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“Shaw Pittman: where law, business, and technology converge.” The Washington, D.C., firm’s tag line is fairly standard branding fare — these days, almost every major law firm claims prowess in technology. But, unlike many wannabes, Shaw Pittman has, in fact, re-engineered itself as a tech player. It’s just not the sort of player you read much about. It’s rarely mentioned in the same breath, for example, as San Francisco’s Brobeck, Phleger & Harrison, which has helped so many high-profile dot-coms take flight. Shaw Pittman plies a more humdrum, obscure tech trade: information technology outsourcing. Companies spend billions each year to outsource their IT operations — from desktop maintenance to Web hosting — sending their work to name-brand companies like Plano, Texas-based Electronic Data Systems (EDS) Corporation and IBM subsidiary IBM Global Services, or to more obscure tech players, such as Dallas’ Affiliated Computer Services Inc., and Unisys Corporation in Blue Bell, Pa. No firm handles more of these deals than Shaw Pittman. Sexy, outsourcing ain’t. But it’s given birth to a vibrant and seemingly recession-proof legal market. Shaw Pittman sits high atop this market, but others are also cashing in, including Chicago’s Mayer, Brown & Platt and New York’s Milbank, Tweed, Hadley & McCloy. Even Brobeck and Palo Alto, Calif.’s Cooley Godward, the stars of the tech bar, have joined the fray with recent lateral hires of outsourcing partners. In these turbulent times, it seems, slow and steady outsourcing work is growing more attractive by the minute. Outsourcing took off in the early 1990s, when a sluggish economy prompted insurance companies, banks, and other data-intensive businesses to search for ways to shave their tech budgets. Many of them turned to Ross Perot, who founded EDS and pioneered the concept of selling computers as a service, not a product. Through IT outsourcing, companies can reduce their tech payrolls, garner earnings on the sale of computer equipment, and avoid the major capital expenditures that are needed to keep technology up to date. Beyond the potential cost savings, outsourcing allows companies to focus on their core competencies and leave the technology heavy lifting to real nerds. Now, businesses of all stripes outsource their IT departments. IT outsourcing, in turn, has begotten business process outsourcing, with companies farming out everything from their human resources departments to company cafeterias. The industry has yielded a steady supply of complex, big-ticket legal work. In the typical IT deal, a company transfers its computer network and tech employees to an IT vendor, which then operates as the company’s IT department for a fixed period of time — usually no more than seven years. Outsourcing lawyers need to be tech-savvy and possess M&A smarts, since companies are selling assets that often run into the hundreds of millions of dollars. Outsourcing deals also raise a host of employment issues. Companies permanently transfer their employees to vendors, giving rise to severance obligations (pensions, accrued vacations, etc.). It usually takes at least two months to consummate a deal. And law firms often extend their engagements, since companies routinely keep them on as quasi-business consultants, to help the companies determine their outsourcing needs and then to run the bidding process to find vendors. “I really like these deals,” says Daniel Masur, head of Mayer Brown’s 20-lawyer outsourcing team, which counts Raytheon Company and Pharmacia Corporation as clients. “They involve lots of dollars … and many facets. There are HR issues, tech issues, tax issues, all of the issues you would have with a large asset purchase or sale.” Shaw Pittman got in early. In 1991, at the dawn of its outsourcing practice, it handled some major deals, including a $2.5 billion outsourcing project for Houston’s Continental Airlines Inc. At the time, Shaw Pittman was predominantly a corporate firm, with a subspecialty in government work. At first, it had only three lawyers doing outsourcing work, including firm partner Robert Zahler, who is considered one of the deans of the outsourcing bar, along with Milbank partner John Halvey. But it wasn’t long before the whole of Shaw Pittman took notice of its nascent tech niche, says Paul Mickey Jr., the firm’s managing partner: “Outsourcing introduced us to blue-chip clients of the sort that Shaw Pittman had no pretense to represent in other respects.” Some 10 years and 400 outsourcing deals later, Shaw Pittman