In-house counsel have some interesting options available when it comes to outsourcing. To take advantage of them, however,
make sure that you are clear on how you will measure success and what the implications are of your objectives for how you
select a provider or manage your relationship with them.
1. Reducing internal headcount (by shifting activities to a third party) — This is the typical way in which other business functions save money by outsourcing, and it is really mostly relevant to large law departments. Even then, if the driving purpose of outsourcing is headcount reduction, then the scope of the LPO engagement will be relatively small, as will the overall savings, net of transition and governance costs. (Consider that average in-house legal spend is less than 40% of the company’s total legal spend, and assume that most, but not all, of that is on staff; then, if you could outsource 25% of those roles and save 50% of the cost of those positions — two very generous estimates — your savings before transition and management costs amount to less than 5% of total legal spend.) The implications for in-house counsel thinking about outsourcing primarily for the sake of reducing their fixed headcount costs are plain; consider alternative ways to achieve comparable savings, including automating, or just ceasing, certain legal support activities
2. Reducing external spend (by shifting activities from outside counsel to an LPO provider) — This objective represents a much larger opportunity for savings and is indeed what has driven the majority of legal process outsourcing to date. In-house counsel achieve savings by requiring their law firms to transfer some tasks from comparatively expensive law firm or temp agency resources to less expensive LPO providers who are advantaged by a combination of their investments in technology, development of more efficient processes, and access to a global talent pool. But shifting tasks from counsel to outsourcer on specific matters happens sporadically. Savings are realized on a matter-by-matter basis (and sometimes these savings will actually come out of business unit budgets, rather than the law department’s budget), but the law department will usually incur additional costs as overhead. The most common example of this sort of outsourcing (which, incidentally, represents about 50% of the work of many “pure play” LPO providers) involves sending initial document review work to a provider but having outside counsel provide supervision and quality assurance. This kind of outsourcing raises for many the specter of making sanctionable errors if the LPO provider is unable to meet the quality standards the law firm would have met, if adding another link to the chain breaks down communication, or if something else goes wrong. Law firms certainly will raise objections to being held accountable for the work of others.
3. Shifting internal resources to more valuable work — This objective does not really save much money, though it could be thought of as a way to avoid the cost of hiring additional staff. It does, however, deliver a very real benefit: making sure that in-house lawyers are spending their time productively. Consider the value of freeing up law department staff from reviewing every routine change proposed by a counterparty to the thousands of non-disclosure agreements a technology
company signs every year, where most of those proposed changes fall into one of a handful of predictable (and acceptable) requests that can be described in an outsourcer’s playbook. Freeing up their time from mundane tasks is important to retain motivated professionals and make sure that the company is realizing a return on its in-house legal talent. This kind of outsourcing can sometimes be hard to defend internally because it seems to run counter to the current mantra of “do more with less” and rather suggests that the law department accomplish the same things with more (even if not very expensive) resources. Yet general counsel often say that they are urgently looking for ways to get their staff to spend more time getting to know and understand the business units they support and building relationships with key executives in those businesses. That time has to come from somewhere.
4. Providing new, heretofore unaffordable, services to the business — This objective is a bit different from the prior one, and it falls squarely on the side of “do more” rather than “with less.” Companies face ever-increasing risks in global markets; outsourcing can allow a law department to provide new or added risk management services affordably to the business. The availability of lower-cost resources, managed to a well-run process and supported by effective technology, can allow law departments to provide support that might otherwise be unthinkable; for example: provide more detailed, market-by-market guidance to a business about the legal and regulatory risks facing their distributors; extract key terms and conditions data from thousands of license agreements; review every piece of advertising copy for potential truthin-advertising violations; conduct due diligence reviews on every major customer contract for an acquisition target; and more. The value comes from reduced risks elsewhere in the company rather than savings in the law department.
1. Reducing internal headcount (by shifting activities to a third party) — This is the typical way in which other business functions save money by outsourcing, and it is really mostly relevant to large law departments. Even then, if the driving purpose of outsourcing is headcount reduction, then the scope of the LPO engagement will be relatively small, as will the overall savings, net of transition and governance costs. (Consider that average in-house legal spend is less than 40% of the company’s total legal spend, and assume that most, but not all, of that is on staff; then, if you could outsource 25% of those roles and save 50% of the cost of those positions — two very generous estimates — your savings before transition and management costs amount to less than 5% of total legal spend.) The implications for in-house counsel thinking about outsourcing primarily for the sake of reducing their fixed headcount costs are plain; consider alternative ways to achieve comparable savings, including automating, or just ceasing, certain legal support activities
2. Reducing external spend (by shifting activities from outside counsel to an LPO provider) — This objective represents a much larger opportunity for savings and is indeed what has driven the majority of legal process outsourcing to date. In-house counsel achieve savings by requiring their law firms to transfer some tasks from comparatively expensive law firm or temp agency resources to less expensive LPO providers who are advantaged by a combination of their investments in technology, development of more efficient processes, and access to a global talent pool. But shifting tasks from counsel to outsourcer on specific matters happens sporadically. Savings are realized on a matter-by-matter basis (and sometimes these savings will actually come out of business unit budgets, rather than the law department’s budget), but the law department will usually incur additional costs as overhead. The most common example of this sort of outsourcing (which, incidentally, represents about 50% of the work of many “pure play” LPO providers) involves sending initial document review work to a provider but having outside counsel provide supervision and quality assurance. This kind of outsourcing raises for many the specter of making sanctionable errors if the LPO provider is unable to meet the quality standards the law firm would have met, if adding another link to the chain breaks down communication, or if something else goes wrong. Law firms certainly will raise objections to being held accountable for the work of others.
3. Shifting internal resources to more valuable work — This objective does not really save much money, though it could be thought of as a way to avoid the cost of hiring additional staff. It does, however, deliver a very real benefit: making sure that in-house lawyers are spending their time productively. Consider the value of freeing up law department staff from reviewing every routine change proposed by a counterparty to the thousands of non-disclosure agreements a technology
company signs every year, where most of those proposed changes fall into one of a handful of predictable (and acceptable) requests that can be described in an outsourcer’s playbook. Freeing up their time from mundane tasks is important to retain motivated professionals and make sure that the company is realizing a return on its in-house legal talent. This kind of outsourcing can sometimes be hard to defend internally because it seems to run counter to the current mantra of “do more with less” and rather suggests that the law department accomplish the same things with more (even if not very expensive) resources. Yet general counsel often say that they are urgently looking for ways to get their staff to spend more time getting to know and understand the business units they support and building relationships with key executives in those businesses. That time has to come from somewhere.
4. Providing new, heretofore unaffordable, services to the business — This objective is a bit different from the prior one, and it falls squarely on the side of “do more” rather than “with less.” Companies face ever-increasing risks in global markets; outsourcing can allow a law department to provide new or added risk management services affordably to the business. The availability of lower-cost resources, managed to a well-run process and supported by effective technology, can allow law departments to provide support that might otherwise be unthinkable; for example: provide more detailed, market-by-market guidance to a business about the legal and regulatory risks facing their distributors; extract key terms and conditions data from thousands of license agreements; review every piece of advertising copy for potential truthin-advertising violations; conduct due diligence reviews on every major customer contract for an acquisition target; and more. The value comes from reduced risks elsewhere in the company rather than savings in the law department.
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