TelaDoc had a problem.

The Dallas start-up company was facing a tremendous number of legal issues in getting its business going – a national network of physicians for telephone consultations in the evenings and on weekends for people who cannot reach their own doctors.

And that meant big legal bills and a potential disaster in the making.

Or did it?

“When we decided to do a state-by-state analysis,” explained CEO Michael Gorton, “our primary legal counsel, a large national firm, [quoted a price of] about a quarter million dollars. As a start-up company, I didn’t have those kinds of resources.”

But Gorton’s former law school professor – an investor in TelaDoc – suggested he look into hiring a U.S. company that contracts legal services with offshore attorneys in India.

Gorton paid his large firm to survey the law in 10 states, and then he asked the offshore operation to do a survey of the same 10 states so he could compare the work product.

“I got virtually the same product, and when all was said and done, it cost me under $20,000 for [offshore attorneys] to do it. That’s one-tenth the cost,” he said. “[The offshore agency] had all of the research done offshore and the final opinion was written by attorneys [in the U.S].”

Gorton still uses the large firm for Health Insurance Portability and Accountability Act compliance issues. He also uses the services of an intellectual property attorney from time to time.

“I’m not a big fan of offshore outsourcing, frankly. I’d just rather keep the dollars in the U.S.,” Gorton said. “But you have to make business decisions when you’re running a company. This was strictly a business decision, and it was a good one.”

TelaDoc’s experience reflects a growing trend of having more routine legal work performed outside the U.S. at the fraction of the cost of using domestic lawyers – sometimes for as little as 10 percent of the cost.

This work is typically reviewed by domestic attorneys to ensure quality and accuracy.

Offshore outsourcing also allows in-house counsel to operate a legal department on a near 24-hour-a-day schedule. When the United States’ work day is winding down, India’s is just beginning.

The key is to outsource the more mundane matters – contract review, document review, discovery, nationwide legal surveys, and the like – while saving for domestic outside counsel those matters requiring specialized expertise or intricate knowledge of your company. This allows in-house attorneys and their outside counsel to focus on the truly challenging legal issues for which outside counsel’s expertise is most worth its price tag – particularly strategic advice and counseling.

Over the next 15 years, the United States will develop a 14 million person shortfall in white collar workers, on top of a 10 million blue-collar workforce shortfall, Business 2.0 magazine reported two years ago.

“As an employer, if these statistics hold true, and you’re competing in the marketplace for skilled talent, you’re going to be experiencing an upward spiral on salaries and a high degree of mobility,” said Mike Short, a director at Hildebrandt International, a nationwide professional consulting firm.

And that will undoubtedly trickle down to what outside counsel charges in-house legal departments. “Given that forecast, outsourcing seems to be quite a viable option,” Short said.

What Outsourcing Offers

Outsourcing can revolutionize a host of in-house legal tasks, from compliance to litigation to contract evaluation and review.

“The greatest area that exists for corporations is in document-intensive types of tasks,” said David Galbenski, president and CEO of Contract Counsel in Royal Oak, Mich., an employment agency offering outsourced legal work.

“In large-scale litigation, you’re faced with looming deadlines. You can assemble a global team that allows you to meet those deadlines,” he said. With a team of lawyers working in the U.S. and other responsibilities delegated to lawyers working offshore, the work can be completed in less time.

Offshore outsourcing can get in-house counsel a quick answer in litigation as well. Perhaps outside counsel is the most appropriate firm to handle the overall litigation, but an outsourced lawyer can often inform an in-house attorney of, for example, a consumer’s rights under the Gramm-Leach-Bliley Act, for a fraction of the outside counsel’s hourly rate.

“Sometimes it goes beyond litigation. In-house needs an IP question answered, [or] they want to update their employee manual and make sure provisions comport with New York state law. Any area where [in-house counsel] would ordinarily pass it off to outside counsel, now they can pass it off to [an offshore contractor],” said Rocky Dhir, CEO of Atlas Legal in Dallas, which offers offshore attorneys for hire.

