A View from the US: The unbundling of legal services?

As General Counsel explore innovative new ways of outsourcing legal services to non-law
firms it is likely that law firms will also be examining these opportunities, says Milton C. Regan,
Jr, of Georgetown University

A medida que los
Directores Jurí­dicos
buscan fórmulas
innovadoras para
externalizar sus servicios
legales a otros que no
sean despachos, es
probable que éstos estén
examinando esta
posibilidad, dice Milton C.
Regan Jr de la Universidad
de Georgetown. El anuncio
en Junio de que la
compañí­a minera Rio Tinto
iba a externalizar una
cantidad considerable de
trabajo legal hasta
entonces realizado por su
equipo de asesores
jurí­dicos, no tendrá sólo
repercusión para el los
asesores del gigante de la
minerí­a sino, en íºltima
instancia, para los
despacho de abogados de
todo el mundo.

An announcement in June by global
mining company Rio Tinto sent a
powerful message to law firms that the
world is changing. The company
declared that it had entered into an
agreement with legal process
outsourcing (LPO) company CPA
Global to perform legal work on a scale
that would reduce Rio Tinto's annual
legal expenses by 20%, or tens of
millions of dollars. This was work that
currently was being done by lawyers in
the company's own legal department.

The majority of the work that the
LPO will be performing is relatively
routine, but Rio Tinto stresses that most
of it 'is not volume based; it's day-today
work that requires constant
communication.' Furthermore, the
mining company wants CPA lawyers to
take on more sophisticated and strategic
work.

Rio Tinto's announcement has
occurred in the midst of an economic
recession, but the forces that led to it
were in place well before the downturn.
Corporate clients in recent years have
increasingly insisted that law firms
provide legal services more efficiently.
Inside counsel have the responsibility to
meet a budget just like any other
corporate department. They are asked
to be increasingly productive – often to
do more on a smaller budget. This
requires that they minimise their
companies spending on legal services,
and that they be able to project to
corporate managers what those
expenses will be. Since spending on
outside law firms is the lion's share of
most corporate legal department
budgets, counsel are putting pressure
on firms to deliver better services at
lower cost.

Rio Tinto´s contract with CPA Global
represents an initiative in which inside
counsel is attempting to manage legal
costs by expanding competition for
corporate legal work beyond law firms.
A good portion of the millions of dollars
of work that CPA Global will be doing
might otherwise have been done by law
firms.

To compete in this new world, law
firms will have to begin considering
how they might engage in the same
disaggregation process as their clients.
That is, they will need to break work
down into discrete units and determine
who is the most cost-efficient provider
of each component. In some cases that
provider may be outside the firm – that
is, the firm will need to engage in
outsourcing.

This process may result in an
increase in the types of positions
available for permanent salaried
lawyers in law firms who have
specialised skills in discrete functions or
areas of law. It also may increase the
use of workers outside the boundaries
of the firm. Much of the work that
firms assign to both groups is likely to
be relatively routine, or at least limited
in scope.

As a result, the number of associate
positions available in law firms each
year may decline from previous years
as other workers take on these tasks. At
the same time, the responsibilities that
this smaller group of associates assume
may be more challenging than they
have been traditionally. Acquiring the
complex skills necessary to meet these
responsibilities will take longer,
however, and will require a period in
which associates generate only minimal
revenues. The firm will not be able to
bill them out for routine work in early
years because clients will insist that the
firm use lower-cost alternatives.

More generally, if firms begin to
recruit smaller graduate intakes, they
may spend more time screening
candidates and investing in those who
are selected, rather than using only
superficial hiring criteria and relying on
competition among lawyers who join
the firm to identify those who have a
future with it.

Other graduates, however, could
have opportunities to join firms as
permanent lawyers at a comfortable but
not exceptionally high salary, focusing
on work that is somewhat specialised
and narrower than work available to
tenure-track associates.

The economic downturn therefore
could mark a moment of transition for
law firms less because of its immediate
financial impact, and more because it
has highlighted and accelerated the
trend toward the unbundling of legal
services that had begun before it. How
law firms, clients, and organisations
connected with this industry respond
could shape not only the future of law
firms, but of the legal profession itself.

Milton C Regan Jr leads the Center for the Study
of the Legal Profession at Georgetown University
in Washington and is also a Visiting Lecturer at
IE Law School in Madrid.
A View from the US: The unbundling of legal services?

Garcia-Sicilia

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