| "How much can I save?" "What is the cost of legal | | | | annual law firm expense per lawyer at $161,893. |
| work done offshore?" "Please give me a quote for | | | | (Doubtless those expenses have increased since |
| 100 hours per month for legal work done in India." | | | | 2006, but, for the purposes of conservatism, we will |
| "What is your hourly rate?" "How much do you | | | | use Altman's 2006 number in our example.) Altman's |
| charge for ______?" These are the questions and | | | | breakdown included promotion ($7,136), reference |
| requests directed my way at the beginning of | | | | ($4,655), equipment ($9,299), occupancy ($25,879), |
| conversation when someone contacts me about | | | | staff ($55,147), paralegal ($17,911) and |
| sending certain legal tasks offshore for completion. | | | | "other"($41,866). In the Altman survey, "other" |
| Regularly I advise potential clients that the first | | | | includes malpractice insurance premiums and |
| question to be asked, either of a lawyer or someone | | | | settlements, payments to former partners, recruiting |
| potentially assisting in the outsourcing of a legal | | | | costs, and other expenses not shown separately. |
| project, is not "how much?" Instead, at the outset, | | | | Adding the associate's share of expenses ($161,893) |
| determination should be made whether those who | | | | to the associate's total earnings ($180,000) it is |
| would work on the project have the skills, training | | | | apparent that it costs the law firm a total of |
| and experience to complete the assignment(s) in a | | | | $341,893 to produce $400,000 in associate income. |
| quality fashion. This necessarily involves a clear | | | | Let's call it a $60,000 law firm profit attributable to |
| delineation of the proposed undertaking and the | | | | the associate's efforts. Put in other terms, it costs |
| expectations of the outsourcer. Further, what are | | | | the law firm $171 per billable hour of the associate's |
| the assurances of confidentiality? Can the time | | | | time to produce $60,000 of profit. |
| deadline for completion be met? What about conflicts | | | | Now, assume the same 2000 hours were produced |
| of interest? These questions should be asked of | | | | offshore at a cost of, say, $75 per hour instead of |
| every U.S. lawyer whose services might be retained. | | | | $171 per hour. (Higher end outsourced work such as |
| Likewise, they should be asked of every person or | | | | legal research or writing might cost in the range of |
| entity involved in outsourcing legal assignments. It | | | | $75.00 per hour, while other kinds of work such as |
| should be noted that offshore lawyers are not | | | | document review would likely be less. For purposes |
| licensed in the U.S. and do not provide "legal services" | | | | of our analysis, we estimate the overall offshore |
| or advice. Foreign attorneys, working offshore, | | | | costs toward the higher end.) The actual cost to the |
| complete assignments under the supervision and | | | | law firm for 2000 offshore hours at $75 per hour |
| review of qualified U.S. attorneys in generally the | | | | would be $150,000 instead of $341,892. Further, the |
| same manner as paralegals, summer law clerks or | | | | law firm's client could be billed, say $240,000, for this |
| junior associates in the U.S. Indeed, the Code of | | | | work instead of $400,000. (Recent bar association |
| Professional Conduct requires such supervision. | | | | ethics advisory opinions allow for a reasonable |
| Cost savings achievable from outsourcing, however, | | | | supervisory fee by the law firm, providing the client is |
| seems to be the burning issue of the day. Large law | | | | advised of the off shoring and the Code of |
| firms, in particular, are looking for ways of cutting | | | | Professional Conduct, particularly Rule 1.5, is followed). |
| costs to maintain profitability or to even survive in | | | | The client would happily achieve a savings of 40%, |
| challenging economic times. Dan DiPietro, client head | | | | while the law firm's profit would also likely increase. |
| of Law Firm Group of the Citi Private Bank, offered | | | | Moreover, the law firm would require fewer |
| Storm Warnings (American Lawyer, Dec 2007) in | | | | associates at the ever-escalating salary structure |
| observing "for the first time since 2001, expense | | | | (now starting at $160,000 base) for lawyers from |
| growth actually outpaced that of revenue from | | | | top tier law schools. Because of overall lower costs |
