Should GCs Retain LPO Vendors Directly or Through Law Firms?

When corporations evaluate legal process outsourcing, one of the questions that General Counsels (“GCs”) wrestle with is: “Should we (the corporation) contract with a legal process outsourcing vendor directly, or should our outside counsel retain a vendor on our behalf?”  The answer will depend on many factors such as the volume and kind of work to be outsourced, the sophistication of project (engagement) management available, international data privacy regimes, the degree of subject matter knowledge required, and experience with other kinds of outsourcing providers.  The key, however, is whether the corporation would be better served by managing the outsourcer directly, or by “outsourcing” the management to its general counsel.   Adequately managing an outsourcer incorporates two interrelated sets of procedures, one to make sure that ethical obligations to the client are addressed, and a second to make sure that the best possible legal advice is created for the client.  The need to meet ethical obligations has been addressed elsewhere (e.g. a white paper from Integreon’s Mark Ross), so this post will concentrate on how managing the work of LPO vendors can affect creating the best legal advice.

Simplified Model for Legal Advice Creation

To describe the relationships between GCs, law firms and LPO vendors, consider a simplified model to represent the creation of legal advice.  Many types of legal advice, particularly those that lend themselves to outsourcing, can be represented by a three part model that includes (1) the analysis of a specific question within a defined context, (2) management of the analysis, and (3) sophisticated legal judgment. 

The analysis, typically the largest volume of work in a process, is often conducted by lawyers and paralegals whose role is to focus on the analysis step, or who are learning the process as a whole.  Management, the volume of which is generally an order of magnitude less work than the analysis, but requires greater legal knowledge and familiarity with case strategy, is undertaken by attorneys who have usually completed a rotation in the analysis step, and have begun to build expertise in the given subject matter.  The sophisticated legal judgment, by far the least work by volume, though requiring the most knowledge and experience, is typically provided by the GC or law firm partner with significant input from the analysis supervisor. 

One application of this model is in the discovery review process where first year or contract attorneys provide analysis, mid-level attorneys provide management & supervision, and law firm partners incorporate review findings into litigation strategies.  The model can also apply to contract drafting in organizations with a large volume of contracts where less experienced lawyers make and/or approve changes to contracts within certain parameters, more substantial changes are made or approved by a more experienced supervisor level, and high value or significantly different terms are managed by a GC or a law firm partner.  Obviously, these roles are not discrete, and the skills of many practitioners will overlap the roles.

Project Management

For a corporation of any significant size, a GC will clearly need senior colleagues with sophisticated legal judgment.  Analysis of a specific question within a defined context will often be conducted most efficiently by a legal process outsourcing vendor.  Analysis management, however, may logically be attained from some combination of colleagues with the GC function and outside counsel.  As GCs seek to reduce the total cost of all steps in the model, the importance of the management role — planning and measuring projects — becomes much more important (For more on legal project management see Paul Easton’s Legal Project Management, Ron Friedmann’s Strategic Legal Technology, and Steven Levy’s Lexician).  Ultimately the question becomes, for a given corporation, does the GC function have the inclination and the appropriate scale and resources to manage an LPO vendor, or should the LPO vendor management function be left to an outside law firm.

Again, specific situations will dictate the proper mix for a given corporation, but litigation and contract management examples are instructive.  Law firms typically have litigation experts and practitioners intimately familiar with litigation strategy, procedure, evidence and discovery.  GCs often have litigation expertise, but generally do not have sufficient qualified resources to manage the other voluminous aspects of a large litigation such as discovery.  As a result, law firms are often better positioned to retain LPO vendors for litigation matters.  In addition to maintaining all levels of litigation expertise, law firms will also manage a larger number of cases allowing them to continuously improve their processes with outsourcing vendors as a result of scale, experience, and measurements. 

A corporation may come to the alternative conclusion, and decide to retain an LPO vendor directly to assist with contract drafting. A corporation with a large volume of sales contracts, where clients seek to make changes to certain terms within given parameters, may indeed have sufficient resources to manage an outsourcer. 

Conclusion

Utilization of legal process outsourcers will often lower legal analysis costs for a corporation.  Whether that analysis should be managed by a corporate law department, or on its behalf by a law firm, requires an evaluation of which party can best provide analysis management.  In either case, processes to plan and measure projects, and to meet the ethical obligations of providing legal advice, will be prerequisites to creating good legal advice.

In a future post, I will address some of the factors involved in effective management of legal process outsourcers.

2 Responses to Should GCs Retain LPO Vendors Directly or Through Law Firms?

  1. This is a nice analysis of the pros and cons here. Either way, it’s interesting to see increasing recognition of cost as a legitimate factor in assigning legal work. Budgets are shrinking while the problems are getting thornier.

    I would like to note that effective Legal Project Management can include a lot more than LPO, though LPO is certainly a reasonable place to start.

    • Thanks for your comment Steven. I recognize that project management includes much more than LPO. One of my points here is that skilled project management is a prerequisite to successful LPO, but I did not mean to imply (far from it) that LPO is project management’s only application in legal services.

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