Legal Outsourcing Approved by American Bar Association

By Melissa Lafsky

This summer, the American Bar Association (ABA) delved into the debate over legal outsourcing, issuing an advisory stating that the growing trend of sending legal work offshore is "a salutary one for our globalised economy."

The news brought joy to the growing number of legal process outsourcing (LPO) companies, who despite meteoric growth over the past few years are still struggling to carve out a permanent niche in the market.

Outsourcing has been on a meteoric rise, in spite of—or, perhaps, fueled by—an economy that has tightened to near strangulation. With the formation in 2007 of India’s first outsourcing trade organization, the National Association of Legal Process Outsourcing Companies (NALPOC), along with continued growth among domestic LPO companies, the outsourcing of legal work is becoming a wider and more generally accepted practice, particularly as companies search for ways to trim their budgets.

The type of work that dominates outsourcing includes large, labor-intensive document reviews, intellectual property matters with an emphasis on patent work, and corporate work—all of which have been a longstanding part of the billable work for law firms. With their bread and butter billables now sent to attorneys or other legal professionals in New Delhi or cheaper U.S. markets such as Gainesville, Florida, attorneys in the U.S. have been feeling their trepidation grow as the market shifts towards cost-cutting on law firm bills.

“There's a natural filtering that’s occurring, and it’s being driven by cost pressure from large corporations,” said Daniel Reed, CEO of UnitedLex Corp., an Atlanta-based LPO firm with a roster of Fortune 500 and Global 500 clients. “These corporations are under material cost pressure that are driving the change, so it's forcing what’s already occurred on every other level--be it HR, accounting, supply chain—to the legal market,” said Reed.

Lawyers’ anxiety about outsourcing’s speedy and near-unstoppable rise has already manifested itself in the courts. In May of 2008, Newman McIntosh & Hennessey, a law firm in Bethesda, Maryland, filed a complaint in the U.S. District Court for the District of Columbia alleging that outsourcing legal work to India allows the U.S. government to intercept confidential documents, thereby violating both attorney-client privilege and the constitutional rights of defendants. The firm also wrote lengthy letters to bar officials in both the District of Columbia and Maryland “seeking opinions on whether outsourcing arrangements violate constitutional protections and legal ethics rules,” according to the ABA Journal.

While the suit is still underway, LPO executives consider it baseless. “That argument is really a weak one. There’s just no validity to it whatsoever,” said Reed.

Regardless of its merits, the lawsuit set the stage for the ABA’s position paper, which specifies that sending legal work overseas is ethically permissible so long as the lawyer doing the outsourced work takes steps to ensure the protection of the client’s confidence and preserve attorney-client privilege. The advisory also states that attorneys should ensure that any foreign lawyers performing the outsourcing work are suitably trained and competent, and that all bills for their work are reasonable.

An official stamp of approval from the ABA was a boon for LPO firms worldwide, and helped set the stage for outsourcing to take on an even larger share of the available market, particularly with the economy entering a state of insecurity.

“The opinion clarifies that there really is no legal deficiency or legal issue in where the work is performed, as long as there is integrity to the structure of lawyer oversight and lawyer review,” said Reed. “[International offshoring] is really no different than what goes on today on the West Coast, Arkansas, in all these different areas where legal work can be performed cheaper. This ABA position clarifies that [the organization is] not going to cloud the issue any more by attempting to state that offshore work isn’t ethical.”

Reed also emphasizes that despite the recent controversy, outsourcing is only a sliver of the larger legal pie: “There's a huge amount of flux right now in this market, with all these contract law firms that are crushing the market by lowering their rates on document review to shockingly low levels. The offshore part is a tiny fraction of what’s going on out there.”

Despite the turmoil brought by change, the future, Reed says, will be positively driven by logic and basic economics: “I think the outcome will be a very natural stratification where there are different levels and areas that are appropriate for different levels of service. Law firms will continue to do what they do--provide very high level legal analysis and review. But for work that doesn’t require that level of expertise and cost, it will be parsed out to different layers during different levels of the cycle. The right work will be filtered to the right level.”


http://www.lumenlegal.com/newsroom/Legal%20Outsourcing%20Approved%20by%20American%20Bar%20Association%20industry.htm