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UnitedLex CEO Daniel Reed
The announcement Wednesday that an Am Law 200 firm would outsource 300 of its own employees to a joint venture with a New Law service provider was touted with great expectations.Daniel Reed, the CEO of UnitedLex Corp., said his company’s deal to provide a range of outsourced services to LeClairRyan will be so disruptive to the Big Law market that the partnership they created, ULX Partners LLC , should have 10,000 employees in five years as other law firms rush to join.The deal, struck between Reed and LeClairRyan managing partner Erik Gustafson, will re-badge 300 LeClairRyan employees to ULX Partners, which will provide services to LeClairRyan ranging from secretarial work to project management.The deal will also give LeClairRyan access to outside capital that Reed and Gustafson said would transform the firm’s economics and give it a clear competitive advantage, not to mention a technological one. Joining a “constellation” of firms that Reed hopes to grow with ULX Partners could add 5 to 15 percent to a firm’s profits per equity partner, he said.“There are models that get evangelized out there as being innovative, [but] when you peel back from them, from a scale perspective, they’re a gnat,” Reed said. “The platform being created by Erik and I is different.”Industry insiders agreed that access to outside capital could overcome a fundamental barrier to change at law firms in their inability to invest in long-term technologies or projects. But insiders also expressed skepticism at the potential for ULX Partners to rapidly overcome other problems that have hindered law firms’ attempts to provide more efficient, cost-effective services to clients.Partners must still buy into project management and pricing initiatives. The way legal work gets done—or who does it—ultimately will need to change to dramatically lower prices.Clients, too, could bedevil Reed’s aspirations. It is unknown how many corporate legal departments would purchase a law firm’s services because of an association with ULX Partners. But law departments have been in many ways just as slow to change as law firms.“Some clients will want better, faster, cheaper and [ULX Partners] firms can tap into UnitedLex’s best-in-class expertise providing that,” said William Henderson, a law professor who has studied innovation in the legal sector. “But the bottom line is not all the clients are ready to go, and they won’t be ready to go even in the next five or eight years. A lot of lawyers will hang on and do it the old way until they retire. This is a slow burn.”At LeClairRyan, Gustafson said the problem of adopting innovative practice methods is less of a concern. He said his firm, which has previously partnered with UnitedLex, has been acclimating partners of the need to practice more efficiently for years.Gustafson said the extent to which LeClairRyan’s partners share work among each other is also indicative of their receptiveness to servicing a client in new ways. For the last six years, Gustafson said the firm’s referral rate between offices has been 25 percent. Its inter-practice group referral rate has been between 30 and 34 percent.
Erik Gustafson
“My observation about my partners and their interest in doing this and the innovation around this is how hungry they are for the services ULX Partners provides beyond what we were already doing for ourselves,” said Gustafson, citing services such as business intelligence, work scoping and responding to requests for proposal. “There is a lot of enthusiasm for what this brings to the individual partner and what they can provide for clients. There is a very strong sense of that.”While LeClairRyan’s partners may be enthusiastic about change, that may not be the case for the broader legal industry. A survey of chief legal officers last year by legal consultancy Altman Weil Inc. showed that 90 percent of clients said their firms had a “low” level of interest in changing their legal service delivery model to provide more value to clients. Asked the same question, law firm leaders were only slightly more enthusiastic: 57 percent said there was “low” interest while 40 percent said “moderate.” Only 3 percent said “high.”The biggest problem, according to the Altman Weil survey, is partners’ resistance to change. When managing partners were asked why their firms didn’t do more to change their legal service delivery model, 69 percent cited partners’ resistance to change. That was up from 44 percent in 2015.“If the rank-and-file lawyers don’t robustly adopt this, it won’t go very far. That’s a guarantee,” said Altman Weil principal Thomas Clay.Reed and Gustafson said that ULX Partners solves an incentive problem for law firms faced with competition by New Law providers such as UnitedLex or Elevate Services Inc. Law firms have viewed competition with those service providers as a zero-sum game, Gustafson said. But having a financial stake in ULX Partners—LeClairRyan is a minority partner—gives a firm like LeClairRyan an incentive to sell those services directly to clients.Still, the announcement Wednesday was met with some confusion as to what services ULX Partners will provide to a law firm’s ultimate clients.“I analyze this as someone who helps clients buy legal services,” said Casey Flaherty, a legal operations consultant to law departments and law firms. “I can’t read this press release and go to a client and say, ‘Hey, we should think about using LeClairRyan because now they can do X.’”Gustafson provided several examples of services that LeClairRyan lawyers have used on behalf of clients. Those services included legal assistant support, business process support and providing data analysis to optimize legal service delivery from each client service team. More complex engagements, he said, included “project assistance and financial architecture/pricing design in scoping a prospective client engagement relative to an alternative fee proposal.”Gustafson noted that the clients he has spoken with so far have been receptive.“They are supportive of this initiative and are highly interested in seeing how much value, optimization and predictability can be achieved by ULX Partners’ holistic approach to providing a full spectrum of integrated legal services,” Gustafson said.Keith Maziarek, director of pricing and legal project management at Katten Muchin Rosenman, said it remains a challenge to implement pricing concepts across a broad swath of partners, let alone law firms.“You’re still going to be faced with the problem of adoption: Changing the way lawyers do what they do so they can make the most out of these new technologies,” Maziarek said. “And we face that issue now.”

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