Legal Process Outsourcing (LPO): Law Firm Friend or Foe?

We read with interest a recently published Hildebrandt interview of Georgetown Law Professor Milton C. Regan, Jr on Outsourcing and the Impact on Legal Work.

Professor Regan has thought long and hard about the future of law firms.  He co-organized the recent Georgetown Law conference on the future of law firms, summarized in our recent post Law Firm Evolution or Revolution.   At the conference, he presented ideas from a forthcoming journal article (details and link at end).

The interview, like his presentation and paper, is thought-provoking.  We agree with much of it but take exception to a crucial point.   We disagree with his view that legal process outsourcers (LPO) can substitute for law firms, especially his view that LPOs can advise clients.  We start with this disputed point and then comment on several on which we do agree.

Advice. Regan observes that once clients break down work into components, they “can find lower cost providers, either domestically or abroad, lawyers or non-lawyers, [and this] could hollow out a good portion of a firm’s operations… Right now, the standard distinction is that LPOs do routine work and law firms provide strategic advice.”  As LPOs understand their clients better, he suggests they will be “in a better position to provide advice.”

As an LPO, we neither can nor should provide advice.  We cannot provide advice because we are not licensed to practice law; our providing advice would violate the unauthorized practice of law rules.  Moreover, we should not provide advice as a strategic business imperative.  Specifically, we work with law firms (and law departments).  So it is not in our interest to compete with firms.  Instead, we seek to free-up outside counsel to provide more and better advice.

Rather than represent a competitive threat, LPOs allow firms to offer clients better value by outsourcing repetitive and routine work.  LPOs, with their expertise and investment in process engineering, quality control systems, and technology are well-positioned to perform these tasks.  But we are limited to tasks that lawyers can, practically and ethically speaking, delegate and supervise.

Project Management. Relating to the topic of high-volume work, Hildebrandt asks Prof. Regan about project management.  He suggests PM is increasingly important for law firms.  We agree that firms need people “who can analyze the different steps involved in providing a service” and “to do cost accounting in a reasonably precise sort of way.”  Hiring the right personnel to decompose  work into steps and analyze profitability accurately will allow firms to identify routine, high volume tasks.

Once firms identify these tasks, they can apply technology and processes to improve efficiency or they can retain an LPO to help them do so.   Smart firms thus choose LPO providers that offer more than just simple staffing.  For example, Integreon’s Legal Operations Consulting practice collaborates with our LPO clients to assist them in this analytical process.

Lawyer Training. We also agree with Prof. Regan’s skepticism that outsourcing high-volume tasks adversely affects lawyer training.  He questions whether repeated work on routine tasks is essential to training.  We have never been persuaded that, for example, associates need to spend months or years on document reviews to be good lawyers.  To be sure, training new lawyers is a key industry issue.  The training challenge, however, does not turn on LPO.  Rather it turns on failing to train new lawyers on many important skills such as project management, practical client interviews, networking and rainmaking, running a law firm, communication, or negotiation

“LPO Reputational Signal”. The interview also explores why firms might be reluctant to outsource.  Prof. Regan says that, at one time,  firms may have believed outsourcing would have “signaled” low quality.  He questions this assumption now: “I think now there are law firms that are looking more closely to see if outsourcing some tasks sends a different sort of signal. It suggests the firm is willing to be flexible and innovative in trying to provide more efficient services.”

We agree.  In our view, using LPO now signals transparency on quality, productivity,  and cost.   Leading LPOs use defined and documented processes, incorporate advanced technology to support these processes, and regularly measure and report on performance and cost.  For example, Integreon has conducted a double-blind study to compare two approaches to document review.  The repeatable, tested, and technology-driven processes of an LPO are more likely to deliver consistency and accuracy than one-off, artisan approaches.

Recent news supports that “the LPO signal” is positive.  Many major law firms outsource to LPOs or work cooperatively with LPOs at the behest of their corporate clients.  And several major corporations – Microsoft, BAT, and Rio Tinto – have recently publicly stated that they use LPOs.  (See also the list at Prism Legal of companies that send legal work offshore or outsource it ).

Conclusion. In sum, we interpret Prof. Regan’s remarks as very supportive of legal process outsourcing but would not go as far as he does in suggesting that LPOs may compete with firms in offering advice.