Herbert Smith kicked off the New Year by announcing a major expansion of its onshore center in Northern Ireland, which provides document review work competing against offshore providers who have been offering that service for years.

“Do-It-Yourself” Finding Traction

The prominent London-based outfit is not the only law firm encroaching into LPO territory. US firms Orrick and WilmerHale, with low-cost centers in West Virginia and Ohio, have also realized they don’t have to compete with external providers in India if they can perform basic legal tasks internally.

The trend is a testament to the growing influence of LPO techniques, as well as the demands of clients for lower bills. But setting up a world class legal outsourcing center isn’t as easy as it looks.

The Industralization of Legal

As Ron Friedmannpoints out in a recent article in Law Practice Today, LPO isn’t just about moving jobs where manpower is cheaper. “We can now look back to the early buzz about LPO – moving legal work to India – and understandthat it missed the main point. Location matters less than implementing industrialized processes,” Friedmann writes.

Indeed, these industrialized processes – utilizing technology, breaking down legal services into rule-based tasks, and applying project management – are alien to many law firms, which have evolved to sell high-end tailored legal advice to large companies. The question of whether law firms have the expertise and drive to enter this highly competitive space remains as yet unanswered.

The low-cost, high volume model might also put pressure on profit margins and, consequently, on partners’ earnings.

Challenging Process

The example of telecoms company BT demonstrates how challenging the ”do-it-yourself” process can be. The BT legal department set up one of the largest offshore captive centers in Gurgaon, India to help with commercial contracting and antitrust regulation. Several years later, the company divested the whole operation to a specialist legal outsourcing firm.

Several challenges, cited by BT Global Services general counsel David Eveleigh at the time of divesting the Indian operations, included the need for both, “industry best practices” and “global scalability.”

Beating LPOs at Their Own Game?

The basic premise of outsourcing remains that it is cheaper and easier for someone else to do a job for you, especially if the person is an expert at that particular job. The BT examples shows, it’s not easy to beat the LPO providers at their own game. But going forward, as evidenced by Herbert Smith’s expansion, clients might think it’s worth a try.

Until next time,

The Fronterion team

IQPC Legal Outsourcing Roundtable: New York City, February 28th, 2012

Fronterion managing principal Michael Bell will be presenting, alongside a representative from JP Morgan Chase, on issues of risk and liability when engaging third-party legal vendors. Bell will be addressing in more detail the issues featured in Fronterion’s Law Firm Liability Report released late last year and also will cover general risk exposures when engaging legal outsourcers.

The Roundtable will provide an intimate format for delegates in which to share and learn from other delegates’ experiences addressing LPO issues. The Roundtable is in brief:

“While initially driven by costs savings, legal process outsourcing (LPO) is gaining traction as a new way of working for a number of key segments of legal services. This innovative and increasingly mainstream approach has overcome many skeptics in only a few years. As a result, the LPO model is now generally recognized as a viable means to addressing companies’ legal needs. This roundtable will enable an in-depth overview of how to capitalize on LPO methods and techniques and help you to brainstorm innovative and workable solutions to cut costs, reduce risk and streamline your legal processes.”

Contact us (info@fronterion.com) for more details and registration discounts on the IQPC Legal Outsourcing Roundtable event.

Legal Practitioners’ Liability Committee National Risk Summit: Sydney, March 29th, 2012

Get the lowdown “down under” on law firm liability exposures created by third-party legal vendors at the LPLC National Risk Summit.

Bell will be presenting alongside Anthony Davis of Hinshaw on issues of legal disaggregation, liability exposures and ethical obligations when collaboration with third-party legal vendors. The conference looks to be quite an in-depth analysis of the emerging liability issues facing law firms today.

IBC – Legal, Regulatory & Compliance Outsourcing 2012 & Beyond: London, April 23rd-25th, 2012

In this month’s edition of the Fronterion Forefront newsletter, we highlight how many firms are now taking a “do-it-yourself” approach to LPO as evidence by Herbert Smith’s recent announcement.

