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| December 12, 2008 |
By: Julie Kay |
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ust a few years ago, outsourcing legal work to India was a dirty little secret — law firms did it, but few admitted to it.
Those days are long gone.
As outsourcing becomes more commonplace and corporate counsel and law firms face increasing pressure to reduce costs for clients, law firms such as Baker & McKenzie, Greenberg Traurig, Milbank Tweed Hadley & McCloy and Shapiro Sher Guinot & Sandler are actually touting the benefits of outsourcing at conferences.
But the work is still controversial despite projections that outsourcing legal work to India will be a $4 billion industry by 2015, and law firms and companies are still wrestling with concerns such as how to maintain quality control, keep client information confidential, supervise lawyers oceans away and weather new difficulties presented by the terrorist attacks in Mumbai.
“I’ve been in on two conference calls and at a conference where our firm discussed the pros and cons of outsourcing to India,” said Adolfo Jimenez, a partner in Holland & Knight’s Miami office. “We have concerns about quality control, protecting attorney-client privilege and taking responsibility for any mistakes made. A big unknown is how accepting clients would be.”
George Kimball, a San Diego partner in the information technology practice of Baker & McKenzie, summarized law firm worries at a recent Florida Bar conference in Orlando on outsourcing: “Managing outsourcing in India is as tough as being a short-order cook,” he said.
“If you tell a client we saved a lot of money on document review, but we got indicted — well, that’s not a good outcome,” he said. “And the last thing you want to see is your clients’ secrets plastered all over the front page of the Times of India.”
The terrorist standoff in Mumbai, where many of the legal process outsourcers, or LPOs, are based, added one more concern to the list.
“Terrorism can happen anywhere,” said Jeffrey Bailey, associate general counsel for Fresh Del Monte Produce in Coral Gables, which is considering outsourcing legal work to India. “But it is a concern. It would be one of those additional factors to take into consideration — not only whether our information is secure but whether there could be disruption to our service.”
Apparently no LPOs were affected by the attacks, although there were a number of close calls.
Abhi Shah, chief executive officer of the Washington-based Clutch Group, one of the largest LPOs in the country, was at Mumbai’s Taj Mahal hotel just two hours before the incident, said company president Paul Mandall. Clutch Group’s Indian office is in Bangalore.
In another close call, a conference on legal outsourcing to India was held at the Oberoi Hotel — one of the hotels hit by terrorists — just a week before the attacks. Kevin Colangelo, co-chief executive officer of Pangea3, a New York-based LPO with two offices in Mumbai, spoke at that conference.
“Our clients have been great,” said Colangelo, vice president of legal services for Pangea3. “We have not had any interruption of data or operations. We had a couple difficulties getting through on cell phones, but that’s it.”
The general consensus is law firms and corporate counsel began outsourcing lower-level legal work to India — and less to the Philippines — about five years ago. That work includes back-office work such as document processing and other work traditionally done by paralegals and new associates.
In the past couple of years, the market has grown, fueled by corporate budget pressures, favorable bar opinions and an explosion of LPOs, which now total about 80. And the work they are doing is becoming more wide-ranging, including intellectual property, legal research, contract and conflict review and litigation support.
Forrester Research projects legal outsourcing to India will reach $4 billion by 2015. Others say the figure is either too low or too high.
Regardless, other numbers don’t lie — there are an estimated 800,000 lawyers in India, and nowhere near that many jobs. Indian attorneys charge an average $35 an hour, or no more than half of what a veteran paralegal or lower-level associate bills.
Among companies that are outsourcing, according to a variety of published sources and corporate statements, are American Express, Dell, DuPont, General Electric, General Mills, Morgan Stanley and Motorola.
Law firms using LPOs include Baker & McKenzie, which opened a document review center in the Philippines, Allen & Overy, Clifford Chance and Milbank Tweed.
The latest to put a toe into the market is Greenberg Traurig, which recently started outsourcing a limited amount of IP work from its Los Angeles office as part of a pilot project.
“In a continuing effort to deliver the highest-quality legal services as cost-effectively as possible, we have done some pilot projects using offshore resources working under our direct supervision, and in each case have done so at a client’s request or with a client’s express consent,” Alan Sutin, chairman of Greenberg Traurig’s global intellectual property and technology practice group, said in a statement.
Outsourcing got a boost in recent bar ethics opinions from the San Diego Bar Association in 2007, The Florida Bar in January, the North Carolina State Bar in April and the American Bar Association in August. All stated outsourcing is allowed, provided certain requirements are met, including client notification and U.S. supervision of foreign lawyers.
But many firms still have deep concerns about outsourcing to India. Their concerns center on the confidentiality of client data, work quality and the ability to adequately supervise large groups of lawyers.
Bailey of Fresh Del Monte said he is trying to talk company executives into outsourcing some legal work to India. His company has been mired in litigation recently, leading to “outrageous legal bills for reviewing subpoenas and other work,” he said.
Bailey said he thinks his company — and others — would not be as apt to settle large cases if it had the ability to pay for review of thousands of electronic documents. With an LPO in India, that might be financially feasible, but it’s not now.
“In the last month and a half, there has been a tremendous push to cut costs,” he said. “I’m pushing my outside counsel to cut their costs. I’m a big proponent of LPOs. But senior executives are not very comfortable using LPOs. There are so many ethical issues — how do you control the work product, how do you control the confidentiality.”
Bailey dubbed LPOs the “put-a-paralegal-out-of-work” program.
Washington-based Howrey has similar concerns. That’s why the firm said last year it would open its own office in India to do trademark searches and registrations throughout the world. The firm hopes to open that office staffed with Indian nonlawyers in the first quarter of 2009.
With $600 million a year in litigation, Howrey had been approached by “a ton” of LPOs but decided it had to open its own office to maintain quality control.
“We’re hearing from our clients that, ‘We don’t know what we’re getting’ with an LPO,” said Robert Ruyak, managing partner and chief executive officer of Howrey. “They don’t have the same accountability and flexibility. Too many mistakes and errors can occur. We can’t train these people or supervise them. So we’d rather hire our own people and put them through a rigorous training process ... and, if they don’t do well, we’d terminate them.”
Julie Kay reports for the National Law Journal, an Incisive Media affiliate of the Daily Business Review.
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