Articles Posted in Non-Law Firm Costs

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OMC released a report in November that pulls together a formidable amount of data and analysis on legal process offshoring around the world. London-based OMC specializes in advising law firms and law departments on opportunities to have services provided in lower-cost jurisdictions.

Page 15 of the OMC report lays out 32 routine tasks in 6 practice areas that OMC sees as particularly amenable to offshoring. Some tasks use UK jargon that is not familiar to me, such as “SDLT tasks” and “21 day filings” but otherwise it seems to be a comprehensive and understandable list. If you would like to see the entire 16-page report, please write David Ellis.

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Stephen Nagin, Of Counsel, at Peretz, Chesal & Herrmann, in Miami, Florida, sent this after my post about unbundled, limited services by lawyers.

“The ABA model Code of Professional Responsibility never was crafted to deal with unbundling in a comprehensive manner. It protects the guild from unsupervised paraprofessionals. It does not, however, specify the quantum of supervision necessary; whether that supervision can be undertaken by an outsourced provider rather than by the lawyer who will use the work-product, etc.

Consequently, numerous ethical issues can arise. Those issues may deter some legal departments from embracing robust, efficiency-producing unbundling. The concept of productive efficiency — which is not coterminous with allocative efficiency — is not a concept law departments necessarily understand. Allocative Efficiency is achieved when resources are used to produce legal services that clients want; technological advances that increase utility or functionality improves allocative efficiency. By contrast, Productive Efficiency is achieved when least costly techniques are used to produce legal services; process innovations that lower the cost of producing and providing a service improve productive efficiency. Consequently, unbundling or outsourcing tends to yield greater productive efficiency.

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A stark contrast appeared in a recent survey. Asked to rank five cost-reduction steps in order of importance, one quarter of a group of in-house respondents chose “Hiring freeze or reduction in legal department staff” while at the same time almost the same percentage chose “Hiring in-house counsel or temporary staff to reduce outside counsel.” The data comes from Major, Lindsey & Africa’s survey during the spring of 2011.

One could simplify these responses to highlight the opposing views: fire department lawyers versus hire more department lawyers. It is true that “reduction in staff” doesn’t necessarily mean lawyers and hiring “temporary staff” muddies the second choice. Still, the underlying basics, the steps that clash as opposites, are to skinny down or beef up. The report simply provides the metrics, it does not further elaborate on them. Sonya Olds Som, a lawyer and recruiter at MLA, will be please to send you the report if you write Som.

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The HBR Consulting benchmark survey suggests a guideline for what expenses should be included in a general counsel’s budget. It is something like “Do not include expenses that a company would have to pay even if there were no law department at all.” That sounds constructive, and would eliminate annual meeting expenses and the costs to prepare and distribute annual reports, and directors’ fees, for example, since all of those costs would continue even if you shut down the law department.

My problem, however, is that patent registration and maintenance fees would presumably also continue even were a company to have never started, or later ended, its legal department. Yet I believe those expenses properly fall into the law department budget.

If law department managers are to be able to compare their metrics to others’, we need a consistent framework and definition for what’s in and what’s out.

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If you need an expert witness in a case, you can ask the law firm you have retained to locate one, or you can use one of the many services that specialize in finding experts (See my post of Feb. 2, 2008: expert witnesses with 9 references.).

When outside counsel locate the expert and conduct vetting phone calls., law departments typically pay for their help at an hourly rate. Boutique services are out there, however, that do not charge by the hour, let alone the hundreds of dollars an hour and lots of hours a law firm might charge. A principal of IMS ExpertServices makes this point in the In-House Defense Qtrly., Summer 2011 at 6 (See my post of Feb. 13, 2008: Round Table Group and its 95,000 experts; and Nov. 1, 2010: allow non-lawyers to assist with expert witness preparation.).

I can hear the objections already: the law firm will duplicate much of the work anyway. And, if anything goes other than as hoped with the expert’s role in the case, fingers will point.

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As a columnist for InsideCounsel’s online site, I most recently wrote about the different ways law departments account for costs associated with patents. Sometimes the legal budget absorbs some of those amounts, other times it doesn’t – and everything in between. If you would like to read the entire column, please click on this InsideCounsel patent-cost link.

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An update on Bloomberg Law, whose second incarnation has recently been rolled out, appears in Law Technology News, Oct. 2011 at 44. Quite different than the complicated pricing of its main competitors, Bloomberg Law charges $450 per month per user for unlimited access.

The steady change in how online research costs are regarded by internal lawyers keeps pace. They do not want to pay for them so fixed fees fit with the zeitgeist (See my post of Sept. 13, 2005: disbursement costs of online research; Sept. 27, 2005: survey data on research spend; Sept. 31, 2005: CaseMaker; Jan. 16, 2006: providers of research services; Dec. 19, 2006: do not pay online legal research costs; July 16, 2007: legal research cottage industry; and Aug. 15, 2008: keep a close eye on legal research requiring more than 10 hours on any one issue.).

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Several times in the past I have pointed out the swarm of vendors and service providers who market to legal departments. They make up the cottage industry.

In the past year or so, several more posts provide information about more denizens of the cottage. Most concern those who license, implement and support specialized software (See my post of Dec. 27, 2010: seventeen applications commonly used by law departments; Jan. 17, 2011: a patent document management system, First to File; Jan. 23, 2011: patent databases, mapping and classification; April 22, 2011: software for corporate governance, corporate secretarial, and publicly-traded functions; June 15, 2011: software to help handle contracts; and July 11, 2011: five specialized packages for law departments.).

Others posts delve into service providers (See my post of April 6, 2011: ranked list of top-ten trademark services providers; Feb. 15, 2011: mostly small vendors in the legal cottage industry, so rewards and risks increase for general counsel; and Feb. 25, 2008: service providers for bill and regulation tracking.).

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I thought it would be interesting to ask senior leaders in the cottage industry(thus, Cottage Industrialists) that serves legal departments – other than law firms – to describe the early history of their company, offer some metrics about it today, and give a specific example from a client about some management practice. Frank Orzo, the co-founder and long-time leader of LTOnline, prepared the first post.

The Lawtrac product was first introduced in 1984. Since its inception, we focused on in-house law departments, and to be candid, this was by accident, and it probably helped that I was not an attorney. My background was in software development. I worked for a national software development company in New York.

When hard drives were first introduced to personal computers, a colleague and I decided that this device could be a useful computing device. We approached several of our existing customers, and one – a large insurance company – said we could help them in their law department. At the time, the only product that offered the functionality that they required was developed for a Wang VS. Since they were an “IBM” shop, this was a non-starter. We agreed to build the product to their specifications for a nominal fee, provided we would retain intellectual property rights. The result: Lawtrac 1.0, based on the DOS operating system. Our customer was thrilled when we delivered a working product, only to then ask us how multiple users could share the information simultaneously. We said, “Oh, you want to share this information? Let us get back to you.” And that is how we developed the first PC-based, networked matter management system for law departments in January, 1985.

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This past Spring, BottomLine Technologies acquired Allegient Systems for about $48 million. The purchase significantly increased Bottomline’s position as a leader in the legal invoice automation market, particularly for insurance and other corporate claims functions. BottomLine, a publicly traded company, says on its website that it handles invoices for well more than 100 P&C claims departments.

Claims management often falls under the legal department and its high volume and distinctive characteristics make specialized database software appropriate (See my post of June 14, 2011: management of claims with 11 references.).