In an effort to cut expenses, WilmerHale has decided to “in-source” its business operations to Dayton, Ohio.  But other law firms could also benefit from relocating support staff and even attorneys to less costly locales beyond the urban hubs according to an article in yesterday’s Law360.  

The WilmerHale facilities, which are slotted to open in September, will house the majority of the firm’s finance, human resources, information technology, document review and practice management operations, which are currently spread out between its Boston, New York and Washington offices. 

And WilmerHale is not alone.  In 2002, Orrick Herrington opened a global operations center in Wheeling, West Virginia, a town of about 30,000 near Pittsburgh. The converted warehouse operates around the clock and holds the firm’s help desk, document and transcription production, billings and collections, payroll and other business functions.

For the full article from Law360 click here.  

This is a trend we have written about in numerous posts.  These smaller metropolitan areas come with lower price tags for rent, taxes and employee salaries.  As the Law360 article notes “given the economic beating the industry has taken in recent years, and the availability of sophisticated technology, it may finally be time for law firms to move their business operations — and even some legal work — to low-cost locales throughout the U.S.  This was a significant topic during our coverage of the Georgetown Law conference “Law Firm Evolution” (click here).   

Even with contract attorneys providing law firms the opportunity to cut their costs (and their clients’ costs) with respect to e-discovery, the expenditures can still be prohibitive, particularly in high-cost regions like D.C. and New York where the cost to maintain a document review is higher than elsewhere in the U.S.   As we have reported in the past, besides the state-of-the-art technology driving costs down, the drive to cut costs has led corporations and law firms to seek other ways to cover their e-discovery work — without sending it overseas.

These outsourcing discussions highlight a law firm or client’s desire to simply seek lower cost alternatives, and that has led to a growing development of in-sourcing (also called “farmshoring” or “onshoring”) by staffing projects in locales such as Atlanta, Charlotte, Columbus, Houston, Indiana, Tennessee and West Virginia, as well as working with law firms in smaller metropolitan areas where billable rates are lower but quality is just as high, or going with lower cost niche firms throughout the country. 

As Lumen Legal says in its recent white paper: “As such, the industry is re-thinking its cost-saving strategy even further, expanding it to ask not only who is performing document review, but where.  Companies are starting to accept that the location of the contract lawyers is irrelevant.”

And so we’ve seen this greater movement to “outsourcing” document reviews but to these “on shore” centers — to U.S.-licensed lawyers in less-populated, less expensive areas of the country.  It’s the alternative to offshoring that many clients and attorneys find unattractive.  Ohio, North Carolina, Tennessee and Texas, for instance, have a wealth of law schools, a supply of legal skills and legal services capacity, and housing document reviews is not as expensive as other regions.  And that’s why we’ve recently seen a surge in document reviews in Indiana, Michigan, and Ohio. 

We are certainly NOT discounting the power of offshore centers but there is also an undercurrent to stay in the U.S., but away from the metro centers.

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Note:  next week we resume our “thought leaders” series (click here) with a joint interview:  Steven Berrent, Esq. (Director of Complex Case Services, WilmerHale) and Craig Carpenter (General Counsel of Recommind) who discuss.  Interviews to follow will include  John Tredennick of Catalyst,  Dean Gonsowski of Clearwell Systems, Brandon Daniels of CPA Global, Anne Kershaw and Patrick Oot of The eDiscovery Institute, George Socha (inventor of the Electronic Discovery Reference Model), Scott Holec of eTERA Consulting, Warwick Sharp of Equivio, Bobby Balachand of Exterro, Steve Akers of Digital Reef, Julia Brickell of H5, Greg O’Reilly of LDM Global,  James Schellhase of StoredIQ … plus many more.

As always, have a question or suggestion?  Email us at manager@theposselist.com.

