It’s the middle of August.  While taking most of the month off from work may not be as common in the US as in parts of Europe, this is certainly a peak period for people taking some down time.   The Olympics are over.  The US political season is preparing to kick into high gear, but we’re still nearly two weeks from the first of the nominating conventions.  In other words, it’s a time to kick back and relax, and not think too hard.  So, I’ll just make a couple of observations about changing (but inconsistent) buyer behavior in the corporate law department, and perhaps put a place marker down for a future conversation.

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While the legal process outsourcing (LPO) market has not grown as rapidly as some predicted, and there has been at least a partial shake-out and some limited consolidation, it is clear that the practice of outsourcing some lower-value legal processes or tasks is a real, and potentially very effective, tool available to those interested in controlling legal costs.  In-house counsel can make use of LPO to reduce outside spend, by requiring outside counsel to unbundle some aspects of their work and to delegate that to lower-cost resources at an LPO provider. The most prevalent example of this is document review as part of pre-trial discovery, especially in the US and the UK, where discovery is a principal driver of litigation costs.  To a lesser extent, in-house counsel can also save some money by outsourcing tasks handled internally; given the modest headcount in many in-house legal departments, however, when in-house legal tasks are outsourced, the purpose is often to avoid hiring additional staff or to free up the time of internal teams, rather than to reduce that headcount.  The most common examples include contract management and some patent and trademark support.

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A “perfect storm” of globalization, technology changes, and a global recession has significantly shifted the bargaining power between law firms and their large corporate clients.

• The rise of new kinds of service providers, both on- and off-shore, has given clients more choices, particularly with respect to the more routine or commoditized aspects of legal work.   As they have exercised those choices they have moved some work out of traditional law firms, creating at least a temporary over-capacity at the largest firms.

• Technology has played a role in this shift of work, making it easier to unbundle matters and move work around; it has also helped reduce the quantum of work to be done, by enabling smarter searching of documents, more self-service, and even some document assembly.  Layered on top of globalization, technology has contributed to the over-capacity problem.

• While globalization and technology pressures have been brewing for a while, the prolonged global recession really brought things to a head.  Demand for work declined, and the business put ever greater pressure on in-house counsel to reduce costs.  As fewer transactions were contemplated, and more commercial disputes were handled in-house, once again, law firms found themselves over-staffed.

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Most large law firms seem to have gotten the message: clients want to bring under control the cost of legal services.   As firms respond on the revenue side with lower rates, fixed fees, or other arrangements, they must also either lower their own costs or face declining margins.   While the latter may indeed prove inevitable for many, there have been widely reported efforts to reduce costs – both in the “back office” and in the delivery of legal services.

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