In the IBC’s inaugural LPO conference in London this April, Fronterion managing principal Michael Bell will be conducting a half-day workshop on specific LPO delivery techniques and engagement models. Fronterion is very excited about the IBC conference workshop since the “do-it-yourself” approach is certainly gaining traction by law firms and corporate in-house legal departments seeking to leverage the expertise of LPO providers without having to go outside of their organizations to do so.

Learn More

In short, no matter where you are (North America, Europe or Australia), legal outsourcing and alternative legal service delivery will most likely have an impact on your approach to legal services. Learn more about these exciting and important new developments by attending one or all of these conferences. Contact Fronterion (info@fronterion.com) for more details on any of these upcoming events.

More details are available here and in press release below.

Fronterion Releases Landmark Report on Legal Vendor Risk

8 September 2011 – Law firms’ professional liability insurance might not adequately cover the work of third-party legal vendors such as contract attorneys or legal process outsourcing (“LPO”) providers, according to a report published today by Fronterion.

The growing sophistication and widespread use of external attorneys in low-cost outsourcing centers has permanently changed the liability landscape for lawyers. Law firms and their insurers have yet to catch up, according to Fronterion, a leading LPO consulting firm.

The Fronterion Law Firm Liability Report comes as top 50 AmLaw firm McDermott Will & Emery faces one of the first reported malpractice lawsuits brought by a client over the work of external contract attorneys engaged to help review documents. The client claims an e-discovery firm employed by and acting under the supervision of McDermott handed over too many documents to prosecutors.

The case raises a number of important liability issues. For example, how liable are law firms for work performed by legal professionals outside of their firm? How often are the terms of traditional professional indemnity insurance precluding coverage for the work of third-party vendors acting for the law firm? In particular, are law firms uninsured and solely liable even if they are supervising vendors not directly contracted with their law firm? These developments seem to indicate that law firms might be increasingly obligated to pay damages themselves if a client sues over mistakes made by external vendors.

The Fronterion Law Firm Liability Report provides the first essential guide to liability and insurance issues arising from the growing use of contract attorneys, LPO firms, and other third-party legal vendors.

The report includes sample language and terms of professional indemnity insurance, demonstrating why these provisions might not adequately protect law firms against McDermott-type lawsuits. Additionally, the report offers a number of actionable steps firms can take to identify and reduce the risk exposures of legal vendors and, if the worst happens, ensure they have adequate coverage.

Fronterion founder and managing principal Michael Bell said, “No firm, no matter how large, can afford to ignore the liability implications of third-party legal vendors.”

“The most exposed firms are not those operating on the fringe of the legal profession, but some of the most prominent and global law firms. Large law firms are often the most frequent users of third-party legal vendors, such as outsourcing and e-discovery firms,” he said.

“Yet, few firms have seriously considered the liability consequences of the use of third-party vendors, and fewer still have the right structures in place to help prevent a damaging lawsuit from arising in the first place.”

At approximately 40 pages and 14,000 words, the liability report is the most comprehensive resource available on issues of third-party vendor risk and liability exposures to law firms.

Additional topics covered include:

• Standard policy clauses that may be limiting law firms’ coverage of vendors
• Drivers reshaping legal vendor liability exposures
• Nuanced contractual and vendor engagement structures
• Risk mitigation procedures every law firm should consider
• Preparation for negotiations with insurers in order to secure appropriate coverage statements

Fronterion is uniquely positioned to provide commentary on these complex and emerging liability issues. As an objective advisor to global law firms, exclusively on issues of legal outsourcing and alternative legal delivery, Fronterion provides an unrivalled depth of real-world industry knowledge about legal vendors. The Fronterion team is also well versed in liability and insurance issues. Fronterion staff contributing to this seminal report include insurance lawyers, certified public accountants, insurance executives, and university professors.

For more information and to request a copy of the Fronterion Law Firm Liability Report, visit www.fronterion.com/liability today.

London: London continues to be experiencing an era of ferment (See previous post). I received several references to my earlier post on the “London ferment” as a result of the forthcoming implementation of the Legal Services Act (LSA). Corporate legal departments and law firms are seeking to redefine the best ways deliver services in this new legal paradigm. This means that law firms have to do more than simply roll out an LPO vendor when responding to client RFPs or panel reviews. Rather, firms are seeking to establish new ways of interfacing with their clients as well as reconceptualizing the delivery certain legal services.

