Cost, quality, risk and predictability in outsourcing debate

An article in Legal Week reports that law firms are aware that existing methods of charging for work must change but says that they are wary of legal process outsourcing as the answer. The only mistake is not to weigh up the options – before the clients do it for you.

In case you have time only to read the first paragraph or two of this, let me pass on a quotation which appears at the end of Legal Week’s article Partners seek new models but wary of LPOs. It comes from Berwin Leighton Paisner partner Vanessa Barnett who is reported as saying:

Long gone are the days of paying for all types of work by the hour and all the hours being under the same roof regardless of the nature of the task. There will only be one ‘profession’ left doing that.

My sheltered life leaves me unable to say whether you do in fact pay a flat rate regardless of the task at the sort of establishment referred to here. I would guess not, and also suspect that the profession in question inverts the usual rule, charging more for newly qualified practitioners than for the older ones. That much is mere surmise on my part. The primary conclusion by the respondents to Legal Week’s survey is no mere surmise – the days are gone when law firms can keep a stable of highly-paid staff in expensive offices and recoup their costs by selling their hours at a profit.

Not all work is of equal value to the client, whether in brothels or in law firms. “Value” and “cheapness” are near relations but they are not the same thing – “lowest possible cost” may sound attractive, but “value” connotes both an adequate level of quality and the containment of the risk of getting it wrong. As Slaughter & May partner Richard Clark says in the Legal Week article:

There are clear advantages for some clients but there are risks and disadvantages as well. It is important to keep in mind that unsuccessful outcomes will be vastly more expensive for clients than any savings made through outsourcing. The challenge is to square this circle.

This issue comes at us in many ways. The old expression “spoiling the ship for a ha’porth of tar” remains as valid today as it was when a cheapskate finish to a wooden ship would shorten its life and waste the construction investment. I went recently to one of the low-end supermarkets which have boomed in the recession; prices were low, but I am not sure that I would want to eat much of the food on offer. If cheap coding loses litigation which you might otherwise have won then it was not cheap at all.

The responses to the survey underlying the Legal Week report appear to show the respondents’ scepticism about outsourcing. I might have challenged the basis of the survey, but since Ron Friedmann of Integreon has already done that, I will refer you instead to his article New UK legal process outsourcing survey suggests market growth. Ron (writing in his personal capacity) questions the validity of the survey, mainly because of the things we do not know about the sample, but concludes that “widespread adoption [of LPO] cannot be that far-off”.

Integreon themselves have just been taken on by Simmons & Simmons (see Simmons & Simmons outsource work to Integreon Mumbai) to outsource document review and other tasks to Mumbai. The fact that Integreon is not disinterested in this outcome makes Ron Friedmann’s conclusion no less valid.

Outsourcing does not, of course, necessarily mean that the work is going abroad. The expression simply implies that you lay off to outsiders a task or part of a task which they can do more cheaply than you can; that might be anywhere which does not have inner-city salaries and rents to pay. Nevertheless, the biggest savings seem to be made by sending the work to countries where the overall costs are much lower – India in the case of Simmons & Simmons, South Africa for Pinsent Masons.

The real problem with the answers to the Legal Week survey is that we do not know who provided the service to those whose answers are aggregated under the various headings “good”, “poor” etc. If the negative responses come from firms who have set up bespoke arrangements with hand-picked outsourcing providers, then there is clearly a genuine quality problem. If, as I half suspect, much of the adverse reaction to outsourcing as a concept comes from individual experiences as end-users of someone else’s outsourcing arrangements, then the results mean nothing at all. If I were to judge outsourcing by reference to the message left on my answering machine last week by my son’s bank (my wife and I listened to it twice each before we were reasonably clear what it said) then one would condemn the whole concept. That is because the bank (and my ISP and many others) have opted for cheapness rather than value – the “sod the customer” approach to doing business.

Cost, value and quality are not the only factors to be considered here. The other is some degree of certainty as to what the cost will be – this is usually more important than achieving the lowest cost. The clients are moving towards capping their overall spend — the judgment in Earles v Barclays Bank threw an interesting light on the fee arrangements agreed between the defendant and their solicitors in this regard. Solicitors can only commit themselves to fixed fees if they have entered into similar arrangements with others, whether outsourcers or technology suppliers, and have themselves fixed the cost at which work is to be done for them. Outsourcing offers an opportunity to do this.

Without some means of predicting costs, everyone – lawyers as well as their clients – is left guessing as to the cost of doing the work. The oldest profession offers us an example of what is meant here. In the film Rat Race, a prostitute is asked to quote for an extremely exotic range of tasks, rather different in kind to those conventionally asked of lawyers but illustrating the point that a client’s needs are manifold and unpredictable. She names a figure, whereupon it emerges that the members of a gambling club have placed bets on what the cost will be. Predicting the costs of litigation is less rarefied than this but, as clients move towards fixing or capping their spend, lawyers must get better at predicting, as well as cutting, the costs of the components of running litigation.

Outsourcing is one way of achieving both these things. Ron Friedmann is right to say that the views now being expressed about LPO parallel what was once said about e-mail and other new ideas which have become mainstream, and right too to say that it will not be the answer for everyone. It is not to be rejected, however, without weighing the pros and cons. A good starting point would be to check the ROI of your litigation assistants engaged in basic disclosure work (I am assuming here that you do know what return you are getting on their costs). Then find out what the equivalent cost would be of outsourcing the same work. That much is objectively calculable. The saving, that is, the margin between what it presently costs you and what an outsourcer will charge, is not an absolute good, in the sense that quality, convenience and other factors come into play. Those elements are harder to value, and can only really be assessed by a trial run. Pick a case and give it a go, before the clients do that themselves.

Outsourcing is one of the session topics at Thomson Reuters Fifth Annual E-Disclosure Forum in London this week. The panel is led by Matthew Davis of Lovells and includes Bill Onwusah and Mark Simmons from leading litigation support departments (Lovells and Ashursts respectively) and Mark Surguy, Legal Director at Pinsent Masons who set up Pinsents’ South African outsource arrangements.

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About Chris Dale

I have been an English solicitor since 1980. I run the e-Disclosure Information Project which collects and comments on information about electronic disclosure / eDiscovery and related subjects in the UK, the US, AsiaPac and elsewhere
This entry was posted in Discovery, eDisclosure, eDiscovery, Electronic disclosure, Litigation, Litigation costs, Litigation Support, Outsourcing. Bookmark the permalink.

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