Guide for in-house lawyers on outsourcing legal services

*This content comes from Lexis®PSL and features external links to subscriber-only content*

This Lexis®PSL Practice Note is intended for in-house lawyers considering outsourcing some legal services to external suppliers and focuses on how to identify which legal services to outsource.

See also Lexis^®PSL Practice Notes:

• Legal services outsourcing—in-house lawyers—information gathering
• Legal services outsourcing—in-house lawyers—outsourcing options

Before deciding which legal services to outsource, you should already have gathered data about:

• what legal advice your organisation has used previously
• what legal advice it is likely to need in the future, and
• the resources available in your legal team

See Lexis^®PSL Practice Note: Legal services outsourcing—in-house lawyers—information gathering.

The next step is to assess which legal services you could consider outsourcing. This Practice Note is designed to help you to think about:

• key practical issues such as your objectives in outsourcing and how to ensure those objectives are achieved
• which legal services should not be outsourced
• which legal services could be outsourced
• what would be a bad time in your organisation’s life to implement outsourcing

See also Lexis^®PSL Precedent: Legal services outsourcing strategy.

Key practical issues

There are some key practical issues to consider including:

1. what you are aiming to achieve
2. the likely impact on your team and organisation
3. whether you have considered all the options
4. how to identify the right kind of legal services supplier
5. how to select the right supplier

What are you aiming to achieve?

You should be clear on what outsourcing is intended to achieve for your legal team and your organisation. Beyond reducing costs, what other benefits are you expecting outsourcing to bring, eg:

1. improving quality
2. increasing efficiency
3. portfolio management

Impact on your team and organisation

Is there sufficient buy-in internally from your legal team, business stakeholders and/or your organisation’s senior management?

What will be the impact on your team and other impacted staff, eg administrative staff? Will it free them up to do other work or will your organisation potentially need to reduce staffing levels? If so, how will that impact on morale?

Will outsourcing fit with the culture and values of your organisation?

Will the impact on your internal clients/stakeholders be positive, neutral or negative?

Lexis^®PSL Precedent: Legal services outsourcing strategy encourages you to record your impact assessment.

Considering all options

Rather than wholescale outsourcing, could staff augmentation on specific projects provide the efficiencies you need instead, eg:

1. using locum lawyers
2. outsourcing certain business processes, eg trademark monitoring

How to identify the right kind of service provider

It is essential to assess which technologies, processes, expertise and governance structures are required to identify the best outsourced service provider to meet your objectives.

How to select the right supplier

It will be essential that you conduct in-depth due diligence on potential service providers to ensure they meet your key risk management targets, including:

1. confidentiality
2. data protection and conflicts of interest
3. an understanding of your organisation’s regulatory environment

How will you carry out that due diligence and if you need advice on this process where will that come from?

Contractual issues

The contract with the service provider will need to cover key issues such as allocation of liability, termination rights and obligations, roles of personnel, framework for managing client concerns, business continuity plans, quality supervision and governance structure.

While the last three of these issues will be dealt with during your procurement process, you should keep them in mind while considering which legal services to outsource.

The following Lexis^®PSL Practice Notes deal with the procurement process:

• Setting up a panel of preferred legal services suppliers
• How to write a procurement project plan—legal services
• Legal services procurement—fee arrangements

What legal services should not be outsourced

‘Outsourcing’ is an unpopular word in some circumstances, or it could be a strategically important word, or just a trendy word. For example, a ‘dirty’, ie a routine high-volume, low risk legal job could be transferred to an expert third party so you can focus on your more important ‘high level’ legal work. However, tempting this may be, you should think about:

1. whether you like the idea of transferring control over how the ‘dirty’ job is done
2. would you feel threatened by the transfer of your job (whether ‘dirty’ or ‘high level’) to another company that has a different culture, business strategy and management style
3. the effects on the morale of the legal team if the individuals feel that there is no incentive plan and personal career path for junior/less experienced staff to progress up through the ranks

Instead of relying on your gut feel for what legal services should and shouldn’t be outsourced, your stance will be more capable of being justified to your board if you at least know the types of services that definitely should not be outsourced.

While there has been plenty of published thinking on what not to outsource, little of that thinking covers legal services. Nevertheless, it can be pertinent to inform your planning, although there are multiple exceptions.

Fundamentally, it is not advisable to wholly outsource core legal processes, ie processes which are reliant on the superior skill, acumen or execution of the legal team should not be delegated, transferred, or compromised by total dependence on a third party.

The following table provides examples of typical legal services which are generally considered to be ‘core’ and should not be outsourced completely. However, the list is highly dependent on the industry in which your organisation operates and the particular circumstances of your organisation.

What legal services could be outsourced

Assessing whether a legal process is core or non-core to your organisation or its legal team is a significant factor in deciding whether to outsource a legal service. Evaluating how vital a specific legal service is to your organisation involves considering whether outsourcing the particular service compromises the legal department’s ability to support the organisation’s business strategy.