Liability: The liability issue is HUGE. Challenges and implications for law firm liability when engaging third-party legal vendors is a complex emerging issue that firms need to address. We certainly have taken notice of it at Fronterion. We are in the process of releasing a report on firm liability due to the rise of legal outsourcers and other alternative legal vendors. Our newsletter this past month highlighted some of these issues stemming from the recent events pertaining to a malpractice case at major AmLaw firm. (To sign-up for the newsletter or receive a copy of last month’s newsletter email me: michael.bell@fronterion.com,)

Departures: We’ve seen some interesting changes in leadership at the top of several major LPOs including the departure of Integreon CEO Liam Brown and UnitedLex co-founder Ajay Agrawal,

Onshore: The depressed labor market outside of major metropolitan areas, particularly in the Midwest, is driving the growth of onshore legal “outsourcing,” That is something we have been projecting for quite some time (See Ten for 2011 trending report). This is pushing offshore LPOs to refine their value-add beyond labor arbitrage.

On Demand: At Fronterion, we are continuing to respond to you, our clients, and are launching a new line of reports, webinars, and specialized services through Fronterion “On Demand”. This is a very exciting area and something we plan to expand. (Email me for details: michael.bell@fronterion.com,)

Other highlights for Fronterion include being featured in a front-page article in The New York Times, plus two other published articles including one I co-authored with Brad Blickstein in the ILTA Peer-to-Peer, and another I co-authored with ISS UK general counsel Richard Reade in the LPO Handbook.

Stay tuned for more this fall….

How to Avoid McDermott’s Liability Muddle

As an emerging practice in the legal profession, outsourcing has yet to answer the question: what happens when things go wrong?

A lawsuit against Chicago-headquartered McDermott Will & Emery could change that (see story).

When Things Go Wrong

One of the law firm’s former clients says that contract attorneys at an outside e-discovery vendor, hired by the firm, handed over too much information, Corporate Counsel magazine reports. McDermott has promised to fight the claim.

Regardless of the merits or outcome, the McDermottcase provides one of the first tangible examples of liability issues directly linked to a third-party legal support vendor.

The case highlights the fact there are risks, as well as rewards, sending basic legal work outside the firm to low-cost external vendors based domestically or overseas.

“Many law firms are now weighing whether the savings are worth the risk,” says Fronterion founder and managing principal Michael Bell. “But clients are still pushing their outside counsel to incorporate LPO or third-party vendor services into their offerings.”

“As a result, law firms and LPO vendors are having to confront the issues teed up by the McDermott case.”

The overriding issue is who is to blame for mistakes by outside providers. Many clients believe the buck clearly stops with the supervising law firm, while others feel that liabilities can be transferred to the end corporate clients through contractual provisions and targeted policy coverage.

How to Protect Your Firm

It is a complex and emerging issue, but steps can be taken by law firms to protect themselves. The first is ensuring the firm has proper structures and safeguards in place when engaging LPO firms. Simply leaving this responsibility to partners is no longer enough.

The second is re-examining insurance coverage for specific coverage scenarios, policy endorsements and deductible levels.

Due to the growing importance of liability issues, Fronterion has recruited Mark Vonnahme, a former CEO of a publicly traded US insurance firm, to advise on third-party liability issues. Vonnahme says premiums are already being affected by the use of LPO vendors and these issues are increasingly targeted by many in the insurance industry.

Fronterion Liability Report

Fronterion is soon to publish its first-ever report on law firm liability. To inquire about receiving a copy, contact Fronterion managing principal Michael Bell (michael.bell@fronterion.com).

The issue of third-party liability is increasingly part of the legal profession and it is critical to get it right. Is your firm prepared?

Until next time,

The Fronterion team

We are delighted (and a bit humbled) to be in the company of Above the Law, 3 Greeks and Prism Legal along with other leading lights in the legal industry. For the complete list of the social media “MUST READ” resources for legal leaders please see below.

