The source on outsourcing, continued

Vikram Thomas

Joshua Paul

Vikram Thomas, 3L, at Skadden, Arps, Slate, Meagher & Flom in New York City, where he was a summer associate after a trip to India earlier this year.

As Thomas and Mathew traveled in India, they witnessed a country in transition. Evalueserve, one of the biggest companies on their itinerary, located in the newly built New Delhi satellite town of Gurgaon, was housed in a modern building just a few yards from makeshift houses and mud huts.

Some people they spoke to speculated that India, which has taken the lead in providing legal offshoring thanks to an abundance of English-speaking law graduates familiar with the common law system, can expect to lose market share on low-cost services as wages increase. Just a few months ago, OfficeTiger, an offshoring firm with an operation in India, opened a branch in the Philippines.

The Demand

The British law firm Allen & Overy started outsourcing the majority of its document processing three years ago and has saved around $3 million. Other U.K. firms have followed suit, but most American law firms have been cautious. Rohan Weerasinghe ’77, senior partner at Shearman & Sterling, told Mathew that his firm routinely outsources work in the U.S. As for offshoring, he said it’s a question of “when,” not “if.”

But Mathew and Thomas sense that, despite the allure of cost savings and the possibility of overnight turnaround, the biggest U.S. firms are unlikely to send work offshore until their clients demand change.

The students’ interviews with American corporate counsel indicate that such demands may not be far off. Peter Solmssen, former general counsel for GE Plastics, told Mathew that GE’s decision to set up a legal office in India was a cost-cutting measure, but one that also added value. When its plastics division hired Indian lawyers to draft contracts of the sort once prepared by counsel in the U.S., the company saved about $1 million in two years. At the same time, it freed up in-house counsel to do other, more challenging work.

As the students talked to lawyers at other U.S. companies considering offshoring, they heard concerns about quality and worries about confidentiality, but also a strong interest in cutting fees connected to litigation, and legal fees in general. DuPont, which is sending documents for processing and review to OfficeTiger’s Chennai and Manila offices, hopes to cut up to $6 million from its annual $200 million-plus in legal spending, according to one account.

Ben W. Heineman Jr., who was senior vice president for law and public affairs at GE when it began offshoring legal work and is now a senior fellow at the Program on the Legal Profession, told Mathew: “It’s part of the never-ending struggle with the law firm—productivity just isn’t in their genes.” Part of the point of hiring Indian lawyers was “to get the attention of the big law firms,” he said.

In the meantime, smaller American firms have already taken the plunge. Lexadigm Solutions, located in Gurgaon, does most of its work for solo practitioners and small law firms. Wilkins is intrigued by this phenomenon: small firms being able to do more with less and passing the savings on to the client—at least in theory. If clients do receive the benefit, as ethics rules require, “think about the implications for lowering the costs of legal services to individuals,” he said.

Ethical Issues

Although much of the legal work sent overseas is fairly routine, the students were surprised by some of the tasks carried out by lawyers who aren’t certified by the bar in the U.S. There’s the Indian lawyer who claims to have written the opening statement read in a California trial court, another who prepared an amicus brief for the U.S. Supreme Court and the head of one company who claimed that his staff and even interns negotiated contracts over the phone for clients. The students wondered when this work crossed over into unauthorized practice of law. One CEO told Mathew that firms were following guidelines based on advice from counsel. The gist of that advice: Make sure your clients are lawyers.

“Nothing has blown up yet,” said Mathew, “but it may just be a question of growth of the industry.”

Already one prominent bar committee has addressed some of the new ethical issues—many similar to those raised by domestic outsourcing. In August, the Association of the Bar of the City of New York’s Committee on Professional and Judicial Ethics issued an opinion on sending legal work overseas. In addition to preventing the unauthorized practice of law and ensuring competent representation, offshoring lawyers, the committee stressed, must take steps to protect client confidences and avoid conflicts of interest, pass savings on to the client and, under certain circumstances, obtain advance client consent.

The Future

Mathew and Thomas are continuing to research the demand side of the business this fall. Their goals are to publish their results and, just as important, to bring offshoring players and interested clients together at a symposium at the law school before they graduate.

Wilkins says the two students are on the front line of something that really hasn’t been explored. “Will it ever get as big in law as in IT? I would say probably not,” he said. “Because of regulatory barriers, because of the fact that law is a relationship business in a way that IT is not. Because there is a lot of local and tacit knowledge that goes into the creation of legal documents that would be hard to systematize. But we’ve seen all kinds of things be systematized that we thought couldn’t be systematized and digitized. So we shouldn’t just assume it couldn’t happen here.”

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