The New York Times continues its excellent treatment of legal process outsourcing. Just last week, I noted the Gray Lady’s take on large law firms setting up their own form of “outsourcing” in lower-cost regions of the United States, using lower-paid attorneys.
This article makes me wonder again why major law firms would want to play in this game.
Leading LPO firms like Pangea3 and Integreon are deploying more resources and creating more jobs in the United States. As reporter Heather Timmons notes:
Pangea3, which was bought by Thomson Reuters in November, has just opened a 400-seat office in Carrollton, Tex., a Dallas suburb. The new office means Pangea3 will have lawyers working during United States business hours, on tasks that, because of logistics or American law, can be difficult to perform outside the country â€” like writing and vetting export control documents, military contracts and some patent reviews.
There are additional offices being set up in other parts of the United States; at some point you have to expect Reed Elsevier to respond to Thomson Reuters’ purchase of Pangea3 with a similar acquisition of their own.
The Times also puts a concrete comparison in print for readers to grasp the potential client cost differential:
Legal temp companies now pay as little as $20 a hour to board-certified lawyers for document reviews that a decade ago might have been billed at $200 an hour.
I don’t think that it is a coincidence that we also saw this week that the AmLaw 200 is stratifying. American Lawyer editor Aric Press notes that there is an upper tier developing in terms of profits. He sees 23 firms that are separating from the pack in terms of per partner profitability. An overview of the results are here.
This coincides with trend #5 of my obligatory Top Ten for 2011:
5. The Am Law 200 Becomes Americaâ€™s Top 40. … There will be much less in common with similarly-ranked firms than ever before. In a given market, some firms are (relatively) thriving while others just (barely) hold on. Partners who can leave do so, either finding a better large firm for their clients or really going for it with a smaller practice that is built from the start without the legacy costs.
No doubt that the lower tiers of the AmLaw 200 are seeing a decline in billings when clients are swapping $20 per hour for $200. Truth be told, many clients would gladly pay $50 per hour rather than $500.
The focus of these articles in general business publications is predictably on the lawyers working for the LPO firms, and how their salaries compare with those of first-year associates at historically blue-chip law firms.
What hasn’t been written, yet, is the story of the senior associates and junior partners who are being impacted. In the brave new legal world, knowledge is a given. Without in-demand skills and deep client relationships, generic associates and partners are being marked-to-market by the LPO firms. Many were simply expensive pancakes on the document and discovery breakfast buffet. LPO firms garner publicity because of price, but law firms should remind themselves what the “P” stands for. That’s where the real change is being driven.
Clients are learning how to order themselves up some hot steaming legal from the a la carte menu offered by the LPO merchants. And they will come back for more.