Offshoring Legal Work: U.S. Corporations Warm to Concept, Putting Pressure on U.S. Law Firms
By Robin Elsham

Recently the mortgage arm of a leading U.S. home builder offshored some legal research work, and liked the result so much it's likely to send more legal work abroad, evidence of the pressures facing U.S. law firms from global competition.

The Fortune 500 company asked LegalEase Solutions LLC, a Michigan-based company that employs attorneys in India, to research if any laws in five states prohibited the builder from earning interest on security deposits tendered by home buyers.

"With housing market activity slowing, we were looking to scratch out more revenue while minimizing costs," the lending unit's sole legal officer explains. So he chose to offshore the work as opposed to hiring a paralegal ("very hard to find a good paralegal") or hiring another attorney ("much more expensive").

He'd met the founders of LegalEase -- Tariq Hafeez, a U.S.-trained lawyer, and Tariq Akbar, a business management expert -- at a mortgage bankers' conference. "They were smart, hungry for the work, and willing to go the extra mile. They (LegalEase) completed the work in just three days."

Now the builder is considering hiring LegalEase for a second project: reviewing stacks of old contracts that required revising, to identified the most frequently occurring changes. LegalEase is also doing work for a national insurance company, a Texas drilling company and an autoparts manufacturer.

It was hired by the insurer to research what states have statutes establishing requirements and limitations with respect to terminating insurance agent contracts, to summarize those statutes, and to assess applicability. "This project took over 150 hours of research and writing time, and the final bill was less than $8,000. Had the insurance company hired a (U.S.) law firm to conduct the same research...the client would have spent at least $22,500," says Hafeez.

That difference is drawing the attention of more U.S. companies when contracting work to outside counsel.

"Corporate counsel are now aware that options exist for them to lower the cost of legal operations," says Sumeet Nath, vice president for business development at New York-based Lawwave. "Clients are saying to law firms that they won’t pay $200 an hour for simple work," adds Ganesh Natarajan, founder of Chicago-based LPO Mindcrest. Lawwave and Mindcrest, like LegalEase, are among the more than 100 companies that provide cut-rate legal services by employing lawyers, engineers and PhDs in India paid one-fifth U.S. salaries.

Yet India so far has tapped only 2-3% of an estimated $3-4 billion U.S. market for "outsourceable" legal services, according to one widely cited estimate.

"Legal outsourcing is where call-center outsourcing was five years ago, or IT outsourcing was 10 years ago," says Ram Vasudevan, the CEO of Quislex Inc, another Indian service provider.

Some prominent U.S. companies already offshore legal work, while others are considering doing so if American law firms don't adapt to new competitive realities.
In an article published last January in Law Technology News and entitled "The Tech Evolution: Change or Die," Cisco Systems' director of worldwide legal services, Laura Owen, said corporate clients are demanding less expensive, more efficient service. And she warned U.S. law firms, "Unless you want to join the other fossils, it's time to change your ways."

Cisco is one of eight major U.S. corporations which, according to the August edition of Corporate Counsel magazine, are studying outsourcing legal work to India as one of four steps "to get better rates and (legal) service." Microsoft, General Motors, DuPont and FMC Technologies are other members of the group formed to press collectively for change, the magazine said.

Cisco, Microsoft and DuPont all already offshore some legal work to India. Microsoft, for example, has contracted a company in the Delhi suburb of Noida to perform patent work. "We have hired Intellevate India to conduct prior art searches for new patent applications and to proofread issued patents," Microsoft announced in 2004.

Philips, the Dutch electronics giant, has hired PhDs in Bangalore to help prepare patent applications, while Seaview Support Systems, located in Thiruvanathapuram near the southern tip of India, processes witness statements for Allstate Insurance.

These companies followed the lead of General Electric, which in 2001 pioneered the cost-saving strategy of offshoring work to India. GE began by hiring Indian lawyers and paralegals to work for two units, GE Plastics and GE Consumer Finance, performing such tasks as drafting outsourcing agreements and confidentiality contracts. After two years, the company said it had saved almost $2 million in legal fees.

As word spread, more corporations warmed to the idea of reducing legal bills through offshoring.