Contract administration becomes cheaper with outsourcing as well.

“Almost any corporate counsel has thousands of contracts that need to be reviewed and/or information extracted from them so they understand their obligations. The vast majority of corporate counsel can’t add permanent staff, so contract review, administration and negotiation falls to the bottom of the priority list,” Galbenski said. “Why do they have a backlog? Why haven’t catalogs been abstracted and managed proactively? In many cases, it’s cost-prohibitive and they don’t have the internal staff or resources to send it to outside counsel. They get it done when it’s critical, but it’s not proactive.”

When contracts are negotiated, in-house counsel must often drop everything to read over each side’s proposed contract, find the differences and highlight which areas need to be negotiated. By using offshore attorneys, this can be performed overnight for one-tenth the cost, leaving the in-house counsel to attend to other matters.

Yet another growing area for outsourcing is in Sarbanes-Oxley compliance.

The same goes for mergers and acquisitions due diligence, electronic review of Federal Trade Commission requests, or other regulatory scrutiny from perhaps the Department of Justice. “When you get scrutiny, obviously there’s a lot of information that needs to be reviewed and proffered to the government,” Galbenski said.

So long as that information is in digital format it can be sent overseas electronically to offshore attorneys.

Making it Happen

The logistics are quite simple. Once in-house counsel locates a reputable company in the U.S. that has an office overseas (see sidebar below), it’s as easy as describing the project, outlining expectations and then turning over the documents for review.

If outside counsel is coordinating the overall project, in-house counsel should meet with the contracting agency and outside counsel to discuss the project and determine the kind of team that will be put together to handle the job, including what percentage is based in the U.S. versus offshore, Galbenski suggested.

The attorney-client privilege does not hinge on whether U.S.-based or foreign-based lawyers conduct the work, but rather on the type of question being analyzed. “So long as the assignment is legal in nature (and not a business or other non-legal question), the privileges will apply,” Dhir contended.

Galbenski added that because the work is performed for clients under the supervision of a U.S. attorney, malpractice risks and standards would apply to work conducted offshore. The risk is assigned to the supervising attorney in the U.S.

Indian lawyers are bound by the rules of conduct of the Indian Bar Association, which are similar to the American Bar Association’s ethics rules. Atlas contracts with its clients that all attorneys conducting work for the client must abide by the Texas Disciplinary Rules of Professional Conduct, Dhir added.

In-house attorneys should also insist on document review standards to ensure the quality of work is acceptable.

The work is monitored by software, making it possible to delegate different tasks in discovery to different people and keep track of it all. It allows collaboration among in-house counsel, outside counsel, and a U.S. company coordinating outsourced materials, Galbenski said.

The work-flow software also ensures sensitive and/or proprietary information is not disclosed outside those working on the project.

Clients with further concerns about sensitive matters can insist on confidentiality.

“The client can agree with the provider that the client’s identity will never be revealed to the overseas team,” Dhir explained. The offshore attorneys can understand how the facts play out in the analysis without knowing the identity of the client, he noted.

“The only people who know the client’s true identity are certain key members of the U.S. team,” Dhir said.

While Galbenski and Dhir both review the work of their off-shore attorneys, most often the work product hits the mark out of the blocks because India is an English-speaking country whose legal system is based on common law and British precedent.

Some of the Indian lawyers who work for U.S. outsourcing companies have an interest in international law and have chosen to work for an outsourcer to gain experience with U.S. legal issues. A smaller number of lawyers have obtained an LL.M. in the U.S., and work for an outsourcer to handle U.S. legal issues instead of serving the Indian marketplace. An even smaller number of Indian nationals have earned a J.D. in the U.S. and return to their homelands but still want to practice U.S. law.

All are paid the Indian market rate for their work.

Galbenski works with both Indian lawyers he hired to work for his company in India as well as with Indian law firms that have begun offering their services to U.S. clients to capitalize on the proliferation of outsourced work.

