Thinking about Outsourcing? 5 “Other” Questions to Ask the LPO

There is no doubt that Legal Process Outsourcing (“LPO”) companies have become a major force in the document review services market. A recent article from the Washington Business Journal cited an ABA Journal finding that there are currently about 100 LPO companies operating in India alone, and projects the industry to approach 4 Billion in revenue by 2015. Thus, it is not surprising that there has been much written about the most effective ways to evaluate and/or utilize these companies. Typically, commentators have focused on issues relating to security, privacy, confidentiality, privilege, as well as the logistics of performing litigation document reviews in a foreign country. We present here 5 less obvious questions that companies should consider before taking the LPO plunge.

How much money am I really saving?

By most accounts, the number one benefit of hiring an LPO to review your documents is to save money. Estimates vary widely, and the LPO’s themselves have not been shy about promoting the magnitude of their cost savings. A quick Internet search reveals the following cost saving estimates from various sources: “30%-70%,” “roughly 50%,” and “60% - 90%.”

Where are they getting these numbers?

One answer may be that they are simply comparing the hourly billable rate of their local document reviewers to more expensive US counterparts. But to whom, exactly, are they comparing their reviewers? Its easy to calculate a 90% cost savings if you are comparing a $300/hr AMLAW 100 associate to a $30/hr reviewer in India. But is that the proper comparison? Fewer and fewer US reviews are being performed by the expensive big-firm associates. It is much more common— and a much fairer comparison— for reviews to be performed by some type of lower-cost staff or contract attorney. Even in big cities like NY and DC, contract attorneys can be hired from staffing agencies in the $50/hr range, slightly more if special languages or technical skills are needed. These same attorneys can often be hired directly in the $35/hr range, and (sadly) at even lower rates during this current recession. Craigslist postings even reveal offers for US contract attorneys for as low as $20/hr. Most foreign LPOs offer their reviewers in the $30 range. US paralegals can often be obtained from staffing agencies in the $25/hr range. Thus, the analysis of “how much cheaper?” depends greatly on the who you selection as the standard for comparison..

In addition to the question of “to whom” should LPO reviewers be compared, you should also raise questions about the “what” the LPO is claiming to be cheaper than. In comparing costs between potential US attorney reviews and potential LPO reviews, you must always compare apples to apples. Many LPOs are only willing or able to perform basic, first-pass review for potential relevancy or potential privilege. Often, the “potentially relevant” set then needs to be sent to domestic attorneys for final relevancy calls, issues coding, confidentiality review, or final privilege review. The costs of these extra levels of review must be factored in when comparing the LPO review to a comparable review by licensed US attorneys who may be performing those “second-level” tasks during their initial review. Because work sent back to the US for higher level review tends to be performed by associates rather than contract attorneys, even a small amount of documents being re-reviewed greatly increase the total cost of the LPO review.

Finally, when dealing with the issues of cost, clients should always demand transparency from their vendors and counsel. It is reasonable to ask how much of the reviewer rate is being allocated between salary, overhead, and profit. A December 2008 article from Asia Legal Business News noted that the annual salary for an Indian LPO attorney starts around $6,000 per year. That roughly translates into $3/hr. So, your comfort of being charged a lower review rate for an LPO reviewer might quickly dissipate if you realize that 80-90% your fee is comprising overhead and vendor profit. Once you are aware of an LPO’s markup (or domestic vendor/law firm’s), you are better able to negotiate the best price for those services.

Thus, when evaluating the “cost savings” claims by LPOs, you should always ask them to clarify to whom and what they are comparing their costs, and also insist that any assumptions or benchmarks they are using are transparent and appropriate.

How does discovery work in the host country?

One of the primary benefits promoted by LPOs is that their attorneys are well-educated and well-trained, and might even provide superior performance to US lawyers and paralegals. For example, in a March 2009 article of the Massachusetts Lawyers Weekly, outsourcing consultant Stephen Seckler noted that India has “a large pool of highly educated law school graduates who have studied common law and have a strong command of the English language.” Similarly, KPO Consultants comments on its website that “Attorneys in India are familiar with the law doctrines (sic) as Indian legal system is similar to the legal systems of the UK, US, and also Indian legal training is conducted solely in English.”

