Outsourcing is big business, and just about every type of firm today outsources something. Big firms, little firms, manufacturers, accountants, lawyers and technology firms. All big corporations perform certain common functions: payroll, accounting, PC support, and so on. Outsourcing of these functions follows a pattern. Functions for outsourcing are identified, the list is tested, vendors are reviewed, and an agreement is signed. That’s the standard process. But not for legal outsourcing. How did the legal profession get started on a different and dangerous path, and can they get them back on track?
The culture of the large American legal firm developed more than a century ago. While big American businesses were converted into publicly traded corporations, legal firms were barred from this option. Law firms can sell shares to lawyers within the firm, but not to the public. Legal firms overwhelmingly became partnerships, organizations controlled by the founders and major rainmakers. Clients of the firm were then "owned" and managed by individual partners. The culture of the partner client relationship continues to this day.
In an earlier time, with simpler lawsuits, this culture was effective. Until the early 80s, document review... collecting and reading documents requested by the court... was a relatively simple process, involving a few thousand documents. As computers proliferated, and digital documents replaced paper documents, the number of documents in a review rose dramatically. Today large corporations can expect 5,000,000 pages or more in a typical review.
The lawyer managing a corporate lawsuit used to request a few junior lawyers or paralegals to review the documents. But as review sizes grew, law firms did not have enough junior lawyers or space for a review. A review was no longer a profitable way to keep junior lawyers occupied, it was a major project that required the procurement of temporary lawyers, space and equipment. By the late 90s, corporate clients were noticing that reviews were a rapidly growing legal expense. Some financial firms, having undergone major internal cost reduction programs themselves, asked their legal firms, "Why aren't you outsourcing?"
Prodded by massive tobacco industry lawsuits, law firms investigated offshore outsourcing. This was a step in the right direction, but instead of centralizing the outsourcing process, law firms developed an outsourcing process that followed their legal culture. Individual lawyers negotiated outsourcing on a case by case basis. By bypassing central administration (if it existed) cases were kept moving, clients were kept happy and it was probably more cost effective than any other internal solution.
Outsourced discovery and legal review quickly became big business. In 2000 it was estimated to be a $300 million business; by 2011 it grew to a $3 billion market, and is expected to reach $10 billion by 2017. In a mass volume, multi-billion dollar market the "one-off" mentality of the last decade doesn't work. Consider how this “one-off” process has impacted legal outsourcing:
CASE BY CASE: Individual lawyers match the case to the outsourcer, usually without any useful metrics on the performance of each vendor. Every lawyer has a different selection process, which includes determining which tools will be used, choosing a vendor for the review AND choosing a document host (a vendor who creates a site to view the documents). The combination of these factors (lawyer, tools, hosting site, contract conditions, linear vs. TAR, etc.) makes it difficult to compare or improve cost, time or results.
DIFFERENT TOOLS: Hundreds of review tools are on the market, each with different features, licensing agreements and costs. If tested, some tools would be found to be more accurate or faster. A tool with a higher cost per user can justify the cost, if reviewers process more documents per hour and reduce the hours billed. The number of “documents reviewed per hour, per reviewer” is the key factor for determining the efficiency of the review.
In a linear (manual) review, a reviewer is expected to examine 40 documents per hour, or more. Linear tools may add some automation, such as automatically sorting and organizing documents. Advanced tools claim reviewers can complete 200 or more document per hour. Tools that automate some or all the selection decisions for responsive documents claim still higher review speeds, and are only limited by the availability of CPU cycles.
CONTINUOUS IMPROVEMENT: Outsourcing is a step in the process of improving efficiency. When an outsourcing program begins, several competing processes may be identified. Over time, less effective processes are stripped away and the remaining processes are standardized. Still later, best processes are identified and applied, and improvement initiatives are developed for any problems that arose.
Because of the fractured management of legal review, this cycle of continuous improvement is difficult to implement. If individual vendors learn something, they are not given an opportunity to share findings with their peers. With many different products used, expertise is dispersed, and new innovations are rare.
