Following legal issues related to supply chain management.

Wednesday, December 3, 2008

Outsourcing of legal services

A recent Wall Street Journal article suggested that “as the economic crisis deepens in the U.S., some lawyers are making out well -- in India.” The article suggests that as U.S. companies seek ways to reduce costs in light of the now-official U.S. recession, the legal spend is coming under increased pressure. “Routine legal work” like research, due diligence and document review is being done in India at “roughly half the cost as in the U.S.,” outsourcing companies say.

No doubt every aspect of a company’s operations are coming under intense pressure to cut costs, and the “legal spend” is no exception (and some say it’s long overdue).

Outsourcing and offshoring business processes is nothing new, and offshoring legal work has been around a good while now. The jury is still out on how pervasive outsourcing legal work will be in the U.S. Increasing wages in India and elsewhere will continue to chip away at the labor price advantage, just as they have in China, Korea, and Vietnam, and if the ink being spilled about U.S. law firms seeking new and innovative pricing structures turns into action, the cost benefits of offshoring legal works will shrink further.

Like all offshoring decisions, companies are well advised to evaluate the total cost of offshoring any operation, and particularly legal work, not just the hourly rate differences. Can the offshore product being used without additional supervision by U.S. lawyers? Do you need to advise clients that you’ve used offshore legal help, and what will their reaction be? What liabilities are faced (and what protections are available) when confidential client information is sent offshore? Is the attorney-client privilege maintained?

Law is a licensed profession in the U.S., and that means there are numerous regulations on the practice of law imposed by each state in the U.S. This creates greater complexity, and the need for greater diligence, in making the decision to offshore legal work. Several state bars have issued opinions on how a U.S. lawyer may utilize offshore legal work, including the risks and obligations of supervision by U.S. licensed attorneys and disclosure requirements to clients.

For some information on these hurdles for U.S. lawyers looking to offshore legal work, check out this article we prepared, with the assistance of Tiffani Otey, one of our summer associates.

-- Greg Chabon


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