Eduardo Vidal | Sunny South Florida

In my first column during September this year, I observed that three great developments were contributing to the fundamental transformation of the legal profession since around 2000: (1) outsourcing; (2) digitalization; and (3) artificial intelligence. These are three associates that all current practitioners of law must be familiar with, so let us now explore the effects of the first of these developments – – outsourcing.

Of course, a lot of this started during the 1990’s when some of my litigation partners and other colleagues in New York City took thousands of banker’s boxes of discovery documents and put them in rented warehouses or lofts on the Lower East Side or Chelsea, to be reviewed by a hundred or so contract lawyers and paralegals, supervised by a handful of regular associates.

After that, it was “Katy, bar the door!” The next review room was set up in much cheaper locations, such as in Carrolton, Texas and Fargo, North Dakota, and shortly thereafter in Bangalore and Chandigarh, India. The Internet destroys geography, so the review room could be located almost anywhere. At these outsourcing sites, local lawyers looked through all the banker’s boxes of documents, but soon thereafter, all the documents were digitalized, so that the reviewers may be located anywhere. These reviewers are usually lawyers qualified in their local jurisdictions.

This document review outsourcing works not only for litigation, but also for corporate transactions, such as securities offerings and mergers & acquisitions. Documents of all kinds may be outsourced by a law firm or corporate legal department to a vendor, to be reviewed by local lawyers, for purposes of due diligence or other corporate transactions.

Accordingly, a whole area of very profitable work has been shifted out of the traditional law firm, taking out the middle man and undermining the leverage model of law firm profitability. Legal Process Outsourcing, or LPO as it came to be called, has become an essential component in the practice of law – – including electronic discovery, document review, contract management, document drafting, legal research and forensics investigations.

For example, law firms of all sizes principally use LPO providers for document review, both in litigation and corporate transactions, while corporate legal departments principally use them for contract management. These management services include contract drafting, negotiations and execution, contract abstracting and summarization, contract standardization and harmonization, document migration, and data audit and cleansing. Reviewing the contents and status of existing contracts is particularly appropriate for this work.

Litigation support of all types, including not only electronic discovery, but also researching precedents in case-law jurisdictions, summaries of depositions, and other legal research and analysis, are also included in these review services. Forensic investigations by auditors, computer scientists and other professionals may also form part of litigation support. Regulatory compliance is another area of these services, especially when compliance with foreign jurisdictions is involved, and also for federal, state and local regulatory agencies in the USA. Maintaining compliance is another administrative function that is often assigned to LPO providers.

LPO providers may also be used for creative tasks, such as appellate writing and writing in-house newsletters for both law firms and corporate legal departments, and I imagine that I could have outsourced the writing of this column as well, although I did not!

In 1937 Ronald Coase, then at the London School of Economics and later at the University of Chicago, published an article on how companies organize tasks to be performed. He observed that between companies, contracts govern their relationships in the marketplace, but inside companies, management directs the performance of tasks. Why not contract out all tasks? Because of transaction costs, Coase observed, which makes it costly to contract with outside providers. The Internet lowers transaction costs, so that more tasks can be contracted out in a cost-effective manner by all types of companies.

The business core of the legal profession is being disintermediated, with technology and business considerations assigning the performance of tasks to their lowest-cost provider. Successful lawyers cannot fight this trend, but instead we must use the tools provided by the new technology and business models, in order to provide faster and more accurate advice to our clients.