Having been to India and met with and trained LPO document review attorneys, it is undoubtedly true that they are well-educated, intelligent, and focused. What is unclear from the above-cited quotes is how well to they understand the US discovery process. Simply saying that they are familiar with “common-law” or “similar” legal systems is insufficient. Having a Common Law system just means that the rule of law is based on judicial interpretation of case law, rather than solely on legislative or executive action. While this is useful background in working on US cases, it does not provide any insight into whether foreign attorneys have any legal training or experience with the US system of voluntary discovery and large-scale litigation document reviews. So, before you merely accept the fact that LPO reviewers are “attorneys” and familiar with the US legal system, delve further into precisely the type of discovery and document reviews that occur in their home country. You may find that with respect to the important roles of relevancy, privilege, confidentiality, etc., you are starting at square one.

What are the licensing requirement in the host country?

In the US, licensed attorneys must (1) graduate from a law school accredited by the ABA, (2) pass a bar examination in the state in which they wish to practice, and (3) remain in good standing. If the LPOs are touting their reviewers as “attorneys,” you should find out what are the requirements needed to achieve that status in the host country. Is there a governing body, like the ABA, that accredits schools? Do standardized tests need to be passed to qualify as an attorney?

Moreover, many LPOs like to promote the fact that they only hire the best and brightest local attorneys. SDD Global’s website provides a typical claim: ”Work is done by top law graduates and experienced lawyers and/or former law professors from some of the best legal outsourcing companies, law firms and law schools in India.”

When claims like these are made, its best to ask them to explain the basis for their characterizations. What do they mean when they use terms like “top graduates” and “top tier schools” ? Is there some type of published ranking system? What separates the top schools or students from the lower ranked ones? Are there ongoing CLE requirement like many those of US jurisdictions?

If having foreign reviewers be “attorneys” is an important factor in your decision process, you should learn exactly what that term means for those reviewers.

How are the outsourced attorneys to be trained for your case?

Even when LPO reviewers have a solid legal background and outstanding English proficiency, there is still the issue of who is going to teach them the language of your company, case, or industry? There obviously needs to be some transfer of information from the client to the LPO. Before signing on, you should obtain a clear understanding of how the LPO plans on learning that information and instilling it in their reviewers. Is the client responsible for providing that training? Is outside litigation counsel going to do it? Is the LPO itself capable of providing that training? Do they have experience in drafting manuals and other reference aids? These are all issues that should be discussed in detail before a decision on using an LPO can properly be made.

Who is responsible for the supervision of the outsourced attorneys?

Similarly, who is responsible for supervising the document review? In August 2008, the ABA rendered Formal Opinion 09-451 that said the outsourcing trend was “salutary,” but that outsourcing attorneys have the burden of ensuring that “tasks are delegated to individuals who are competent to perform them, and then to oversee the execution of the project adequately and appropriately.” How are these duties to be discharged?

Are you performing the supervision? Is your litigation counsel? Is it permissible to “outsource” the supervision of the review to the LPO? For whomever is providing the supervision, what systems are being put in place to accomplish it competently? Will the outsourcing attorney have somebody on-site to manage the reviewer? How will information be exchanged between the review team and the litigation team/client? Should domestic attorneys be engaged specially to oversee the project? Addressing these types of issues will help ensure not only that the outsourcing attorney’s ethical obligations are met, but also that your case is being litigated efficiently and properly.

Conclusion

Engaging an LPO is a huge proposition, entailing potentially huge risks and rewards. Be sure to ask the right questions so that you can make a fully-informed, responsible decision as to how to staff your review project.

David Tanenholz is the co-founder of Hardinger & Tanenholz LLP, a unique Discovery Counsel law firm that specializes in all aspects of discovery, including the end-to-end management of large-scale document reviews. http://www.hardingerlaw.com/