| January through June, depressing profit margins." | | | | and a fewer number of new associate hires, the firm |
| Sounding an ominous note, DiPietro observed that | | | | would be able to more effectively compete for a |
| the biggest expense increases were in associate | | | | reduced number of premier U.S. attorneys it decides |
| salaries and in occupancy and technology costs. His | | | | to hire. Over time, partner equity and distributions |
| warning proved prophetic, as a number of old-line law | | | | would be shared with a fewer number of individuals. |
| firms closed their doors in 2008 including Heller | | | | Thus, an outsourcing program for selected legal |
| Ehrman, Thelen LLP, and Thacher, Proffitt & | | | | assignments, carefully implemented and supervised, |
| Wood. Other large law firms are reducing staff and | | | | can potentially result in greater client satisfaction and |
| lawyers, including de-equitizing partners. Corporate | | | | retention as well as enhanced law firm profitability. |
| clients are cutting the number of outside firms they | | | | In 2007 Mayer Brown, a 1500 lawyer Chicago based |
| engage, while pushing them to become more | | | | law firm, purged 45 equity partners. While denying |
| efficient. It is becoming increasingly apparent that | | | | any sort of crisis, James Holzhauer, chairman of the |
| difficult decisions are on the horizon for many law | | | | firm, commented on the move: "It's necessary to |
| firms and their clients. Law firms want to retain their | | | | manage a law firm like you manage any kind of big |
| rainmakers, secure the best legal talent available and | | | | business and make sure you have the right staffing |
| keep their profits per partner high. Clients want their | | | | going forward." Outsourcing, seen by some law firms |
| overall costs for outside counsel reduced. How will | | | | as the enemy of law firm profits, may in fact be the |
| these issues be addressed, particularly in a difficult | | | | opposite. Without doubt, even if some law firms are |
| economic climate? Outsourcing is one way of | | | | reluctant to change the traditional ways, their clients |
| potentially confronting the challenges. Thus, the | | | | are not. In August of 2007 observed that "clients are |
| question, how much can I save? | | | | pushing firms like Jones Day and Kirkland & Ellis |
| Assuming the proper initial inquires have been made | | | | to send basic legal tasks to India." It is significant that |
| and adequately addressed, what are the cost savings | | | | this "push" came well before the global financial |
| reasonably attainable by an outsourcing U.S. law firm | | | | collapse of the last quarter of 2008. Regarding law |
| and its clients? Answering that question necessarily | | | | firms, Holzhauer cautioned in March of 2007: "This |
| involves a comparative analysis of revenue and | | | | (law business) is to a certain extent a fragile business. |
| expenses. Suppose a large U.S. law firm wishes to | | | | Our greatest asset is our people. If you're not |
| consider outsourcing work that might otherwise be | | | | economically strong so that you can retain your best |
| performed by one U.S. associate working exclusively | | | | people and attract other strong people from |
| for one of the law firm's corporate clients. The junior | | | | elsewhere, a fragile business can have problems." |
| associate bills 2000 hours annually at the lawyer's | | | | Corporate clients are on a mission to reduce legal |
| hourly billable rate of $200.00, for a total annual cost | | | | costs. Some of those clients would prefer to |
| to the corporate client (and income to the law firm) | | | | supervise the outsourced work in house, while others |
| of $400,000. The law firm's expenses chargeable | | | | apparently are content with their chosen outside U.S. |
| against the income produced by its associate include | | | | counsel overseeing the offshore work. Irrespective, |
| the lawyer's base salary ($160,000) and bonus (say | | | | legal outsourcing is on the table for consideration of |
| $20,000) plus the associate's share of overhead | | | | cost control. "How much can I save?" is a question |
| expenses for occupancy, support staff, benefits, | | | | being asked by those who, a few short years ago, |
| marketing, recruitment, technology and other | | | | never imagined entertaining the concept of legal |
| expenses. In its 2006 survey, Altman Weil, the | | | | assignments being completed offshore. |
| well-regarded legal consulting firm, estimated average | | | | |