CC’s, Eversheds’ outsourcing: greed, or just common sense?
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Eversheds’ outsourcing: greed, or just common sense?" class="inline_image inline_image_left" src="/pictures/web/images/13278_P32_india.jpg" />The decision by Clifford Chance and Eversheds to offshore low-level legal work to India makes good business sense, but to many readers of TheLawyer.com the move smacks of greed.
Comments posted on the website claimed that the firms were wrong to make savings themselves without passing any kind of fee reductions on to their clients, with some readers claiming clients would vote with their feet against firms that outsourced legal work.
The obvious reality is that large law firms operate as businesses and as such they must meet the demands placed on them by their clients and partners, who both want to save on costs while the latter wants to maximise profitability.
Most major banks and some large corporates such as General Electric now routinely send millions of pounds in basic work to offshore legal centres in India and elsewhere. That effectively draws money directly out of the pockets of City firm partners, who historically earned huge amounts from the margins made on low-paid paralegals ploughing through swathes of documents.
Legal process outsourcing (LPO) is therefore a sink-or-swim proposition. Put bluntly, if firms cannot offer their services at a price that can compete with clients’ own costs, the market for that type of work will simply die.
But while some readers of The Lawyer.com claim that Clifford Chance and Eversheds will not pass cost savings on to clients, the firms themselves beg
Clifford Chance global managing partner David Childs says that by the end of the year he wants to scale up the capacity in the firm’s India service centre to 20 paralegals. It is also hoped that the centre near Delhi will house 10 per cent of the firm’s global business services staff, such as IT, accounting and document production. The aim is to achieve a cost saving of around £8m, which, says Childs, will help reduce client charge-out rates while improving profit margins on low-end work, which has become unprofitable.
Eversheds’ approach is different from that of Clifford Chance. The firm has two potential models for benefiting from offshoring, the first of which would
see it act as a middleman by simply introducing clients to LPO with the hope of gaining stronger client relationships out of it. This could lead to the firm gaining more profitable work from clients in the future.
While Eversheds would not receive any direct payment for acting as the middleman, another option for the firm is to manage the workflow and relationship between the client and the LPO provider while charging a fee for the service.
Commercial group head Jonathan Guest says: “A number of our clients have come to us, either asking for our help in running a process with an outsourced supplier or more simply asking for us to help them find a solution to the mounting pile of unreviewed contracts.”
The firm has now signed an agreement with an Indian LPO supplier and will begin trialling the service soon.
According to Guest, rather than taking work away from UK-based paralegals, the outsourcing scheme will actually create work that would otherwise not be done. “It’s not taking work away from anyone,” he insists. “It’s actually creating work out of contracts that would otherwise sit in a metaphorical drawer.”
Guest argues that the work being outsourced is of such a low level that it would never have been cost-effective for Eversheds to have done it anyway.
The arguments for undertaking LPO are obvious. But whether lawyers realise that legal advice has become just another tradeable commodity is another matter.