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Outsourcing - The Big Bang Approach in the US

  • June 01, 2012
  • John G. Kelly

The legal services market and corresponding practice of law are undergoing a shift of seismic proportions. The impact of the combined forces of globalization and the Internet on information services are in the process of transforming the manner in which legal services are designed and delivered by law firms to clients.

Outsourcing, a predominant attribute of globalization, must now be factored into the lawyer/client relationship. The American Bar Association (ABA) Standing Committee on Ethics and Professional Conduct decided to confront the reality of what is, in effect, a new practice paradigm by issuing the Formal Opinion 08-451 Lawyer’s Obligation When Outsourcing Legal and Nonlegal Support Services, which contained the opening salvo, “the outsourcing trend is a salutary one for our globalized economy”.

Not surprisingly, the response from the established legal community was formidable and the pushback was fierce. In an effort to quell an anticipated rebellious outrage, the ABA established a follow up ABA Commission on Ethics 20/20 to undertake a thorough review of the ABA Model Rules of Professional Conduct to determine where and to what extent they required modification to conform to the imperative of outsourcing.

That’s right, the imperative is outsourcing. A reading of the opinion makes it abundantly clear that lawyers are going to have to make adjustments the manner in which they practise law and key ethical considerations such as confidentiality are going to have to be modified to accommodate the outsourcing and off-shoring of legal and non legal services.

The opinion is blunt and to the point in stating that in the contemporary professional services environment where clients are putting pressure on law firms to deliver cost effective services, “Outsourcing, however, can enable that firm to represent a client in such a matter effectively and efficiently”. Cost effective legal services are in the public interest. Consequently, “there is nothing unethical about a lawyer outsourcing legal and non legal services”.

This groundbreaking opinion shifts the discussion and debate on the ethics of outsourcing (and the more controversial off-shoring) away from whether they are ethical to how to do it in a manner that is ethical. In short, the ABA has seen the handwriting on the wall and it clearly spells out that law firms need to get with the program and become proficient with outsourcing and off shoring.

That handwriting on the wall is dominant in three areas of practice. Routine document preparation is being off-shored to India by the North American financial services industry who have taken their cue from UK. law firms that service many of the same clients in the global banking industry. E-discovery is being outsourced to a combination of technology sophisticated and litigation savvy specialty outsourcers and off shore providers. Thomson Reuters Pangea3 ( is an example of an emerging major player in these areas. The outsourcing of legal bills for e-formatting and massaging of language to comply with client driven e-bill management systems in insurance defense is an example of a more recent development that Canadian law firms are buying into in an effort to minimize the costs of maintaining an in-house billings department.

The formal opinion is instructive in pointing out that outsourcing isn’t a phenomenon that will only benefit large law firms. The real advantage will be to smaller firms who didn’t have the in-house resource capability to compete head-to-head with large firms in areas such as litigation. E-discovery document discovery resource capability is now easily available to mid-sized regional law firms and boutiques through e-referrals to outsourced/off-shored providers.

The formal opinion provides lawyers and law firms with guidance and suggested guidelines that will ensure that outsourcing and off shoring will meet the required threshold of ethical practice, particularly in sustaining the confidentiality requirements that lawyers have with clients. Without minimizing the need to maintain the requisite standard of confidentiality, the formal opinion opines that a combination of due diligence to ensure that the outsource/off-shore provider has the appropriate privacy safeguards in place and that so long as there’s a written confidentiality agreement between the law firm and third party that clearly spells out the appropriate terms of reference for ethical service under its supervision, confidentiality should not be a problem. “Written confidentiality agreements are, therefore, strongly advisable in outsourcing relationships”.

The need for supervision of the outsourced/off-shore provider by the law firm is the key to creating a new pro-active role for law firms. There is a burgeoning governance industry evolving in the U.S. for law firms who have become self-professed experts in setting up the terms of reference and operational framework for clients who wish to engage in outsourcing. The law firm becomes the governance source for the operation and manages the outsourced relationship.

Subsequent to the issuance of the formal opinion, the ABA 20/20 Commission has conducted hearings, panel discussions and invited parties to make submissions. A series of suggested amendments to the model rules has been tabled and will be voted on at the 2012 and 2013 annual meetings. The proposed amendments are substantive and the message is clear: the model rules must be brought into conformance with the global phenomenon of outsourcing, not vice-versa.

Professor Adam Dodek’s discussion paper Solicitor – Client Privilege in Canada: Challenges for the 21st Century, which was commissioned by the Canadian Bar Association, appears to take an incremental approach to reconciling litigation with the globalization of legal services. The title speaks for itself in, on the one hand, recognizing the impact of technology on confidentiality while, on the other hand, discussing it in the context of challenges rather than opportunities, as is the case with the ABA. Interestingly, outsourcing/off-shoring - the elephant in the room - is never explicitly addressed nor discussed in the paper. The following excerpt is instructive in outlining Dodek’s position, which may well be too little too late in light of responding to international developments that are redefining confidentiality above and beyond traditional national jurisdictional boundaries.

Technological changes are likely to challenge how we think about the Privilege more over the next decade than they have over the last several. The touchstone of the Privilege is confidentiality and technological changes have brought unparalleled access and connectivity at the cost of confidentiality.

Communications over the Internet may provide a false sense of confidentiality where none exists. A fundamental question that we as a profession have to face is whether the doctrine of the Privilege will adapt to new circumstances or whether lawyers’ behaviours will have to adapt to deal with the strict rules of the Privilege.

John G. KellyAbout the Author

John G. Kelly is president of Canada Law Abroad, which provides an international education bridge for Canadians to pursue international legal education at top tier UK law schools.

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