Non-core services

Procedures which require minimal professional know-how or perhaps are considerably more transactional in nature are usually considered to be ripe for outsourcing. Examples of non-core transactional matters which are sometimes outsourced to third parties include:

1. administrative support—extraction of data and data entry, digital document management, secretarial solutions, billing solutions, paralegal support services, document archiving
2. transaction support—document discovery, database generation and upkeep
3. intellectual property—IP portfolio handling, cease and desist notices, trademark monitoring
4. contracting support—contract research, contract management
5. legal research and analysis

However, to make outsourcing these legal services worthwhile, there must be a requirement for high volumes of support in these areas. Therefore, it is often only the largest of legal teams supporting the most major organisations that would outsource these areas separately from a more general outsourcing of legal services.

High-value, high-risk services

Generally, the kinds of high-value, high-risk legal services that are outsourced include:

1. litigation
2. corporate acquisitions, disposals and mergers
3. corporate restructurings eg for taxation purposes
4. corporate finance
5. support for overseas transactions
6. real property acquisitions, disposals, leases etc
7. public company regulatory matters
8. specific matters relating to highly regulated industries
9. support where your organisation is subject to investigation by a regulatory body
10. issues of high public interest or where your organisation’s reputation is at stake

Outsourcing legal support for high-value, high-risk work brings various benefits, including specialist expertise, the ability to throw a large team onto a big project, market knowledge, insight into regulatory approaches, the backing of professional indemnity insurance.

Impact on your team and organisation

Lexis^®PSL Practice Note: Legal services outsourcing—in-house lawyers—information gathering explains the need to assess the skills and resources of your legal team.

However, you should also consider the specific interests of your team and the benefits those interests bring to your ability to deliver legal services. For example, the IT department in an organisation can be a difficult area to ‘break in to’ for lawyers. Ensuring your team is involved early enough (or at all) in an IT matter can be very difficult. Therefore, if one of your team has a specific interest in IT matters and has developed a good relationship with your organisation’s IT department, that is an invaluable personal contact which can help to ensure good contract governance because of the level of trust and reliance which can be built between individuals.

A decision to outsource routine contract review of all low-value contracts could have the unforeseen effect of causing the lawyer in question to lose their overall picture of IT that has been gleaned over time, thereby creating distance between the lawyer and their contacts and damaging the hard-won relationship between the legal department and the IT department.

Other areas of specific interest often include intellectual property, data protection and social media.

If an area of specific interest to one of your team is to be outsourced, you need to consider the effect that will have not only on the specific team member impacted, but on the rest of the team. If the result of outsourcing is viewed by your team to be damaging to morale, perhaps because of a perceived lowering of individual status or the loss of intellectual stimulus and challenge, you could end up with a stagnant and dispirited team.

You should therefore think carefully about the way that the outsourced services will operate. Will the team member who is impacted just become a post-box funnelling work to an external provider, or will the outsourcing of lower level/more routine work enable the individual to progress to a more strategic role in the specialist area?

Additionally, is your organisation ready to accept the changes that outsourcing of aspects of the provision of legal services will bring? If your organisation’s senior management value the ability to pick up the telephone to you or a member of your team to discuss specific or general issues, will they adapt readily to restrictions on that ability or to the fact that each call will probably incur unexpected cost? Will your stakeholders understand that you won’t have direct control of their matters to the same degree, so that things they may take for granted will change, eg your ability to overlay knowledge of your organisation, its industry and risk appetite without reverting to take instructions each time.

Lexis^®PSL Precedent: Legal services outsourcing strategy encourages you to consider these issues.

Bad timing for outsourcing

A further point to bear in mind is whether the time is right to undertake outsourcing at all. Situations when outsourcing would be inappropriate include:

1. during the period before a change in senior management, particularly leadership of the in-house team
2. during a major restructure

Change in senior management

Outsourcing is a process that should not be initiated when the incumbent management will not be present to ensure satisfactory implementation. Where there is a change in leadership of the in-house team, the new GC’s hands will be tied by long-term commitments in an outsourcing agreement and even if the contract permits termination for convenience, there may be a financial cost such as payment of termination charges.

Major restructure

Successful outsourcing of legal services requires focus, stability of operations and time to effectively obtain the desired benefits.

Trying to implement a new outsourcing initiative during any of the following will inevitably pose high risks as a result of complications, distractions to senior executives and possible excessive haste:

1. cost reduction exercise
2. team reshuffle
3. business divestment
4. complex refinancing
5. transfer to a new location, or
6. any other strategic initiative which has a short-term destabilising effect on the legal department’s ‘business as usual’

Outsourcing needs stability for analysis, structuring, negotiation and transition.

Outsourcing strategy

Lexis^®PSL Precedent: Legal services outsourcing strategy is designed to help you prepare an outsourcing strategy that you can present to the business.