Originally Published Feb. 26, 2013
Editor’s note: This is the third in a series of articles examining how law firms are thinking smaller when it comes to the space they need, the costs they pay for labor and the nonlegal services they handle.
Amid the motions deadlines, depositions and client meetings, law firms still have to get the documents processed, food served, bills collected and technology running — or do they?
When it comes to focusing solely on legal work and letting professionals handle the rest, law firms are timid about outsourcing many nonlegal functions. But for some it has proven effective and even profitable.
Aside from giving up control — something law firms don’t always like to do — outsourcing nonlegal functions to professional service providers also often means reducing internal staff.
Blank Rome, for instance, outsourced its document services and word processing department last year to Wheeling, W.Va.-based Williams Lea. A few of the nearly 20 people affected by the move were hired by Williams Lea to work on the firm’s matters while the rest were laid off.
Some of a contractor’s employees, whether or not they be legacy firm employees, will still be housed within the firms in many of these outsourcing arrangements. On a national level, some of the country’s largest firms are starting to farm out hospitality services, document preparation services and other administrative functions. In Pennsylvania, the concept has caught on in dribs and drabs.
Blank Rome Chairman Alan J. Hoffman said earlier this month there were a couple of “initial bumps” when the firm made the transition, but he said the arrangement was working fine as far as he was aware. He said the cost savings of such a move aren’t necessarily realized in the first year, but will more likely be seen in two or three years.
Williams Lea also does billing collections work and Hoffman had said the firm was looking at that option among others.
“Anything where you can continue to deliver the services where staffing functions and other support services that the law firm needs [are done] on a less expensive basis that ultimately saves your clients money is what we’re looking to accomplish,” Hoffman had said.
Reed Smith Chief Operating Officer Gary Sokulski said he often has partners ask him whether the firm should be outsourcing nonlegal functions. His response: “If I had a problem with my operating cost per lawyer, you would have a valid argument.” But because Reed Smith has moved the bulk of its back-office operations to a cheaper building in Pittsburgh a few blocks from its headquarters, the firm has achieved the savings that outsourcing might provide.
And for Sokulski, outsourcing hasn’t always proved effective. The firm did a six-month test in which it outsourced a certain nonlegal function in one of its markets and in-sourced in another market. Sokulski said the firm came out better on the in-sourced model. That isn’t to say that it couldn’t work for another firm, he said.
Drinker Biddle & Reath Executive Partner Andrew C. Kassner said most firms do some form of outsourcing of nonlegal functions. At Drinker Biddle, portions of payroll have gone back and forth between being outsourced and in-sourced. Some of the firm’s office services have been outsourced. Kassner said the firm is satisfied right now with handling the bulk of its back-office operations in-house.
Cozen O’Connor Chief Executive Officer Michael Heller said the firm had previously outsourced its office services functions, such as photocopying, deliveries and mail room operations, to Pitney Bowes. The bulk of the firm’s employees were hired by Pitney Bowes when the transition was made, he said. And more recently, Cozen O’Connor outsourced its food services functions. Heller said he doesn’t see the firm outsourcing any other nonlegal functions, however.
The Case for Outsourcing
For intellectual property boutique Condo Roccia, creating a new firm in 2011 presented the chance to build a business model from scratch that included outsourcing docketing services, file management, certain document preparation needs and the firm’s IT.
“Lawyers who run law firms tend not to be the most efficient at the nonlegal aspects of running their firms,” name partner Joseph R. Condo said. “The big firms especially are throwbacks to an era where we all had to be in the same place at the same time because we were all working on a file we had to be near. As soon as you are able to let that go and realize you can do what you can do from wherever, we can now contract those services through the cloud.”
Condo said he didn’t think it was the size of his firm — 13 lawyers — that made it easy to outsource these functions, but perhaps the newness. Condo Roccia never had the infrastructure and real estate costs that “strangle” bigger and older firms. Rather than completely revamp or do away with a firm’s infrastructure, older firms continually look to refurbish it, Condo said.
By starting off with limited internal infrastructure, Condo Roccia has been able to limit its real estate and employee overhead costs. As his firm grows, so too can the contracts he has with outside providers, making for a quicker and cheaper way to expand the nonlegal services available to the firm, he said.
Aside from the firm’s 13 lawyers, there are 11 legal professionals and two other employees, including the firm’s executive director. On any given day, at least half of the firm’s population is working remotely, as all employees have computer and phone access set up in their homes or on their laptops and have access to other law firm services through the firm’s outsourced relationships.
Condo Roccia, which was started when a group of Woodcock Washburn attorneys broke off from the firm, tested the concept of whether cutting out excessive infrastructure and real estate costs could allow the firm to charge clients less, pay its lawyers more and bring in higher profits for the firm. Condo said the answer was yes.
After starting his new firm, Condo said the attorneys were able to reduce their billing rates by 20 percent and compensate its professionals above market value. As a result, he said, the firm is enjoying a higher profit margin.
While outsourcing has proven profitable for Condo Roccia, Condo admitted he isn’t comfortable shipping everything outside the firm’s doors. There is only so much of your business that a firm would want an outsider to see, Condo said. His firm has kept the more sensitive information, such as accounting and human resources, in-house.
“We only contract for services that others can provide to us better than we can provide to ourselves,” Condo said.
Sokulski said it would be “very bold” to outsource something as near and dear to the lifeblood of a firm as its accounting records.
“I look at it as, once you pull the trigger, you can’t get the bullet back in the barrel with some of these things or, if you do try, you’ll end up spending a lot more than you’re saving if they didn’t work right,” he said.
Read more about experience with outsourcing in the article, “Facilities Management: Making It Someone Else’s Problem,” on page 6 of the Law Firm Management supplement in today’s Legal.