While fundamentally more conservative than the sweeping regulatory shifts in the UK, the ABA is continuing to provide greater clarity around law firms collaboration with third-party legal vendors. As a result, many US firms are reassessing their compliance.

At Fronterion, we continue to follow the ABA Commission on Ethics 20/20 as they examine and present changes to the ethical rules guiding legal professionals on their use and application of third-party legal vendors domestically and abroad.

Following a meeting in Washington DC mid-April that dealt with the growing body of proposed ethical amendments and the discussion surrounding them, the Commission has settled on an ‘Initial Draft.’ This draft is a step up from the previous ‘Discussion Draft’.

The Commission Co-Chairs, Jamie Gorelick and Michael Traynor summarized the changes as follows:

In this regard, the Commission’s proposals are more evolutionary than revolutionary… the initial proposals concern outsourcing, confidentiality issues arising from technology, and limited practice authorization for inbound foreign lawyers. With regard to outsourcing, the Commission is proposing amendments to the Comments to Model Rules of Professional Conduct 1.1 (Competence), 5.3 (Responsibilities Regarding Nonlawyer Assistants), and 5.5 (Unauthorized Practice of Law; Multijurisdictional Practice). The Commission’s objective is to offer lawyers clearer guidance regarding their ethical obligations when using lawyers and nonlawyers outside the firm, whether domestically or outside the United States.

If you’re interested in learning more about the ABA’s 20/20 Commission, previous ethical guidelines and related resources check out our sister website completely devoted to legal outsourcing ethics (www.LPOethics.com).

The Solicitors Regulation Authority (SRA) kicked off the month with the release of the new Code of Conduct. No major surprises (I presented on the regulatory implications for LPO last fall at a Law Society event). But, LPO does seem to be a growing focal point with the SRA.

While UK law firms face of number of implications resulting from these regulatory adjustments, the primary shift is that the SRA is looking to firms to be more transparent in their dealings with regulators. In particular, law firms are to be more open about their relationships with third-party legal vendors domestically and abroad. In this window before the implementation of the Act, firms are best served by taking an introspective look to review their professional obligations inherent in their work with LPO vendors.

Keep an eye out in the Fronterion Forefront newsletter for implications to UK law firms’ work with LPO vendors and what these regulatory shifts are brining. (Email forefront@fronterion.com to sign-up).

Despite the weather, the news in London is anything but drab. Here is a quick news round-up for the month:

Herbert Smith – Something we’ve long been covering is the strategic shift of Herbert Smith to a nearshore delivery centre in Belfast. April was the announced date of the “go live” of the centre.

Irwin Mitchell – Irwin Mitchell confirmed their intentions to float (in essence going public). Perhaps equally significant, are the changes in the law firms’ view of services. They appear to be shifting certain service lines from hourly utilization to more packaged consumer legal products. When firms change their focus from services rendered hourly to legal ‘products’ it results in a profound paradigm shift. The goal moves from ‘how can we render these services in the best manner possible’ to ‘how can we render these services in the best manner possible AND do so using the most efficient approach’. Whether performed internally or through collaboration with third-party vendors, this focus on efficiency creates fertile ground for innovations that could create a significant impact on the broader legal sector.

Taylor Wessing – Taylor Wessing announced a semi-standalone business unit offering a self-described ‘alternative’ to legal outsourcing. One thing that I’ve often mulled about recently (including a piece by The Lawyer) is whether we will see law firms acting like LPO vendors or LPO vendors acting more like law firms. Between this announcement and several other City firms moving forward with onshore or alternative captive delivery strategies, we’ve seen a marked shift of law firms acting like LPOs than the reverse. Whether the Taylor Wessing engagement is able to make this ‘stick’ with their clients or even other law firms is yet to be seen, but based on the comments of an executive in the new venture, it is intended to push the innovative boundaries, “I don’t think there are any limits on where this could go.”

