The latest post from Jim Hassett’s blog Legal Business Development.
For example, DLA Piper asked nSource to manage a “captive operation” for it in an off-site location in Tampa, Fla. Bryant says that some law firm functions that were at first thought of as requiring attorneys on site actually were susceptible to being done off site by contract employees. One of them, in DLA Piper’s case, was conflict checking – a crucial function that a law firm must undertake before it takes on a new matter.
“We distinguished between the strategic and the tactical aspects of conflict checking,” Bryant said, “and we found that the tactical, day-to-day aspects could be done off site. By doing so, we reduced the firm’s costs for this function by 50 percent, and we also achieved a 50 percent decrease in the time required to hire a new conflicts analyst and bring him or her up to speed.”
nSource did this by carefully studying the conflict checking process – what steps were involved, who did them, and how long each step took. After completing this process mapping, it was able to advise its client, DLA Piper, on how to outsource that task.
Bryant said DLA Piper’s leaders were so pleased with the way outsourcing worked in the conflict checking arena that they expanded it to other functions as well, saving money, increasing efficiency and improving the way the tasks were done.
Legal marketing, like conflict checking, has aspects that are highly strategic and can’t easily be outsourced. But, DLA Piper and nSource found, it has many routine aspects as well.
“Although there are some people in marketing who really need to be near the lawyers,” Bryant said, “when you think about all the external and internal communications demands on a marketing team, the RFP responses, the responses to honors and awards submissions, these can be leveraged and done in a centralized way, off site. For DLA Piper, we moved to a factory-like setting, where they really churn these things out. We placed rigor and precision around an area that has historically been chaotic.”
In similar ways, nSource has set up outsourced offices for other functions such as library services and human resources for DLA Piper and other clients.
The new world of legal outsourcing does however raise some new management issues. The challenge of managing subcontractors is familiar in other professions. The 11th edition of Harold Kerzner’s widely quoted textbook, Project Management, has an entire chapter devoted to working with external suppliers. The perspective is interesting, since the chapter makes it clear that a firm using an external source for some of its work on a matter is now in a role reversal. The firm is a client of the outsourcer it has hired, and has the same responsibilities to monitor that outsourced supplier that its own client has to monitor the firm’s work.
If XYZ Corporation has hired your firm for a matter, the legal department of XYZ had the job of hiring you in the first place and has the responsibility to monitor your work. Similarly, if you hire supplier DIS for discovery work, you had the job of hiring DIS in the first place and then you have the responsibility of monitoring DIS to assure that their work product is acceptable. The law firm is responsible for the entire work product, and must make sure that all the parts work.
Lawyers are just starting to become familiar with the idea of subcontracting work, and the use of outsourcers presents new challenges.
As Mark Ross noted in a paper entitled "The Ethics of Legal Outsourcing", “It is clear that to satisfy the duty of competently representing one’s client, a US lawyer engaging a legal process outsourcing provider cannot rely on the provider to evaluate its own work product and must himself or herself be able critically and independently to evaluate the work product received.”
Oversight can be complex. For example, consider the eDiscovery technique of predictive coding. Unlike simpler forms of eDiscovery—such as keyword search, concept searching, and looking for clusters of similar document groups—in predictive coding attorneys train software algorithms to find the most relevant documents by using samples of documents called training sets. According to Predictive Coding for Dummies (p. 8):
The great advantage of this approach is that attorneys will be able to explain the decisions made by the computer, since they worked to train the computer algorithms. This can satisfy the obligation of competent representation, so long as things are properly done. But there is always the danger that things will not be properly done. Predictive Coding for Dummies (p. 11) goes on to say:
The message is clear: A firm that uses predictive coding cannot rely on it as a black box that gives right answers at all times. Not all providers are equal. There must be a procurement process that evaluates and selects an appropriately qualified provider.
Competent representation includes understanding and monitoring the provider’s work. If that does not happen, the law firm may be at risk.
Due to the growth in outsourcing, in 2008 the ABA Standing Committee on Ethics and Professional Responsibility issued an opinion to provide ethical guidance to lawyers about how to outsource in a manner that is consistent with the profession’s core values. State and local bar associations have also offered guidance in this area.
In August 2012, the ABA Commission on Ethics 20/20 concluded that outsourcing did not require changes to the Model Rules of Professional Conduct. However, it did propose new Comments to identify the factors that lawyers need to consider when retaining outside lawyers (Model Rule 1.1) and non-lawyers (Model Rule 5.3) to assist on a client’s matter. The Commission also proposed a new sentence (for Comment 1 on Model Rule 5.5) to clarify that lawyers cannot engage in outsourcing if it would facilitate the unauthorized practice of law.
Like many obligations described in the Model Rules, these proposals were intended to be “rules of reason” and were not intended to preclude consideration of broader legal concerns, such as malpractice and tort liability. But they did reflect the fact that new trends in outsourcing place new demands on the supervising lawyers.