Few law firms have created centralized, global, outsourcing programs for legal review. More progress is being made in corporate legal departments, where the rising culture of Global Procurement is slowly overcoming that of the individual lawyer. However, the legal department contracts with the law firm which in turn outsources to the legal review vendor, which merely moves the issue out of the legal department’s hands, rather than solving it.
PROJECT MANAGEMENT: Tobacco cases started the current trend in mega-lawsuits, but today billion dollar lawsuits are becoming common. Tobacco litigation isn't quite over yet, but is it already being replaced by lawsuits over: psychiatric drugs, telecommunications, mortgage fraud, and general malfeasance by banks during the collapse of the financial industry.
Mega-lawsuits don’t just require a larger number of document reviewers. These reviews may go on for years. That means: more managers, longer-term management, replacing and re-sizing staff, retraining staff, changing instructions, communicating changes, etc. A review that requires 10 times more staff requires more than 10 times the management.
NEW CHALLENGES: The cost for legal review is growing because the legal industry has not kept up with technology and best practices. Linear review dominates, while more modern TAR is relatively rare, even though TAR produces more accurate results at a lower cost. The explosion in email created the rise in review costs, but email (for the first time in 20 years) is finally on the decline. Rather than going away, email has transformed into social media: Facebook, twitter, LinkedIn and other social media sites.
It took law firms decades to understand eDiscovery, which has largely been restricted to the servers under their client’s control. Dealing with communications spread through the "Cloud" is clearly beyond the capacity of most law firms. Dealing with social media means using new tools and developing different skills. Consider comments from FaceBook's CEO. Did posting comments to his FaceBook account violate Fair Disclosure? Does a message sent to millions of “followers” count as public disclosure? To deal with the issues raised by social media and discovery in the "Cloud", law firms need to partner more closely with LPO firms.
COST: The cost of litigation rose sharply between 1998 and 2011, increasing from $166 to $281 billion. This rise might have been curtailed if lawyers used the latest technology, or outsourcing more aggressively. Because of the down economy, many legal firms have continued to rely on outsourced local lawyers and law students. This has worked for years, but as the economy improves rates are under pressure for a significant increase. That has allowed more work to be moved to offshore lawyers, often in India. However, the lower rates in India provide a one-time benefit. Rates will not go much lower than they already are. With two to three times the US inflation rate, these prices must rise soon.
Legal review is merely the process of going through a large pile of documents to find the ones you need. Hiring many people to read each document and then hand you the right documents, is incredibly inefficient. If we looked at how similar work is performed in a different industry, you can more easily see why law firms get an "F" for legal review. Take the Internet as an example. The Internet (or Cloud or Web) is a vast collection of content. In the past, you would go to a website, and use a table of contents to find the content you need. A large site, such as the United States Government’s www.usgov.com, has a table of contents that is thousands of pages long. Few people move around a site this way today. Instead, you just enter a few words in the search box. If you don’t know which website has your content, you can just Google your search term, and the results are usually on the 1st page of your results.
Search engines aren't perfect, but they are better and more accurate than any method. Yahoo!'s early search engine relied on human beings entering website information, but they abandoned this a decade ago for automated technologies. The average legal review takes months to complete, and costs nearly $2,000,000 to search a few million documents. Every Google search examines billions to trillions of documents in just seconds. The cost? FREE.
A legal review is more complicated than the average Google search, but TAR tools can provide accurate and inexpensive legal reviews. Most legal firms haven't grasped how great their failure is, producing poor quality results while charging clients million of dollars more than alternatives. The legal industry gets an "F" for document review.
But, don’t worry! Social media and an economic recovery bring new challenges AND the chance for a new grade. The creation of documents and corporate content, both inside and outside of the corporation, is growing and changing faster than law firms can handle. For the immediate future, you need to partner with LPO providers if you want to make the grade!