Many asset managers and investment banks struggle to find a cost-effective solution for high-volume, repetitive legal tasks like negotiating non-disclosure agreements and other routine agreements. The firms often choose between insourcing the tasks or working with a BigLaw firm when their in-house teams lack the bandwidth.
Firms aren’t aware that there’s another option: legal process outsourcing with an alternative legal service provider. Instead of outsourcing to a BigLaw firm with high rates, investment firms can outsource to an ALSP that offers both access to lawyers and advanced technology, which can provide cost-effective and high-quality results.
While insourcing and outside counsel seem appealing at first glance, a closer inspection of staffing, technology, and cost considerations reveals that contract outsourcing is the best approach to routine contract processes.
We explore the differences between insourcing, outsourcing to a law firm, and outsourcing to an ALSP below.
The limitations of insourcing routine contracts
There are serious concerns with keeping all legal work in-house, including highly repetitive and routine agreements like NDAs.
Diminished productivity: Routine contracts consistently pull business and legal professionals away from their core tasks, reducing productivity on all fronts. In many cases, team members are forced to complete legal tasks during their evenings and weekends, when they should be focused on their hobbies, families, and rest.
Lack of expertise: Business professionals often end up responsible for routine legal tasks despite lacking a formal legal education or any particular training. These team members may not achieve similar results as a lawyer who is better able to identify and address risk as well as determine when and where to push or give on a particular issue.
Inefficient processes: Many investment firms rely on decentralized applications and inconsistent processes. Ultimately, their workflows are inefficient, prone to human error, and could significantly increase legal and reputational risk.
High costs: Insourcing might appear to cut costs when firms view it from a pure dollars-and-cents perspective. That view, however, ignores a number of hidden costs that come with insourcing, including opportunity costs, task-switching, and turnover, among others.
Firms can calculate the trust cost of insourcing with the equation laid out in our white paper, Insourcing High-Volume Contracts Costs 10x More Than Asset Managers Think.
What is legal outsourcing?
Legal outsourcing, or legal process outsourcing, is the practice of hiring a third party to complete particular legal tasks. Asset managers and investment banks can hire a law firm or an on- or offshore legal outsourcing services provider to complete repetitive tasks faster and at a lower cost than the firm could achieve through insourcing.
Outsourcing legal work to a law firm
There are pros and cons to sending routine contracts to outside counsel. For high-value, nuanced legal issues, outside counsel is essential. They provide knowledge and insight the investment firm lacks.
However, BigLaw firms aren’t the right choice for highly repetitive and routine legal tasks, like NDAs. When outsourcing to a law firm, the firm charges the same steep billable hours it would charge for the more complex work.
Law firms also are often behind on the technology front. Most don’t offer legal tech solutions designed to provide document processing, contract management, or contract analytics and reporting. In the end, outside counsel is neither more efficient nor more cost effective for routine legal work than insourcing.
Outsourcing legal work to an alternative legal service provider
Instead of sending high-volume, routine agreements to a law firm, more investment firms are choosing ALSPs. While there are several types of ALSPs, they all tend to place a greater emphasis on driving efficiency and cost savings through legal technology, machine learning, and AI.
Some ALSPs have begun offering legal AI solutions, that could significantly change how lawyers and business professionals complete routine tasks, such as contract negotiation and management. For example, Ontra offers AI-driven contract automation and contract management software for private markets.
Benefits of legal outsourcing to an ALSP
Legal expertise: An ALSP can provide firms with access to additional legal professionals without the firm hiring more in-house lawyers or paying BigLaw rates. As an ALSP, Ontra has a global network of legal professionals with extensive industry and BigLaw experience.
Legal technology: Technology is revolutionizing the way firms handle routine contracts and other repetitive legal tasks. Machine learning and AI have advanced far enough to perform simple tasks and streamline multi-stakeholder workflows.
Lower costs: Outsourced legal services typically offer a lower cost than insourcing or outside counsel. Additionally, ALSPs are more likely to offer alternative fee arrangements, such as flat-fee pricing, which can lower a firm’s legal fees.
Scale: Investment firms can more smoothly scale up and down when the volume of legal work changes by working with a legal outsourcing provider. The firm can ask for more or fewer resources from the ALSP instead of hiring or reducing employees.
When to consider legal outsourcing services?
Investment firms typically start to consider legal process outsourcing when the volume of routine contracts begins to outpace their in-house teams’ availability. Usually, legal and business professionals begin to notice these tasks taking up more hours in their weeks, pulling them away from their core tasks.
At this point, firms begin to look at the speed at which they are negotiating and executing routine agreements. They often find it takes longer than necessary to complete this work because of team members’ lack of bandwidth and constant task switching.
Managing partners might also note a dent in morale, or worse, higher employee turnover. Team members who are forced to focus on repetitive legal tasks instead of completing interesting, high-value assignments might look for new opportunities.
Next steps: Identifying the right LPO provider
While investment firms might be open to outsourced legal work, the bigger issue is partnering with the right provider. It takes time and care to find a partner who can offer the legal tech, industry expertise, fee, and results the firm needs.
We recommend reading through our five-part series, Successful Outsourcing, which covers what firms should consider when researching ALSPs:
- How to select B2B vendors
- Evaluating a vendor’s leadership and team
- Why vendor industry and product focus are so important
- How to evaluate a vendor’s commitment to innovation
- Selecting vendors who can grow with you
This blog was originally published on March 4, 2020.