This series was adapted from the fourth edition of the Legal Project Management Quick Reference Guide which will be published this fall.
At a time when clients are demanding to pay less for legal services, it is easy to see the benefit of getting work done for lower hourly rates. Law firms and their clients are looking at each step in legal processes and asking the question, “Can I hire somebody else to do this step at a lower cost, or do it better, or do both?”
In one widely quoted discussion of outsourcing, Legal OnRamp founder Paul Lippe argued that about 25% of all legal work falls into Carr’s process bucket:
Lippe went on to note that “large law firms charge from $150/hour (paralegal) to $400/hour (mid-level associate) for process work.” He then listed these lower cost alternatives:
In his book Tomorrow’s Lawyers: An Introduction to Your Future (p.33), Richard Susskind takes this much further:
The key point here is that the identification and management of outsourcing alternatives will become an important task for firms that want to compete in the new normal.
In addition to outsourcing some elements of the work that lawyers do, law firms are also beginning to outsource many back office functions that don’t directly involve the practice of law (such as their IT help desks and elements of their marketing departments) and that involve the practice of law only indirectly (such as conflicts-checking functions).. Outsourcing of these functions can reduce costs significantly and help make firms competitive.
“What has caused this situation,” said Brad Christmas, a co-founder of nSource, a Chicago-based outsourcing consulting firm, “is the fall-off in demand for legal services – the dramatic change in how legal services are being priced and purchased.”
“All the sins of inefficiency that were covered up in the past, when law firms were riding high, are becoming exposed,” said Christmas. “Unless you are truly a premier law firm, you are fighting with many other firms over a diminishing body of legal work. The result is intense pressure to reduce prices and to keep expenses down. And not all expenses can be kept down. There has been a constant increase in the cost of top legal talent, and firms certainly don’t want to start paying their partners less, so there are not many easy choices left. Firms have to run their business more efficiently.”
Enter outsourcing consultants such as nSource, who describe their role as advising law firms about how to cut costs and become more competitive in the same way that consulting firms like Accenture advise corporations on how to become more efficient. In fact, they suggest to law firms many of the same cost-saving techniques that corporate America has used for years. nSource was founded in 2012, when it became clear that the new legal economy was here to stay. It has since grown rapidly by advising major law firms on how to outsource a wide variety of their functions and on actually hiring people to perform those functions in off-site offices.
Law firms, Christmas said, “are starting slowly and gradually” to outsource many functions. “These changes particularly affect any lower-skill, routine, rote functions that a law firm may be performing. As to what is considered ‘routine,’ the bar keeps moving up. When e-discovery first became a major need, law firms responded by hiring lots of staff attorneys. But later, many corporate GCs took control of that function and told law firms they wouldn’t be paying for that many staff attorneys. And advances in e-discovery are gradually reducing the need to have human beings doing much of this work.”
One good example of low level work being outsourced is the information technology help desk function. A recent college graduate – not even a trained computer analyst – can easily be trained to solve the technical computer problems of most law firm attorneys and staff. And they don’t need to work on site; they can work anywhere, as long as they are connected by phone and email to the firm’s worldwide offices. So the law firm will place these people in remote offices where costs of living and wages are lower.
“The business approach for outsourcing low skill tasks is similar to the military,” Christmas summed it up. “You find an intelligent young person. You train him or her, and they do the job very well at a low cost for two or three years. Then they move on, and you hire someone else.”
This series was adapted from the fourth edition of the Legal Project Management Quick Reference Guide which will be published this fall.
So what does it all mean? After reviewing all the opinions listed in the first six parts of this series, what are our conclusions and recommendations?
When we discuss these issues with clients, some take the position that there is simply too much controversy about task codes to make intelligent choices at this time. They would prefer to wait on the sidelines until experts agree and precedents have been set.
But these issues are too important to wait. When we did a survey of AmLaw 200 leaders for the book Client Value and Law Firm Profitability, an amazing 85% of chairs, managing partners, and senior decision makers agreed that firms will have an advantage if they address LPM before their competitors do. Given the fierce competition for a shrinking marketplace, the lawyers that try to wait on the sidelines may regret it.
There is absolutely no question that lawyers can increase client satisfaction and profitability by improving the way they plan and execute their work. The reason that project management is growing in the legal professions is that clients are demanding it. In its 2015 Chief Legal Officer Survey, Altman Weil asked general counsel to select the “service improvements and innovations… that you would most like to see from your outside counsel.” The top three were greater cost reduction (selected by 50% of respondents), improved budget forecasting (46%), and more efficient project management (40%). Since LPM leads to cost reductions and more accurate budgets, you could say that the top three requests of in-house counsel these days are LPM, LPM, and more LPM.