Pannone – Similar to the paradigm shift seen by Irwin Mitchell, Pannone announced their offering of white label legal services (providing services under another organization’s brand). The same focus on efficiency internally and through third-party vendors for the delivery legal ‘products’ may be even greater in scenarios such as this where services are effectively white labeled across several clients.

Era of Ferment

When viewing the UK legal sector in relation to the innovation life cycle, the recent events above seem to indicate that we have shifted from (what we management consultants refer to as) an ‘Era of Incremental Change’ to an ‘Era of Ferment.’ The new Era of Ferment in the UK legal market is marked by turbulence and experimentation as firms demonstrate a growing divergence of how new methods and innovations should be utilized, configured and presented to clients. This will continue for some time until a dominant model (or models) emerge.

What is the role of LPO vendors in this Era of Ferment? Certainly third-party vendors will be involved in this transition, but LPO firms themselves will be required to keep pushing the innovative cusp of the legal sector. Simply selling on the basis of cost savings and gains from labor arbitrage alone may no longer be enough to stay ahead of the well-resourced and increasingly focused law firms and their offshoots.

If the Brits know one thing, it’s fermentation. Keep an eye on this market.

This change reflects our continuing growth in readership and our desire to make the wide range of our LPO resources accessible in one easily location (www.Fronterion.com).

We’re excited about the transition, which includes a complete revamp of our Fronterion.com website. Check out these updates:

• The latest feeds from the LPO Source blog now prominently featured on the Fronterion.com homepage.
• An even more comprehensive listing of Resources and Reports on LPO topics.
• News features from leading publications from around the world.
• An overall cleaner website that better communicates how our consultative role helps law firms as they respond to clients in meaningful way benefiting both firm and the client.

Thanks for reading and for your support. Upward and onward.

Please continue to follow the LPO Source blog right here at www.LPOsource.com.

‘Another challenge was the rise of third-party document-discovery specialists that could provide litigation support services at substantially lower rates,’ [Ruyak] said. ‘Howrey, a law firm with many offices in big cities, and thus, higher costs and couldn’t compete,’ he added.”

For this month’s Fronterion Forefront newsletter (sign-up at the top of this page), we invited two leading members of the legal process outsourcing (LPO) world to respond to Ruyak’s comments and defend their contributions to the legal profession.

David Holme, the director of Exigent, said, “In reality, if a law firm is dependent upon (arguably) overcharging for straightforward work such as discovery then that isn’t a terribly sensible business model and probably deserves to fail.”

Similarly, Liam Brown, the president and CEO of Integreon said, “We don’t believe the emergence of LPO or the application of technology is detrimental to the legal market. High-value legal advice will always command premium fees, but with growing overall demand for legal services, clients can’t afford to pay historically high fees for routine legal support services that can best be served through process or technology.”

More details and commentary are available in this month’s newsletter. To subscribe, sign-up at the top of this page or email us at forefront@fronterion.com.

Additionally, I am currently working on article with Brad Blickstein, principal of US legal consultancy the Blickstein Group about the strategic imperative of LPO services. (Keep an eye out for it!) Blickstein also had some comments on the Howrey deal. The New Legal Review asked Blickstein, what kind of lessons the Howrey scenario had in store for other law firms. The following is a quote from that the NewLegal Review:

‘Law firms must understand that all their previous income streams will not be available to them forever,’ he said. ‘More and more clients are starting to understand that law firms are typically the most expensive way to solve any problem, and are reserving their use for times when a law firm is the only solution. That’s OK: law firms can survive that. They just need to focus on their core competencies and provide exceptional – and unique – value in all interactions.’

In the long term, warned Blickstein, any law firm that continues to count on the income it receives for providing services that it cannot deliver efficiently or cost effectively is committing itself to a losing streak. ‘The quicker firms stop fighting change for their own self-interest and try to help their clients solve problems as efficiently as possible – even if the solution is to NOT use the firm – the better,’ he said. ‘Law firms who build relationships with LSOs and other service providers will be viewed as value-added and retain some control over the situation. Firms that do not will be sidestepped or fired. This will not necessarily mean that firms will be smaller. But they will be limited to attorneys who can provide outstanding legal advice, and/or bring in business.’