Mention offshore outsourcing, and Americans fume. But who would cry if we outsourced the work of lawyers, with their fat fees and endless strategies for adding years to litigation? Sounds like a great idea, but many might say it can't be done anyway. Legal work is too sensitive and technical to risk farming out to Asia.
Try telling that to DuPont (DD), the giant chemical company. On the seventh floor of an old office building on the outskirts of Manila, 30 Filipino attorneys, including three who have passed U.S. bar exams, are seated elbow-to-elbow with 50 other staff at long tables crammed with PCs. Working in three shifts seven days a week, they read, analyze, and annotate digital images of memos, payroll and medical records, old engineering specs, and other documents that might be used as evidence in DuPont legal cases.
The operation is part of a tieup between DuPont and offshoring shop OfficeTiger (RRD) that is testing the limits of how far legal services outsourcing can go. Attorneys and others in OfficeTiger's Philippines and India offices are helping out on more than a dozen projects, from monitoring old contracts and licensing agreements to managing documentary evidence for product-liability cases. "We want to be the center of excellence for this whole area of offshore document management," says DuPont assistant general counsel Thomas L. Sager.
The most important project is processing 2 million pages of documents vital to a DuPont case against 10 insurers. DuPont aims to recover more than $100 million in payouts to thousands of former pipefitters, insulators, mechanics, and other workers who claimed their illnesses came from exposure to asbestos in DuPont facilities. Much of the work is tedious: digitizing and indexing decades-old paperwork. But some requires judgment normally provided by U.S. lawyers, such as determining whether documents are relevant to a case or violate confidentiality.
By going offshore, DuPont aims to save 40% to 60% on document work and cut up to $6 million from its annual $200 million-plus in legal spending. It also hopes to shave months off the discovery process in court cases. But the move is risky. In industries from software to customer support, corporations have run into myriad logistical and quality problems with offshore outsourcing. If OfficeTiger stumbles and doesn't have the evidence ready by December, when the asbestos case could go to trial, it could cost DuPont millions.
But if OfficeTiger delivers, it could mean big changes for the $225 billion U.S. legal services industry. DuPont's legal department has been a pioneer in cost-cutting since the early 1990s, saving more than $100 million over that time through automation, outsourcing, and reducing the number of outside law firms it uses. Offshoring is the logical next step. While firms in India, the Philippines, and elsewhere have been processing legal documents for years on a small scale, the size and complexity of DuPont's deal with OfficeTiger pushes it to a higher level. "If DuPont does well with this, you will find other companies taking a good look," says Bradford W. Hildebrandt, chairman of the legal consulting firm Hildebrandt International Inc., which estimates U.S. firms can save 25% to 35% by farming legal work to Asia. "Ultimately, there may be little limit to what can go offshore."
That doesn't mean U.S. lawyers will be getting pink slips, or even lowering their hourly fees. They're still needed for developing arguments, writing briefs, and other trial work. But DuPont figures 70% of the labor in a typical insurance or liability case can be outsourced. U.S. law firms often bill around $150 an hour for document-processing by paralegals. "Law firms historically have made much of their revenue on administrative and paralegal work you don't really need a lawyer to do," says OfficeTiger Co-CEO Joseph Sigelman. Offshore providers such as OfficeTiger, bought in April by R. R. Donnelley & Sons Co. (RRD), charge around $30 an hour. That's possible because an attorney with five years of experience can be hired for around $30,000, including benefits, in the Philippines, whose legal system is similar to America's. That's half what a veteran U.S. corporate paralegal earns, and one-fifth what a first-year attorney can fetch in New York.
Few industries seem more ripe for radical restructuring than legal services. For starters, they remain remarkably mired in paper. At its Wilmington (Del.) warehouse alone, DuPont has more than 200,000 boxes, each typically stuffed with 2,500 pieces of paper. Analyzing those documents involves photocopying the pages and shipping them to lawyers, who then pore over them.
Now, OfficeTiger staffers take portable scanners to sites where documents are stashed and zap images of scanned pages to a secure database. In minutes, Filipino attorneys can retrieve the material on their PCs. One of them is Eric Himan, a thirtysomething former corporate lawyer and Manila law school grad. "I want to work on really big, meaningful cases so that my market value can go up, rather than litigate some minor local dispute," Himan says as he reads through old e-mails relating to an asbestos case. He enjoys conference calls with top U.S. lawyers, who often ask his opinion on evidence and strategy. "Our input is valued," he says. "Not many lawyers in the Philippines get to do what we do."
VAST TIME SAVINGS
By the time the documents get back to Wilmington, they are attached to electronic files about each asbestos litigant, along with data on how damages paid by DuPont were calculated. DuPont lawyers then review the work. By delivering neatly organized and reliable digital evidence to opposing attorneys, DuPont hopes it can slash the discovery process in insurance cases to three months from an average of 18 months. So far, the work has been accurate and on schedule, says DuPont's Sager. He says the move might also send the message that DuPont can afford to fight cases more aggressively, rather than settle due to the expense. "Corporations are looking for alternative ways to buy legal services so that cost does not become an issue in deciding whether or not to defend a case," says Sager.
For OfficeTiger, success could mean a surge in business. By the end of 2007, Sigelman predicts his Asian legal team could reach 1,000 with several hundred lawyers. He also believes U.S. clients will become more willing to hand over sensitive work such as research for briefs. Is the U.S. legal industry ready for such a leap? "The proof will be in the pudding," says DuPont counsel Silvio J. DeCarli, who manages the asbestos litigation. "If this case implodes because of what OfficeTiger did or did not do, whether we save money won't be important."
By Pete Engardio, with Assif Shameen in Manila