Additional 2011 Projections

Last week we looked at legal market projections from Hildebrandt Baker Robbins in their 2011 Client Advisory.

That report also contains additional data compiled by the Citi Leaders Council Survey and Thomson Reuters.

The Citi Leaders survey comprised 48 large law firms and found:

• Respondents project using AFA's for 15.4% of their firms' revenues in 2011, up from 12.9% last year.

The Thomson Reuters survey polled the leaders of 78 large law firms last year as part of their Legal Executive Briefing and found:

• 96% of respondents indicated they expect increased use of AFAs during the next three years.

• 89% forecast increased use of pre-matter budgets.

• 71% expect increases in their use of teams to manage matters/projects.

• 61% percent expect increased use of contract lawyers.

• 55% expect increased use of non-lawyer project managers.

• 43% expect an increase in the outsourcing of routine legal activities.

These are significant expectations for evolving business models, and the Hildebrandt Client Advisory summarizes these projections with this:

"We fully expect that the experimentation with new service delivery models and new pricing strategies that we have seen over the past couple of years will continue and expand in 2011. Thus, we believe that firms will continue to focus on project management skills and other techniques for improving efficiency, including the outsourcing of legal and non-legal aspects of their work and the use of technology to automate workflows and to reduce the number of staff required."

Results from the NLJ 250

The National Law Journal's annual survey of the 250 largest U.S.-based law firms by headcount is out, and the numbers are starting to crystallize our collective perceptions from the last two years.

The largest U.S. law firms trimmed another 1,400, making this the second consecutive year of cuts and the largest two-year decrease in headcount in the ranking's 33 year history.

Over the last two years, the NLJ 250 have shed more than 5% of their attorneys. The only other consecutive two-year decrease was 1992-93, which saw cuts totaling less than 2%. So, we're clearly in uncharted territory here.

Digging a little deeper into the numbers we see:

• More than half of the 250 saw decreases, while more than 2/3 of the top 50 saw declines.

• Some firms even saw double-digit percentage cuts.

• Associates, again, took the biggest hit, accounting for the majority of the decreased headcount.

• Where headcount did rise in 2010 was in the "other category", which includes non-associate attorneys, contract lawyers, and temporary attorneys.

According to Altman Weil consultant Ward Bower, "There are fewer lawyers producing more work and more revenue." Which means "there's been a reset."

"Law firms are unlikely to hire hordes of associates as they had before the 2007 recession any time soon, if ever."

And this seems to be another indicator that what used to be considered associate-level work is now being accomplished via new, emerging channels.

Outsourced and Off-Site

Law.com reports an interesting change in the way contract attorneys are being used.

"In the old model, firms would call a staffing agency and request 20 or so contract attorneys to come to the firms' offices and handle document review for a client. The law firms would then mark up the bill for housing the contract attorneys and having them use their computer systems, and then bill the client.

Under the new system... clients are calling the staffing agencies directly and creating deals on what they will pay for contract attorneys. Those rates typically include discounts or rebates...

The clients then tell the law firms that if they have to use contract lawyers on the clients' matters, they have to use the certain staffing agency at the rates the clients negotiated.

... in response, law firms are starting to ask that these contract attorneys not be placed in the firms' spaces or use their computer systems. The rationale is that the firms are no longer getting any profit from using the contract lawyers and don't have as much control over who is selected, creating security concerns when opening up the firms' computer system to attorneys it didn't hire."

Interestingly, this model is looking more and more like traditional offshoring always has. The attorneys doing the work are sitting in offices off the law firms' premises, and technology has eliminated any distinction between domestically located offices and international offices.

Not So Fast

This time last month the Bureau of Labor Statistics released their preliminary report for May, initially indicating an increase of 300 jobs added to the legal services sector. While not a large increase, any ray of sunshine is more than welcome these days.

Unfortunately, that report turned out not to be accurate. The adjusted numbers in the final report for May actually show a loss of 600 legal services jobs.

And it doesn't get any better, with June's preliminary report showing a decline of another 3,900 jobs last month.

All tallied, the unpleasant math totals more than 22,000 legal sector jobs that have been eliminated over the past twelve months.

This squeeze on legal staffing is also a primary driver for one of the most significant emerging trends identified in the Altman Weil survey we discussed last week.

More than 50% of those surveyed expect the use of external, non-headcount, contract-based attorneys (both domestic and international) to become a permanent part of their business models.

As The Legal Intelligencer noted this week, GC's face "increasing workloads, hiring freezes, and budget crunches that prevent significant use of outside counsel." And the solution for many is the strategic use of lower-cost project-based attorneys.

Increased reliance on contracting with outside attorneys on a project basis may be a timely solution -- born out of current necessity -- but it also seems to be one that will become an ingrained component of many firms' and departments' business models.

The Managing Onshore Attorney - Part II

Law.com's Legal Blog Watch summarizes a recent study of emerging trends for contract lawyers conducted by The Posse List. In regards to Legal Process Outsourcing, they write:

"Though firms are under pressure to cut costs, data security and quality of work are two key deterrents to sending projects to India. Still, Bufithis notes that "off-shoring is not going away." It's moving toward a blended approach, with a first pass at review in India followed by second review in the United States."

Here is another acknowledgment that the blended onshore/offshore model provides the benefit of a second layer of quality control and oversight from the onshore attorneys, and it dovetails nicely with the second part of our conversation with Managing Onshore Attorney, Chris Crawford.

Q: Generally, what is the breakdown in terms of the percentage of work executed by the offshore attorneys and the percentage executed by the onshore staff?

A: “It can really vary. Depending on the complexity of the work, it ranges from 10% onshore to 90% onshore. The benefit to the client is that the cost does not change whether the work is performed by a U.S. trained attorney or an India trained attorney.”

Q: What are the types of work that you have seen translate successfully to being outsourced?

A: "India is a common law country, and the attorneys there have all gone to law school. So they can be trained to do any legal work that a U.S. attorney can be trained to do. We have successfully assisted law firms and corporations in many areas of the law including research and writing, contract drafting and review, discovery and document review, drafting of motions, briefs, and pleadings, as well as all general paralegal services."

Q: What are the educational backgrounds of the offshore attorneys?

A: “All Indian attorneys have graduated from an accredited Indian law school, which requires either three or five years of schooling, depending on the law degree obtained. We only hire those that have graduated within the top 10% of their class.”

Q: How are the attorneys trained once they join LegalEase?

A: “LegalEase has its own six month training program, designed by a Harvard Law School graduate. All LegalEase attorneys must complete that training program before working on live projects. This program is designed to teach the attorneys the major distinctions between U.S. and Indian law, and to give the Indian attorneys an opportunity to further hone their writing skills.”

Q: How do you address ethical concerns, e.g. how do the off-shore attorneys ensure confidentiality and conflict checking?

A: “All attorneys working for LegalEase sign confidentiality agreements. In addition, most clients require that LegalEase employees sign confidentiality agreements before commencing work on a project. Regarding conflicts of interest, we have an internal conflict checking system to ensure that we do not undertake work that would present a potential conflict of interest with another client.”

Q: How do you guarantee client satisfaction?

A: “We have always provided our clients with a 100% satisfaction guarantee. If the client is for some reason dissatisfied, we only ask that they provide the reason for the dissatisfaction and give U.S. an opportunity to re-work the project until it is to their satisfaction.”

You can read the first part of our conversation here.