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By Kristin Casler, featuring Dominic Jaar of KPMG, Jonathan Sablone of Nixon Peabody and Ralph Losey of Jackson Lewis
As the volume of digital discovery surges, many organizations wonder which makes more sense: handle ediscovery in-house or farm it out to a vendor that specializes in just those skills. The answer from experts is, “It depends.”
It seems there’s no one perfect solution for all organizations and all types of cases. Three experts recently discussed during a LexisNexis webinar five reasons to insource and five to outsource, plus other issues to consider when assessing which model is the right fit for your organization.
Dominic Jaar is a partner and national leader of KPMG Canada’s Forensic Technology Services. He has experienced ediscovery in the law firm setting, as in-house counsel and as the owner of an ediscovery vendor before it was sold to KPMG.
Jonathan Sablone is a litigation partner at Nixon Peabody, where he serves as co-practice group leader of commercial litigation and Chair of the eDiscovery and Digital Evidence practice. He is generally an insourcer, but he believes in outsourcing in the right matters.
Ralph Losey, National eDiscovery Counsel at Jackson Lewis, is a dedicated outsourcer who helped his firm become the first Am Law 100® law firm in the country to outsource its entire Litigation Support Department to a vendor.
When discussing the insourcing or outsourcing options, Jaar said there is a lot to consider. High on the list are your organization’s perspective; its nature and size; jurisdiction; risk tolerance; the nature and volume of data relating to litigation or investigations; the availability and talent of manpower; and your capacity to evolve technology, knowledge and expertise. You’ll also need to consider whether the efficiency, quality, speed and human resources and technology costs of either option meet your business objectives, he said.
Sablone said there are reasons to do things differently with every case, but the insource model tends to benefit his firm’s clients and its efficient delivery of legal services in many ways.
1. Control. Sablone admitted that it may sound trite, but he is a control freak, and so are most attorneys and clients he knows. Discovery is such a huge part of litigation these days—most cases begin and end with discovery and never get to trial. Having complete control over the systems and processes—from identification of data sources to collection to preservation to hosting and review to production, and having it under one roof with people who report directly to and are accountable to you can be a huge benefit in terms of managing that scope, Sablone said.
2. Cost. For a vast majority of cases, Sablone said he can maintain lower costs to clients by keeping the processes in-house. “I think when most people think about electronic discovery you think of these huge, data-intensive cases, terabytes and petabytes of information that might have to be preserved, hundreds and hundreds of gigabytes or terabytes that might have to be reviewed or produced. The reality is, while those cases are out there, and we certainly handle our share of them, there are many, many more cases that just simply don’t rise to that level.”
He said his firm can beat most vendor costs. However, in a huge case with multiple defense groups and enormous amounts of data, of course, his firm will outsource that, he said. He also noted that there are hybrids, in which a portion of ediscovery for a case is outsourced.
Ultimately, it is the client’s decision. “If a client tells us, ‘We want this outsourced to X, Y or Z vendor,’ we, of course, are going to do that. We’re not going to fight them about it, but we may point out that we could do it at a lower cost in-house.”
3. Better efficiencies. Again, this is particularly true for smaller cases. If you outsource a small or medium case, Sablone said you add another layer, so you lose some efficiency. With insourcing, if you need to know something right now, you can walk down the hall or pick up the phone and get an immediate answer. Going to a vendor often takes more time. He conceded that as cases get larger, those efficiencies tend to fade away.
4. Seamless integration with the trial team. “There are always different strategies going on within the trial team, within the litigation structure and team at the client and at the law firm,” Sablone said. “Having the capabilities all in-house provides for a much more seamless integration.” Again, he said, there’s a diminishing return with a larger case.
5. Enhanced confidentiality. Sablone said he doesn’t mean to imply that law firm security is superior to vendor security. It’s actually about clients worried about who and how many will touch their data, particularly that related to internal investigations, government investigations, a sensitive case or a drug trial, for example.
Jaar agreed. Keeping it in-house means controlling the environment with security policies, number of copies and who has access.
1. Core competency. We’re lawyers, Losey says. We’re not businesspeople, engineers or technicians. “We like ediscovery vendors; we think they’re good to partner with, but we don’t want to do their job. Conversely, we don’t want the vendors to do our job.” Losey emphasized that he is not talking about outsourcing legal services. Those stay in-house.
