3/14/12

Managing the Law Firm Risk Role in Outsourcing

I always enjoy conversations with ethics counsel, whether at law firms or in bar associations. All of the changes in the market tend to challenge different ethics rules. So talking with these people is usually an opportunity to see how new ideas may run afoul of the rules.
At my last firm, I recall one particular conversation about ethical issues in using LPOs. In Texas, and many other jurisdictions, there are limitations to how lawyers can make money on third party services. Many firms just pass the cost along, with no mark-up for administrative overhead, let alone allowing for a margin. The ethics conversation touched on this issue, but quickly shifted to the ethical duties of firms using outsourced services. The duty to ‘adequately supervise’ was the primary reason ethics counsel thought it was a bad idea to utilize such services. My come-back was that if we let the clients decide on the LPO providers, we retain the ethical risk, but lose the ability to vet the provider.
This issue was driven home recently by two disparate events. The first was attending a webinar sponsored by Integreon on the ethics of outsourcing. The main point made by the presenter was the primary ethics duty of law firms is conducting due diligence of the LPO providers. The lawyers’ duty to provide adequate supervision over the services means they better understand the organizational structure, quality control and qualifications of the providers.
The second event was seeing a demo from ERM Legal Solutions. One point made in the demo was that a hosted project management tool like ERM’s could be used to manage work performed by outsourced providers. This got me thinking about how when it comes to an outsourcing situation, due diligence was not enough for lawyers. ‘Adequate supervision’ is a day-to-day, on going duty. And how possibly could lawyers in one location be adequately supervising non-lawyers from another company in another location? Absent a process tool for providing the capability of oversight like ERM’s, lawyers must basically review and confirm every piece of work coming from the outsourced provider. But even then have no direct knowledge of how and when the work was done.
This 'supervision' challenge already exists with many third party providers, such as e-discovery vendors. In those circumstances, smart firms are always evaluating the providers, making sure their processes are adequate. LPOs are really on a higher plane in this regard, as their services tread much deeper in to practicing law. With services like “contract drafting” and patent preparation, the evaluation and oversight of an LPO by a firm should be much deeper and hands-on.
My Advice: Law firms bear a significant ethics liability (a.k.a. Risk) whenever an LPO is involved in the work, whether hired by the firm or the client. Therefore, law firms would be wise to proactively engage with LPOs and have their homework done before the need arises. Firms should also consider leveraging technology to better connect and integrate LPO services into their matter management processes. Otherwise, they may end up shouldering all of the risk with no opportunity for sharing in the rewards.

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