And task codes are a very important element in the LPM toolbox. In the fifth edition of the widely quoted text Fast Forward MBA in Project Management, Erik Verzuh wrote:
For lawyers who work in areas in which UTBMS codes have been developed – including litigation, bankruptcy, IP, and M&A – the single most important benefit of task codes may be the fact that they provide a ready-made work breakdown structure. Lawyers can immediately start using them to plan a new matter without re-inventing the wheel.
Still, many questions remain in the details of when and how to use phase and task codes, especially in the many practice areas where there is no standard set of UTBMS codes. Perhaps the most critical question is whether every lawyer in a practice group or a firm should be required to use the same codes in the same way or whether individual lawyers should be permitted or even encouraged to use their own systems their own way.
The benefits of a single universal system are obvious to anyone who wants to analyze and compare costs. However, as noted in several of the expert quotes above, many lawyers resist using a pre-existing set which is not to their liking, and others fail to use them properly. The result can be a huge amount of effort to create a system that produces “garbage in, garbage out.”
Based on our experience coaching hundreds of lawyers on these issues, we believe that “bottom up” solutions work better than “top down” mandates in almost all law firms. This implies that meeting the ideal of a single universal system, in which everyone in the firm uses the same codes in the same way, will be very difficult to achieve.
In contrast, if an influential partner or group of partners is asked to create a list of codes that meets their needs, it is a much simpler task. Lawyers in our coaching programs have developed codesets for many specialties that are not part of UTBMS, including real estate loans, private equity fund formation, venture rounds, private investment in public equity transactions, wage and hour audits, Equal Employment Opportunity audits and compliance, Office of Federal Contract Compliance matters, labor and employment litigation, National Labor Relations arbitrations, and more.
Even the format of these code systems can vary widely. Steve Barrett, one of the co-authors of this series has personally coached many lawyers to create such systems and notes that:
Is it worth the effort to create and enforce a firmwide system? It depends.
In my Legal Business Development Quick Reference Guide, I’ve written about a similar “it depends” situation in business development:
In the case of LPM, budgets and pricing are clearly very important, and a firmwide set of task codes which is properly implemented will certainly help. But it will also require a significant amount of time and effort that could be used to focus on other LPM tactics. And, as Toby Brown noted near the end of his article on “The State of Legal Pricing”:
The fourth edition of our Legal Project Management Quick Reference Guide, which will be published this fall, includes over 300 pages of tools and templates designed to help lawyers with “cost-conscious management of legal work” but have little to do with task codes, such as:
In our study of the AmLaw 200, we found that managing partners and law firm leaders said that the two most important LPM issues they faced were defining the scope of matters better at the outset and communicating better with clients. Neither issue would be helped by investing time and energy into firmwide task codes.
Different lawyers will inevitably reach different conclusions because they are in different situations. We believe that in order to improve their competitive position, each firm, each practice group, and even each lawyer must decide for themselves where to best invest their LPM time and energy.
This series was adapted from the Fourth Edition of the Legal Project Management Quick Reference Guide, which will be published this fall.
Before you schedule an internal team meeting, outline a quick agenda that lists exactly what you want to accomplish. Then re-consider whether you need a meeting to reach these goals. If you do, set the shortest possible time for the meeting, and stick to your agenda and time limit. (This may or may not apply to client meetings. The client is always right, and may prefer a different style.)
The first Wednesday of every month is devoted to a short and simple tip like this to help lawyers increase efficiency, provide greater value to their clients and/or develop new business. For more about this tip, see our Legal Project Management Quick Reference Guide.
Before concluding our review of task codes, it is important to emphasize that while this series of posts summarizes an emerging consensus, the area is still evolving and our conclusions are by no means universally accepted. As the use of task codes for budgeting has spread, a small number of critics have even begun to question the very idea of task coding. In our confidential interviews, the most extreme view was held by the expert who said:
In our opinion, the most serious of these objections is the quality of the data. Several people we talked to mentioned that even if you use the ABA code for depositions, let’s say, the system does not enable you to easily code the type of depositions for a particular case or even their number. One interviewee put it this way:
Ken Grady has taken this argument a step further in his blog post, “The Days of UTBMS Codes Are Over, Let’s Focus on Value,” which includes the following example:
These types of variations are behind the problem that Toby Brown wrote about in his article “The State of Legal Pricing”:
Some of the strongest proponents of task codes whom we interviewed are well aware of this variation, but argue that this just requires a higher level of sophistication when analyzing task code data:
Despite these counter-arguments, Grady’s overall conclusion is that:
Many critics take a less radical view that offers more hope for the future. In the comments that were posted to Toby Brown’s 2014 blog post quoted above, Michael Byrd, currently the director of financial operations (North America) at Baker & McKenzie, wrote:
This series was adapted from the Fourth Edition of the Legal Project Management Quick Reference Guide which will be published this fall.