Myth Buster: Managed Services Can't Work for Legal

It is common to hear about outsourcing to India. That is old news. But outsourcing has a unique concept buried within it: managed services. A managed service is a type of delivery model for outsourced services.

Most companies outsource janitorial services, real estate maintenance, catering and other non-core work that is needed to run the business. Typically, those are outsourced as a managed service. What does that mean? The customer relies on the supplier to deliver the service end-to-end without getting involved in how they perform their duties. The customer has no say into which workers are deployed, how much those workers are paid or how those workers perform their tasks. The customer looks to the supplier to handle all of the “how” details, and in return expects outcomes. The outcomes have to be agreed upon and documented, but really it is all about answering the following question as a customer: “Are my objectives being met?”

In the past decade it has become more common to see companies disaggregating some of their core work and outsourcing even certain segments of core work. Manufacturing companies are hiring manufacturers overseas and are shifting entire operations to those companies. Tech companies are hiring software development service providers across the globe and trust them with delivering core testing functions. Like those companies, legal departments have historically been outsourcing to law firms forever in time, but we have not really taken that outsourcing practice along the continuum to a managed service, like the other industries have.

The one area where we have seen some examples of managed legal services is in the models delivered by Legal Process Outsourcing (“LPO”) companies. LPO’s have been providing “back-office” services for law firms for well over a decade now. Back-office can be anything from pure word processing up to some services related to data management of the financial processes for the law firm (i.e. overseeing e-billing, or managing procurement). Slowly, LPO’s moved up the value chain to do work that is closer to the “core” of legal services, like document review and discovery. LPO’s were stepping in to provide lower cost resources for high-volume tedious work. Most of that work was being handled offshore, in India, and proved to be quite successful. Still, there was a reluctance to outsource any work that was considered core to the law firms.

As the recession approached and pressure increased to do more with less, there was some expansion in the use of LPOs. At Microsoft, we were early adopters in a way and pushed the envelope of what could be outsourced to an LPO. When other legal departments and law firms were outsourcing only document review or con­tract extraction, we chose to outsource the legal analysis and written negotiations of contracts. This was “real” legal work, that is core to in-house practitioners. It was work that was handled by our internal paralegals and lawyers, and some of this work was being done by our outside counsel. We made significant changes to how this contract review work is handled and redesigned the internal legal support model within our department.

Outsourcing is not something to be jumped into. It cannot be a bunch of work that is tossed over the fence to an LPO, with the hopes of a neat and tidy outcome. In fact, it takes a lot of work on behalf of the client to prepare for outsourcing, and then a significant amount of work to manage the relationship. That work, however, is very different from the work of actually doing the legal substantive analysis. The work to be done by the client after outsourcing is all about managing expectations and reviewing the results together with the service provider. It requires project management skills and business operations experience. Later in the article, we review the best practices for outsourcing.

3