, and also the wider repercussions on the legal outsourcing and offshoring industry. To recap, the Legal Services Act permits through the formation of Alternative Business Structures, external investment in law firms. The House of Commons website review of the key benefits of the Legal Services Act defines Alternative Business Structures:

“Alternative Business Structures (ABS) …….. enable lawyers and non-lawyers to work together on an equal footing to deliver legal and other services in ways that better meet the needs of consumers. External investment will be possible, and new business structures will give legal providers greater flexibility to respond to market demands.”

Almost a year ago to the day, I asked the question, Are Magic Circle Firms Set for outside Investment? I wrote at the time;

“I have been convinced for a number of years now that the profit margins routinely enjoyed by the world's leading law firms would prove to be extremely enticing to the private equity market and that once the legislative restrictions on external investment were lifted, it was inevitable what would follow.”


Eight months earlier, in my November 2007 piece, The Legal Services Bill and its Impact on the Legal Process Outsourcing Industry, I discussed the passing of the bill in tandem with an overview of an article written by Tony Jomati, former Clifford Chance Managing Partner. He wrote at the time about a number of trends impacting on the U.K. legal profession.

Trend number 6 stated: “High Street legal services will be fundamentally transformed by the Legal Services Act. A number of major brands will dominate the provision of retail legal services. Will that be law firms, or outsiders such as supermarkets or banks? It is too soon to tell whether existing law firms will be able to develop strong enough retail brands.”

At trend number 7, he went on to say that, “If the Clementi reforms (the forerunner to the Legal Services Bill) are broadly successful, one can expect firms higher up the chain to take in outside capital and float on the market.”

To the best of my knowledge this concept of external investment in law firms remained firmly entrenched within the UK’s legal borders, that is until I came across the following Law Society Gazette article dated June 25th - New-Model Law Firms Face Barriers in the U.S.

On the surface, the article appears to reaffirm the position that the U.S. has some distance to go before the concept of alternative business structures could ever take off over here. However, this is the first occasion of which I am aware that senior figures from within the ABA have publicly acknowledged the concept and its implications on the practice of law here in the U.S.

Tommy Wells, ABA President is quoted as saying that the concept of ABSs raises,

“important regulatory and ethical issues that must be examined and addressed”.

The article goes on to state that if the ABA does not change its stance by the time ABSs are permitted in 2011, U.K. law firms that choose to become ABSs will be barred from practicing in the U.S. From a practical perspective, this stance is clearly operationally unworkable for any of the U.K. magic and silver circle firms, with a U.S. presence, contemplating external investment.

What is perhaps even more illuminating is the public stance displayed by the U.K. Law Society who will “work hard” to persuade the ABA and the U.S. regulatory authorities that ABSs are viable business models. Bob Heslett, Law Society vice-president, said:

“We will work hard to seek to persuade the Americans on this, but we will only be likely to succeed if we can demonstrate that ABSs are just another law firm, subject to the same requirements and regulated by the same regulators as existing law firms, and in particular that client confidentiality is fully preserved and protected.”

My personal belief is that the pace of change within the legal professions on both sides of the Atlantic has picked up dramatically over the course of the last couple of years. The financial crisis is acting as a further catalyst of change across numerous sectors of the profession. Clearly, if one reads between the lines, the U.K. Law Society believes that the ABA position is not a static, immovable one. Although the first step may be a modification of the relevant rules to permit U.K. firms with external investment to practice in the U.S., I predict that it is only a matter of time before external investment in U.S. law firms is also permitted. Once such investment is common place within both the U.K. and U.S. legal professions, this in turn will only spur the growth towards legal outsourcing and alternative and more efficient law firm operating models.

[read more...]