Bay Street’s big legal firms turn to outsourcing
The small, walk-up loft offices of ATD Legal Services PC in downtown Toronto are a world away from the large lobbies with imposing modern art and skyline views typical of Bay Street law firms.
But ATD’s roster of contract lawyers work on Bay Street’s very same massive mergers and litigation battles – behind the scenes, however.
“We look more like an advertising firm,” acknowledges founder Shelby Austin, 31, who left her post at Davies Ward Phillips & Vineberg LLP to launch ATD almost two years ago, after a meteoric rise to partner.
Her start-up, no-frills law firm is on the leading edge of changes in the legal landscape, changes that are more advanced in the United States and Britain. It is called “legal process outsourcing,” and some predict it will soon transform the way Canada’s conservative law firms do business.
ATD is one of just a handful of legal outsourcing operations in Canada. It offers law firms or corporate legal departments the option of farming out tedious but labour-intensive tasks, such as sifting through thousands of e-mails before a court battle or reviewing masses of documents before a merger deal. The price tag is a fraction of the hourly rate that Bay Street would normally charge.
While a Bay Street firm might bill up to $500 an hour for an associate’s time on similar routine work, ATD charges $100 an hour or less.
“On a huge [merger] deal, or a huge piece of litigation … or a huge regulatory matter, those savings are in the millions,” Ms. Austin said.
The concept is not new. Legal outsourcing and its pitfalls have been a talking point in the profession in recent years. But much of the discussion has been about shifting work not to lower-cost Canadian lawyers, but to waiting legions of English-speaking, common-law-trained lawyers in India.
Law firms and companies in the United States and Britain have been quicker to embrace the new model. Microsoft Corp. and Rio Tinto PLC are among the big corporations that have outsourced functions in their legal departments to low-cost providers in India. In 2010, Thomson-Reuters acquired India-based Pangea 3, one of the legal outsourcing industry’s biggest players.
Many say big changes in the legal world here are inevitable, too. High-end law firms on Bay Street will still handle big, important files for their clients, the predictions go, but the firms will subcontract routine or “commoditized” legal work to low-cost providers like ATD, or, even lower-cost providers offshore.
Still, those in Canada’s still new legal outsourcing industry say the shift has been surprisingly slow here, compared with the United States and Britain. Many in the profession remain wary.
Some Canadian law firms are reluctant to send work overseas, nervous about the quality of the work and the risks of sending confidential client data halfway around the world. (Ms. Austin says it has to do with the “touch factor.” She says her law firm clients are more comfortable knowing that her lawyers are often ex-Bay Street and her offices are nearby.)
Proponents say it is only a matter of time. Gavin Birer, the lawyer who founded Markham, Ont.-based Legalwise Outsourcing Inc. – which has 25 lawyers in Bangalore working for Canadian clients – acknowledges that some law firms have been “gun shy.” But he says the marketplace is warming to the idea.
“Clients are saying … we aren’t prepared to pay X amount for this kind of work any more,” Mr. Birer said. “ … Something’s got to give.”
Not every file should be outsourced, he said, but his clients, which include major banks, now send routine document-review work to his Indian team, using a secure website. His average hourly rate is a fraction of even ATD’s, at just $25 an hour.
Matthew Peters, national leader, markets, for McCarthy Tétrault LLP, says his firm now routinely outsources parts of its files, making use of Canadian, U.S. and Indian service providers – and more gets farmed out each year.
It means big savings for clients, he said, and it allows McCarthys to specialize in its core business, providing high-end legal advice.
While it might mean fewer low-level associates working on Bay Street, he says outsourcing can also free up the firm’s junior lawyers to take on more sophisticated tasks.
“We’re hiring and looking for the best talent in the market. How much are they going to learn from grinding through documents for two years in the backroom? Not a lot. ”
Toronto-based legal headhunter ZSA Legal Recruitment has also launched an outsourcing arm, called LexLocom, which can provide teams of lawyers on contract.
Christopher Sweeney, a co-founder of ZSA and the president of LexLocom, agrees that the Canadian legal market has been reluctant to embrace outsourcing. But he says the sector is growing, and argues that a future of more outsourcing, and considerably fewer junior lawyers at the big firms, is inevitable.
“I don’t see any way around it,” Mr. Sweeney said. “It is the future.”