As we reported in May in Part 1 of our Trends series (click here),  law firms and legal process outsourcing to India still has a long way to go, and law firms still appear unconvinced.  And this is despite the Rio Tinto/CPA Legal tie-up (for insightful analysis on this subject from Rees Morrison click here and Jordon Furlong click here).   In Part 1 we reported on several recent studies including a very detailed ValueNotes study which was published at the end of May.  Those studies revealed that less than 3% of law firms had any past experience of off-shoring legal services.    Although legal services outsourcing has garnered a lot of media attention, there still is a sizeable proportion of the legal community that has not considered outsourcing legal services to lower cost destinations.

The ValueNotes study has been making the rounds (it’s extremely detailed) and various blogs are offering detailed comments.  One of the best is provided by Ron Friedmann at his blog PrismLegal (click here) where he discuses how the ValueNotes findings match the market assessment of Integreon as an LPO provider, but with differences.   The following are some of Ron’s points with our comments (TPL) noted:

LPO Penetration is Low. “VN  found that offshoring still has fairly low penetration among law firms; less than 3% of firms in a random sample had tried offshoring. Prior surveys and Integreon experience suggest it is much higher. VN surveyed lawyers, not firms, which may account for the lower finding”.   TPL met with the IT departments (folks “in the know” on LPO connections at their firms) at 22 law firms in the last eight weeks and we agree with Ron and think it’s higher. 

Onshore Outsourcing is More Common.  “The total volume of outsourcing is higher if you take into account onshore outsourcing, which is more common than offshoring (especially in document review). In Integreon’s experience, only a small portion of the market is dogmatic about location; the vast majority let business requirements drive the location decision”.  As TPL has reported (click here) we have seen a dramatic increase in onshoring.

Cost Savings is the Main Driver. “VN found that cost savings is the main driver but Integreon also sees that many customers, both law firms and law departments, also focus on satisfying client pressure and improving turnaround time. I know that other outsourcing providers share this view”.  TPL has made this point countless times: corporate clients are driven by price.  But we diagree slightly with Ron about “turnaround time” because many firms told us that onshoring provided a faster turnaround time.

What Customers Seek in an LPO. “VN found that customers of offshore services seek a provider with deep management and domain expertise, good references, end-to-end services, the ability to scale, and onshore/ global delivery capability”.    TPL agrees but found that law firms and corporate clients had difficulty finding LPOs that hit all these points. 

Lack of Awareness is Biggest Reason Not to Offshore.  “The biggest reason law firms cite for not offshoring – 85% of firms – is lack of awareness of offshoring or no perceived need to do so. I was quite surprised since LPO has been around for 5 years and there’s been plenty of hype. Regular readers of this blog may recall I’ve been reporting on legal outsourcing since 2003!”   Actually, LPOs date back to mid-1995 and growth went vertical in 2000 when GE, Dupont, Dow and others opened captive LPOs in India.

Security Concerns.  “Firms cite security as a reason not to offshore. Firms can easily allay these concerns by assessing a provider’s facilities, security, and procedures. VN notes that firms with more extensive offshoring experience say that ‘client confidentiality and client conflict are not major concerns”.   TPL found that security/client conflict are still concerns at many law firms.

Quality Concerns.  “Some firms that tried offshoring were not satisfied with the quality. These instances were likely ad hoc projects that were not properly planned or executed. A reputable LPO should be able to demonstrate understanding of the components of quality and a customer due diligence should reveal whether it’s real”.  In our two trips to India, TPL found a surge in the employment of U.S. attorneys as project managers, trainers and supervisors.  We also found that more and more U.S. attorneys were being hired as LPO sales agents in the U.S.

Document Review Dominates Offshore Work.  “For firms that do offshore, VN found that document review is the most popular function to send offshore. This is consistent with LPO industry experience”.  That comports with what TPL found with the largest percentage being IP and/or othr civil litigation with financial/credit crisis litigation document review building. 

To see Ron’s full post with links to sources click here.    To follow Ron on Twitter click here.