The reason the rates are so much lower?

“Our lawyers in India, we don’t pay them a $150,000 starting package. It makes a huge difference,” Dhir explained. “Most of our other suppliers also charge about one-tenth of what it would cost in the U.S. When I buy paper for the Indian office, it’s really cheap. When we buy soap for the restroom, it’s really cheap. Land prices are about the same and computers are about the same. But most other items are much lower in cost.”

Dhir said he spoke with a partner at a large U.S. firm in an attempt to convince him that outsourcing was so much more efficient than the partner’s current operations. However, the partner explained that his firm makes money by being inefficient. When Dhir asked about profit margin, this partner said the firm wasn’t focused on profit margin, it was focused on billable hours.

What to Keep ‘On-Shore’

Appearing in court and conducting depositions are examples of what not to outsource. “Those are two primary areas where outside counsel are necessary. Trying to replace them is not such a great idea,” Dhir said. “Outside counsel is most useful in the litigation context for being in court, supervising the work going on in a particular case, so they’re able to focus on that case.”

Corporations’ confidential and proprietary business matters may be best kept inside their own walls, and they will vary company to company, Galbenski said. Think along the lines of tasks that require specialized knowledge or internal knowledge of the corporation or its workings, he suggested. When trying to determine whether to outsource work or send it to outside counsel, Dhir suggested in-house counsel evaluate how long it will take for the project to be completed. Depending on the nature of the project and that timing, it may best be kept with outside counsel.

“Anything that is going to cause potential harm to their clients or themselves, they should keep inside,” advised John D. Moore, vice chairman at John P. Weil & Company Law Practice Management Consultants in Walnut Creek, Calif. “If something is very sensitive, I would not recommend sending it to legal research on the outside. There’s always a risk of something going wrong.”

Brief-writing is another task firms may elect to do themselves, said Jason Brennan, director of legal services at New York-based OfficeTiger, a legal and financial outsourcing operation, even though it is readily offered by companies across the country.

“Brief writing requires a really intimate knowledge of fact patterns, even culture, [of your corporation]. It’s very hard to transport that via dataline or phone,” he said. “I know people are doing that today, but I see that more as something that’s probably best done by lawyers that have that face-to-face with clients.”

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Finding the Right Partner

In-house counsel should do their due diligence on any potential outsourcing partner, or hire a consultant agency to do that work for them, advised John D. Moore, of John P. Weil & Company Law Practice Management Consultants.

Talk to individual users and get five references of lawyers that have used that service before, he suggested.

“From a security and confidentiality standpoint,” said Jason Brennan of OfficeTiger,
“look at the physical security controls. How is data protected when traveling back and forth and who is actually performing this work? Is there a confidentiality agreement in place?”

Hurricanes Katrina and Rita and the tsunami in Southeast Asia certainly have made it clear that natural disasters can happen anytime, anywhere. Brennan suggested asking what disaster protocols are in place, particularly among companies offering an offshore element to their outsourcing options.

Also inquire about the level of service or turnover a provider has, as well as whether the provider is outsourcing your outsourced work.

“Some of these providers are really a front and packing together providers, and who knows what confidentiality and security they have in place,” Brennan said.

Mike Short of Hildebrandt International cautioned against smaller providers who claim they have a workforce established in a foreign country.

“There are a lot of folks with great aspirations to put together a workforce in India, but you can’t just do this, it’s not that simple,” he said. For now, at least, while the legal market completes the evolutionary period of setting up offshore operations, “there are a few established players with track records, it does benefit looking toward those folks first.”

Everyone knows that lawyers are among the last to embrace change. It won’t be much different with outsourcing.

“Right now we have a few brave pioneers in the general counsel realm. Forward thinking people, companies you and I have known about since we were kids, are saying this is really cool,” Rocky Dhir, of Atlas Legal Services. Once those companies are confident in the work product and word gets out about that, outsourcing will likely become more popular.

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