now has more than 70 outsourcing attorneys, a sizable chunk of its 450-lawyer total. It has handled outsourcing deals for such powerhouses as General Electric Company and J.P. Morgan Chase & Co., and its outsourcing revenue has grown substantially, from $6.9 million in 1994 to $38.5 million in 2000. (Last year the firm had total revenue of $165.5 million, which placed it at 88th on The Am Law 100.) Shaw Pittman has emerged as the top domestic outsourcing firm, and it’s busily extending its franchise. It opened an office in London in the fall of 1998 to plant a flag in the burgeoning European outsourcing market, says Mickey. “If we didn’t go over there, we knew that [London's] Clifford Chance or Allen & Overy, who had [outsourcing] potential, would be hired on big deals and develop a reputation. [Our move to London] was offensive and defensive.” The Shaw Pittman London office has grown from four to 20 lawyers, all U.K.-qualified. And last year the firm opened a Los Angeles office with nine lawyers, headed by outsourcing partner William Peters. He has grown the office to 23 attorneys, though not all do outsourcing work. Early in its ascendancy, Shaw Pittman shared top billing in the outsourcing bar with New York’s Milbank. In the 1990s, Milbank partner Halvey built a formidable outsourcing team, which represented such clients as Xerox Corporation and General Motors Corporation. But the team didn’t survive Halvey’s 1999 departure to Philadelphia-based Safeguard Scientifics Inc., a high-tech holding company. A number of Halvey’s top lieutenants followed him out the door, including partners John Funk (he moved to the Dallas office of Jones, Day, Reavis & Pogue in 2000), Daniel Mummery (he headed to Cooley Godward in March), and David Hudanish (he also left in March for the New York office of Brobeck.) These men are now fielding outsourcing practices at their respective firms. In June, Halvey came back to Milbank, and the tight-knit outsourcing fraternity has been abuzz with speculation about how his return will affect the competitive landscape. “[Halvey] is a force in the business,” emphasizes William Peters, the head of Shaw Pittman’s L.A. office, who left Milbank a week after Halvey. Says Halvey: “One reason Milbank wanted me back was because it wanted to preserve its leadership role in outsourcing.” But some lawyers question whether Halvey can recapture his past glory. “He faces a tough battle,” says Hudanish, a partner at Brobeck, which has more than 20 outsourcing attorneys. “Over the last three years, Milbank’s outsourcing team had dwindled.” Hudanish, who has represented AT&T Corporation and E.I. du Pont de Nemours and Company in outsourcing deals, regards Shaw Pittman and Mayer Brown as his principal competitors. Some of the other outsourcing powers include D.C.-based Arnold & Porter, New York’s Brown Raysman Millstein Felder & Steiner, and Dallas’ Hughes & Luce, which specializes in representing vendors, principally EDS. Fortunately, there appears to be plenty of work to go around, despite, or perhaps because of, the slow economy. “Outsourcing tends to be countercyclical,” says Milbank partner Robert Finkel. “Oftentimes big companies will do it when they want to cut costs and payroll.” Lawyers say the pace of gargantuan IT deals has slowed, since many big companies have already inked outsourcing contracts. But the outsourcing bar has more than made up for this slowdown with a combination of contract renegotiation work, international IT deals — European companies have been years behind their American counterparts in turning to outsourcing, say lawyers — and business process outsourcing, or “BPO.” “BPO is a phenomenal, phenomenal field,” says Hudanish. “There is a tsunami of work just waiting on the horizon.” Tech lawyers have been able to cash in on BPO work because the deals are structured similarly to the way IT deals are made, and companies usually outsource business processes — such as payroll or customer service — along with the software and computer equipment that is used to administer the process. “BPO deals have strong IT components, and the IT is usually driving the deal,” says Masur of Mayer Brown. Certainly, outsourcing remains a fairly obscure legal niche. But if the BPO market stays hot, and the economy remains cold, look for outsourcing lawyers increasingly to be stealing the spotlight from the darlings of the tech bar. “Even my mother now knows about outsourcing,” says Halvey. “Which I regard as the bellwether that it has achieved popular status.”

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