Legal Outsourcing – Benefits and Implementation
Apr 19, 2022
Have you been considering outsourcing your legal needs to a law firm?
There are many different reasons why some businesses consider outsourcing their legal needs. Perhaps they cannot afford an in-house legal department. Or they stand to make efficiency gains by outsourcing specific legal tasks. There could also be specific legal skills which their employees do not have.
Benefits of outsourcing
Whatever the case may be, there are benefits to having a law firm take over your day-to-day legal needs.
1. The knowledge and experience of well-established lawyers
A law firm is usually composed of lawyers with different backgrounds who possess a range of experience dealing with many different kinds of clients. Such lawyers can provide your company with invaluable advice.
Experienced lawyers have seen companies face all kinds of problems. This allows them to anticipate similar problems which may occur with your company before they have a negative impact on your business.
2. No administrative costs for maintaining a legal department
It can be difficult and costly to recruit, train and retain experienced lawyers. By outsourcing, you pay for billable hours and that’s it. The money you pay goes straight into producing legal advice.
The hourly rate may be more expensive than what you would pay an in-house lawyer, but there are many administrative costs which you will save money on.
3. At-will service
Along the same lines as our previous point, it can be quite challenging to hire an in-house lawyer and let them go once your legal needs change. You may never be able to perfectly match the number of lawyers you have (or the number of hours they work) to your legal needs.
This may lead to underworking or overworking your legal staff. Both scenarios can be detrimental to the profitability of your business in the long term.
However, by outsourcing, you only pay for the service you need. It is also relatively easy to put an end to your outsourcing contract, compared to letting go of your legal staff.
4. A different perspective
Input from a law firm may bring to light risks which your company may not have considered before. In particular, a law firm can bring much-needed help with internal governance for your company, its branches or subsidiaries. A different perspective may allow you to realize that some internal practices need to be changed in order to minimize risk.
Whatever reasons may bring you to outsource your legal needs, you may have questions about how to implement such an arrangement with a law firm. Drawing on our experience with past and current clients, we have created a list of a few important points to be mindful of:
1. There is no perfect model for outsourcing
This is actually a good thing, because each outsourcing relationship will be different. You should be looking for a law firm which is willing to customize its service to your needs. A tailored approach will be mutually beneficial for both parties.
2. Expect the relationship to evolve
It is not likely that your initial agreement with a law firm will be the one you end up putting into practice. In a good outsourcing partnership, both partners are constantly giving feedback to help improve each other’s interactions. This constant feedback will help both parties agree on an optimal process. This takes time, but it will make your relationship more efficient.
3. Expect to change your way of doing things
In order to create an optimal outsourcing process, your business may need to modify some of its practices. We mention the appointment of a coordinator below, but other things may need to change as well. One of the major changes we often observe is that a company needs to rethink how to evaluate its own legal needs in order to communicate them efficiently to the legal firm.
In some companies, everyone feels free to ask all manner of questions to an overwhelmed legal consultant inside the company. With an outsourcing relationship, your employees may need to learn new practices in order to communicate their legal needs in a clear and efficient manner. See our point below for help on this.
4. Appoint a coordinator
If there are multiple people in your company who will require legal help, we recommend appointing a coordinator who will act as a kind of mediator between the rest of your company and the law firm. This person will receive legal requests from her colleagues and screen them for potential issues. She will also be in charge of standardizing the requests to make them easier to understand for the law firm.
Her goal should be to simplify and standardize the process for requesting legal help from the legal firm. Smooth communications with the law firm will reduce the final cost. A standardized process will also make it easier for new requests to be made (for example, with checkboxes) and reduce the risk of omissions.
The legal coordinator will help her colleagues develop discipline for making legal requests. She will also centralize the legal advice received by the law firm, which is an opportunity for the company to grow in its knowledge of its own legal situation.
Ultimately, this centralized hub of legal correspondence and information will make it easier for your company to return to an in-house legal team, if you so choose.
5. Start with a three-month trial, then review regularly
We usually recommend our clients to start with a three-month trial. An outsourcing relationship usually requires some practice to figure out. It’s a good idea to give both parties some time to adjust to this partnership.
After three months, it’s good to sit down with each other and discuss issues and solutions for the partnership. Afterwards, it is possible to sign a formal agreement and review the partnership every 6 months. You can include this review process in your agreement.
6. Insist on transparent billing updates
In order to avoid unexpected costs, the law firm should send you frequent updates about the hours they are billing. We usually update our clients twice a month: once halfway through the billing period, and once when invoicing. This way, the client can react quickly if they feel that costs are ballooning.
7. Communicate your risk assessment guidelines
A new law firm will prefer to be overly cautious rather than not cautious when first providing you with legal services. This means that it will require the firm to spend more time and energy on your case. This will inevitably translate into higher billable hours. To a certain extent, all law firms will act this way during the first stages of an outsourcing relationship.
However, you can shorten this process by communicating your preferences regarding risk management early on. You can do this in part by giving the law firm a clear picture of your historic and current business practice.
By giving the law firm an idea of the risks you have avoided, the risks you are willing to take and the way that has played out with your clients and partners, the firm will spend less time wondering what you might want out of a contract and more time focused the most important issues. This should save you money in the long run.
8. Have a process in place for deviations from the norm
Sometimes, unusual situations will come up. For example, a potential client may propose a clause in a sales contract that you have never seen before. It might even be new for the law firm. In these kinds of cases, it is good to have a system in place for flagging potential issues.
When confronted with an unusual situation, the usual course of action is for the law firm to advise the aforementioned legal coordinator. This person can then communicate this to the appropriate authority in your company.
In exceptional cases, the law firm should flag potential issues directly to the CEO or general manager. It may be possible to determine the kinds of cases for which this applies (usually for cases of criminality). If this is not possible, you should at least have a clear understanding that the law firm can flag a major issue directly to the head of your company if it feels that is necessary.
9. The central aim of an outsourcing relationship is to optimize profit
As we mentioned before, an outsourcing relationship should be a mutually beneficial relationship. For the payment of legal fees, a law firm will attempt to provide you with efficient legal service in order to minimize the legal risks to which your business is exposed.
However, you cannot do business by taking no risk. An overly cautious firm will spend dozens if not hundreds of hours trying to create the perfect contracts or legal opinions with no regard for your company’s bottom line.
Our firm believes that we must keep your bottom line in mind at all times. Optimizing the profit of our clients is one of our main objectives. This informs the way we interact with our clients and how we encourage them to think about their legal needs.
With over 20 years of experience, our lawyers are able to assess legal risk quickly and get to the heart of what will make your business profitable.
If you’d like to meet with us to discuss if an outsourcing relationship is right for your company, please contact us here. It would be our pleasure to meet with you.
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