"Several years ago, when we first asked corporate clients if they'd mind if we sent work to India, they reacted with amazement. But the reaction has changed greatly. Now companies are very open to anything that lowers cost, and even maybe improves quality," says Steve Lundberg, a partner in Schwegman, Lundberg, Woessner & Kluth, the Minneapolis-based law firm that set up Intellevate, that patent service provider to Microsoft.

"I think you'd be very hard pressed to find any (major) corporation in America not looking to do more in India. Especially in patent law, which is more costly."
But India isn't the only country attracting offshored legal work.

Andrew Corp, a telecommunications equipment manufacturer, outsources patent application work to New Zealand. General Mills has sent IP work to Australia and Canada. And Accenture has a legal department in Mauritius to handle such tasks as drafting contracts and reviewing documents.

Overall, though, the number of companies offshoring legal work remains small.
In 2004, the Association of Corporate Counsel conducted a survey of 167 U.S. chief legal officers and found that only 1.8 percent of respondents said they offshored work. But another 8 percent expressed interest in doing so.
Cost savings is the main attraction. Corporate clients can save up to 50 percent on legal fees depending on the complexity of the task.

Legal outsourcing started out as low-end work, mostly transcription. But it has now expanded to include many activities: reviewing confidentiality agreements, supplier agreements, licensing agreements and other standard contracts; mortgage processing; patent and intellectual-property research; and litigation support, including discovery search, brief research and writing.

Another major appeal is the 9-to-13-hour time difference between India and the United States. That means a licensing agreement can be signed in the United States late one day, sent to India for summarization and review, and returned the following morning.

A third attraction is flexibility. "Firms in India can assign many people on the same project if the deadline is short, a flexibility that counterparts in Western economies could not manage because of huge employee costs," says Deepika Dayal Mathur. She is an IP research for Evalueserve in Gurgaon, a suburb of Delhi which along with Noida has made the Indian capital the epicenter of the booming global business process outsourcing industry.

Work sent to India is performed by lawyers paid a fraction what U.S. attorneys make.

"A senior U.S. lawyer, with six years in the business, charges $650 an hour, a junior charges $350. Indian law graduates would be happy to make 35,000 rupees a month (about $780)," says Sanjay Kamlani, CEO of Pangea3, one of the largest Indian service providers.

India produces 15,000 law graduates each year, trained in much the same way as U.S. lawyers. As a former British colony, India's legal system is similar to the U.S. in both are based on a British legal tradition of common law. English is the language of instruction in law school, of all court decisions, and of Appellete and Supreme Court proceedings.

Still only an estimated 3-10 percent of Indian law school graduates are considered qualified to work in the LPO industry, and only after receiving additional training in American law, court procedures and legal writing style. To expand the qualified labor pool and reduce the training costs borne by service providers, the LPO industry, lndian legal community and government are discussing a variety of joint initiatives. One is introducing courses on U.S. law in Indian law schools, possibly as part of a new degree specifically designed to prepare Indian lawyers to work in the LPO industry for foreign clients.

But even experienced Indian lawyers -- as wells as engineers, medical professionals and MBAs from top Indian universities -- are eager to work for companies serving foreign clients. By doing so they make at least a third more than working for employers catering to domestic clients. Indian LPOs employ engineers and technologists with advanced degrees to work in patent and IP-related work; MBAs are hired to provide business services to corporate clients.

Still, as of last December only an estimated 1,300 people worked in the Indian LPO industry. The total included at the low end about 750 people providing legal transcription and electronic document management services at a price of $11-13 per hour, and at the high end another 300 people providing IP services at $40-50 an hour.

In the mid-price range of $24-26 an hour, about 100 were providing legal research services, and about 50 each were providing due diligence services, drafting and proofreading contracts, and doing discovery litigation support work.
Forecasts for the near-term growth of the offshore legal service industry vary tremendously.

Forrester Inc, a Massachusetts-based market researcher, projected last year that the number of U.S. legal jobs offshored to low-cost countries will surge to 35,000 by 2010, and more than double again to 79,000 by 2015.

But in January, a much more muted forecast was issued by Evalueserve, a well-respected market research provider founded by ex-McKinsey analysts. It projected the number of U.S. legal jobs shifted to low-cost countries at only 5,200 by 2010, and 16,000 by 2015, or one-fifth the figure projected by Forrester.