Outsourcing: Regulatory and litigation game-changer

Advances in litigation technology are careering along so quickly they are bound to trigger profound changes in the traditional structure of law firms and the emergence of new types of providers, predict those at the forefront of the techniques


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Gone are the days when large commercial lawsuits were preceded by an investigation involving dozens of paralegals and junior lawyers cloistered in a basement sifting through swathes of documents.

Modern e-disclosure packages can now blitz millions of e-mails and other digitally held files in a fraction of the time formerly required. And that speed has been enhanced by recent moves away from simplistic foraging for keywords to more analytical processes using ontological search engines.

Indeed, the ability to look at more than keywords is becoming crucial, especially in the international context of cross-border litigation. Words can have the same spelling but entirely different meanings in various languages. Having technology that understands that issue – “that thinks as a person thinks”, as one lawyer puts it – is highly valuable.

But the technology is not just useful once litigation is afoot. In-house legal departments are increasingly keen to employ enhanced e-disclosure techniques as preventative medicine in the compliance arena.

For example, applications have recently come to market that provide lawyers working in various jurisdictions with a searchable analysis of local competition, compliance, data protection regulations and privacy laws, all at the pressing of an icon on their smartphones.

But the evolution that will have a potentially seismic impact on law firms is the increasing use by corporate clients of outsourced providers to assist with the new technology. In-house general counsel continue to face tight budgets and as a result are looking to cheaper providers of more commoditised tasks.

If outsourced provision is used correctly, the expected savings are very significant, says Lee Young, senior counsel at the Paris head office of French oil and gas company Total. “It is important that outsourcing companies have legal understanding and training,” he says. “The good ones do have lawyers, but the difference is they are not working to the same business model as law firms.

“Jobs traditionally done by law firms, such as document review and data discovery, are now being undertaken more by external companies. And the cost efficiencies are enormous.”

Total’s legal department is in the process of introducing greater use of technology into the company’s daily transactional work and in relation to instructions for external lawyers. “We are envisaging at least a 40 per cent saving on work that we would otherwise have our external lawyers undertaking,” says Mr Young.

That is a big number. And some law firms are getting the message, with the result being they are beginning to work with outsourcers to provide a team-based service to clients.

“It is no longer in anyone’s interest to spend £3,000 trying to find just one document,” says Richard Legge, the e-disclosure manager at London law firm Mishcon de Reya.

“The processing of data is highly commoditised,” he explains. “For example, collecting someone’s entire mailbox to get that into a review platform – that process is so commoditised there is no value-added element for a law firm to do it.”

Law firms work on a structure which is at odds with that of business – lawyers are rewarded based on effort, while in business we focus on results

Mishcon is building a system in which a third party will manage the IT infrastructure and review platform. The firm’s lawyers and in-house technology team will then supervise “value-added operations”, such as management of document reviews and actual disclosure processes.

“Technology now allows us to find key documents quickly and at a much lower cost to clients,” says Mr Legge. “We don’t have to review all the documents potentially relating to a piece of litigation. We can quickly discount large swathes of them because the technology allows us to say the chances of finding something relevant in this specific group are very low.”

Paul Mankoo, chief executive of one of that new breed of outsourced legal process providers, London-based Unified, is a keen proponent of using technology as a means of preventing both litigation and regulatory investigations.

Pointing to the recent scandal around the London interbank offered rate (LIBOR) as an illustration, Mr Mankoo advises that bank in-house legal departments should use technology more effectively. “The idea is to put in place a system that constantly monitors in real time all the different communications channels,” he says.

“Ideally, this should be a programme that spots certain words and uses algorithms, which will flag up the unusual use of words or phrases in the normal course of trading. These programmes can also overlay sentiment analysis and measure stress in voices or even in written text.

“Essentially, the system looks for anything unusual – patterns of behaviour or stress between a set of traders. When the system identifies that, it sends up a red flag so the compliance team measure that behaviour – those potentially unusual words and phrases – against a timeline to see if the behaviour coincided with instances of unusual trades or other activity.”

How will greater use of outsourced technology affect the traditional structure of law firms? Historically, junior associates cut their professional teeth on the type of work now likely to be farmed out to more efficient providers.

“The traditional structures are outdated and need to change,” says Total’s Mr Young bluntly. “Law firms work on a structure which is at odds with that of business – lawyers are rewarded based on effort, while in business we focus on results.”

Mr Young and other general counsel are adamant that law firms will have to move with the times. “There needs to be an element of risk-sharing,” he says. “Some law firms have seen the writing on the wall and understand they have to evolve in today’s environment, which is very cost conscious, competitive and demanding.”