The vendors are professionals. eDiscovery is all they do. When a client needs help with a technical ediscovery engineering problem, Losey said he just calls the top experts at the vendor.
2. Complexity. Losey said he and his firm are comfortable knowing that they have one of the top vendors in the world that can handle the complexity of their cases, and that they don’t have to deal with it themselves or call a new vendor every time they need help.
3. Cost savings. Losey said most of the 3,000 new lawsuits his firm handles each year are small, and it still is a cost advantage to outsource. “The shocker was, when the prices came in, we could offer the non-legal services to our clients at a lower price than our Lit Support Department had been doing, but do it with the highest quality and, I think, the best experts in the world,” Losey said.
And it’s not just a cost savings to the client. It saves the firm repeated capital expenditures. Even after spending money to get the original Lit Support Department infrastructure going, he said his firm was faced with having to make huge investments to stay current with new technologies. He no longer has to buy new hardware and software upgrades. His vendor does. And when he wants an enhancement or new feature for the software, the vendor provides it.
Losey said his litigation support department never really made a profit, so closing it down did not eliminate a profit center.
4. Risk. In ediscovery, there are a lot of things that can go wrong. Losey said his firm was risk adverse and didn’t want to assume the risk of running a side business. There is enough risk in running a law firm, he said. He noted that some firms have successfully spun off their litigation support as a separate business, serving the firm’s clients and other law firms.
5. Ethics. There are a lot of ethical concerns associated with charging clients extra for a business that the firm runs, Losey said.
Human resources. Finding qualified people is not the problem, Sablone said. Hiring them and retaining them takes effort. There will always be other firms or companies coming in to poach good employees, but that means it’s a good team, he said. He has often dealt with outside vendors who have a lot of turnover, too.
Losey said his vendor employees are a part of the law firm’s ediscovery team. The vendor designates a team for his firm, and they are trained in the Jackson Lewis way of doing things. And the vendor pays for the training.
Jaar recounted trying to get funding from partners to pay for litigation support training. They balked at paying $2,000 per employee, particularly when they weren’t paying that for attorneys for CLE.
Hardware/Software. Losey urged anyone considering outsourcing to visit the vendor’s facility. His firm’s vendor server room looks like something out of a movie, with the security and constant monitoring of systems. To run the same type of setup in-house is very expensive, he said.
“I’ve also visited those very secure, large facilities,” Sablone said. “Remember, they’re very secure and they’re particularly large for a reason—they’re hosting huge amounts of different people’s data.” Keeping the data in-house means it’s a very small pool.
Jaar agreed about the segregation of data but stressed that organizations have the ability to choose geolocalization. “You could even have a vendor or yourself use a third-party location, and have your own equipment sitting there.”
Security. China and other countries have been targeting law firms in an effort to glean business information about firm clients to help their own industries. They have discovered that the soft underbelly of corporate cybersecurity is their law firms. Losey said this threat is one more reason to outsource to a highly secure vendor.
Sablone, however, noted that security vulnerabilities don’t just lie in ediscovery, they are in emails and other communications. If security is the reason to outsource, then organizations should outsource everything, he quipped.
Cost. Regarding financial monitoring, Sablone said the trick with costs is that ediscovery is not a stand-alone system. It’s true that if you start from scratch and buy all of the hardware and software, you’ll probably never recover that capital cost. But if you’re adding it incrementally along the way, it does work.
“If you’re losing money month after month after month, to provide services that vendors are charging for, then it probably makes no sense to keep it in-house anymore,” Sablone said.
When he was in-house counsel, Jaar said he received monthly invoices from vendors and from law firms. He saw how much he was spending and thought that with the right resources the company could handle electronic discovery internally.
“In hindsight, it was totally naïve, because after a little while, I realized the true cost of handling e-discovery in terms of reinvesting constantly in new technology,” he said. “From a capital expense standpoint, you can’t justify to your partners and to your management, ‘Hey, I need an extra million bucks to fork into this technology.’”
The other particularly eye-opening element was the amount of money that was spent on training the talent. “As much as I thought I could be saving money, in the end, not only is it costing me more money, but as an in-house counsel, I was spending now the bulk of my time managing ediscovery internally, when what I liked to do at the time was litigate cases.
“I think these are important considerations. Do the math before insourcing or before outsourcing, because numbers on your invoice do not show you all the money and effort that goes into handling ediscovery internally.”