The Modern Backroom Office

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I authored this paper in August 2005 for law school. It deals with the outsourcing of services in law (among lawyers, firms and other agents).

Transcript of The Modern Backroom Office

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    THE MODERN BACKROOM OFFICE

    Legal Process Outsourcings Inevitable Effect on the North American Practice of Law

    Nav S. Virk

    I. Introduction. 1

    II. Understanding Legal Process Outsourcing. 3

    III. Empirical Analysis.. 5

    IV. Political Considerations for Legal and Business Innovation.. 8

    V. Sustainable Competitive Advantage: Future Prospects for LPO 11

    VI. Risk Mitigation: Factoring Technical Errors in LPO. 13

    VII. Risk Mitigation: Factoring Human Errors in LPO. 14

    VIII. Passing the Buck or Keeping It: Ethical Considerations 15

    IX. Conclusion.. 16

    I. I N T R O D U C T I O N

    The errand-boy is generally, as was Simonnin, a boy of thirteen to fourteen years old, who in

    every law firm is under the dominion of the chief clerk whose odd little jobs and love letters keep

    him busy even when he is taking writs to bailiffs and requests for a hearing to the lawcourts. In

    his way of life he resembles a streetwise Parisian lad, and in his destiny he belongs to the tribe of

    pettifogging lawyers.

    Honore de Balzac, Colonel Chabert

    The future, if not present, legal errand person for North American law firms

    pettifogging or prestigious - will likely be a fully trained common law lawyer operating

    from a barren office in a country that no member of the firm has actually had the

    opportunity to visit. The city the errand person works from will likely require due care in

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    pronunciation: it is much harder to say Trivandrum eloquently than Toronto. Global

    business process outsourcing, or legal process outsourcing in the specific case of legal

    services, is in its initial stages of development. Yet the momentum and results being

    experienced in the legal marketplace from the pioneering efforts of legal process

    outsourcing are remarkable: it is now possible through virtual satellite offices set-up in

    foreign jurisdictions such as India, for North American law firms to operate twenty-four

    hours a day, at a high level of efficiency, at an overhead rate from the extra work being

    similar to the expenses carried by law firms employing real-life Simonnins at the time of

    Balzacs writings. More simply: legal outsourcing will have the inevitable effect of

    dramatically changing the North American practice of law.

    The question that must be addressed in regards to legal outsourcing is not whether

    contemporary law firms will optimize the ability to outsource business processes this is

    already occurring, and increasingly gaining momentum as technology and outsourcing

    firms become more competent, efficient, and affordable - but when they will be engaging

    in outsourcing, and to what extent. The legal guild, zealously protectionist, must confront

    business realities: what are the best methods to utilize legal process outsourcing to

    enhance the profession? Ethically, should lawyers be reaping the costs-savings benefits of

    outsourced services, or should those considerable savings be passed to clients, who may

    be oblivious as to where their file was dealt with? Additionally, will competitive

    advantage/arbitrage exist in the realm of outsourcing as developing states mature? How

    will, or how can countries respond to transcending application of domestic laws,

    particularly employment legislation intended to regulate the legal profession? These

    issues among others will be discussed within this case study.

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    Ultimately, the business reality of legal process outsourcing, particularly the

    considerable cost-savings that can be achieved by law firms outsourcing their backend

    work, guides resolutions to other outstanding issues. The business advantage presented

    by well-developed legal process outsourcing models will result in a considerable shift to

    the existing legal environment: the efficiency of legal work performed will be greatly

    enhanced, as will the quality of services rendered, allowing for greater profit

    maximization for private lawyers, while reducing costs for those needing legal services.

    II. UNDERSTANDING LEGAL PROCESS OUTSOURCING

    Change begets change. Nothing propagates so fast.

    Charles Dickens, Martin Chuzzlewit

    A business process is any activity undertaken to achieve an objective of business

    operations. In the operation of a lemonade stand for example, the squeezing of lemonades

    is a business process. For law firms, several business processes are everyday activities:

    research, document review, document preparation, accounting, photocopying, et cetera.

    Legal process outsourcing involves individuals not in the employ of a law firm or an

    organization heavily employing lawyers, such as governments, carrying out the activities

    of the firm or organization independently. Outsourcing is primarily done under the belief

    that it maximizes the utility of the organization that is outsourcing its processes:

    contractors will be able to achieve the process being outsourced more efficiently, thus

    saving the organization time, which equates into cost-savings and profit maximization.

    Costs are further reduced when a contractor can be paid for their services at a rate

    well below that of an ordinary employee. This is now possible through globalization. A

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    newly minted lawyer in Boston for example, may command the year salary of a seasoned

    attorney in Beirut for a weeks worth of equivalent work.

    Law firms have been outsourcing their business processes since the inception of

    the industry. Classic literature and historical legal texts often reference court runners,

    transcribers, legal clerks shared among several law offices, and various other uses of

    contractors to maximize the profits of the law firm. Contemporary legal practice

    periodicals discuss the advantages and disadvantages of using outside human resources

    firms to hire staff; specialized technology and consulting firms available to lawyers, and

    many other ways a legal practice may flourish through outsourcing some of its practices.

    There is little discussion surrounding the reaches of global legal process outsourcing or

    the practical limits of what can be outsourced.

    Business process outsourcing in the modern, global sense involves the

    outsourcing of businesses processes to contractors in another country. Ordinarily this

    would be seen as impossible in the legal field, as lawyers are required to be licensed in

    the jurisdiction in which they practice. But it is not the physical process of practicing law

    that is being outsourced: while a lawyer is still required to be licensed by the province of

    Alberta to appear in an Edmonton courtroom, there is nothing theoretically that prevents

    an Alberta lawyer from having his pleadings prepared by junior counsel working from a

    satellite office in Bogot. The accountant that oversees the daily records of the lawyers

    firm may be working comfortably from home in Munich, and much of the document

    review involved in the file being contested may have been reviewed by law students

    working part-time in their Indian dormitories.

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    Theory is being put into practice. As early as the late 1990s private lawyers

    recognized the considerable opportunity in global outsourcing. With the progression of

    time, the complexity, variance and quantity of work being outsourced has been rapidly

    increasing. An observance of the empirical growth trend of legal process outsourcing

    requires an inference that it is not a novel phenomena; LPO presents a viable way for

    private law firms to increase their bottom lines, by reducing costs, and allowing for

    greater efficiency in the provision of legal services.

    III. EMPIRICAL ANALYSIS

    Though there is a lack of empirical information in regards to the depths that legal

    process outsourcing could reach, nearly all commentary to date on the subject matter

    suggests that legal process outsourcing will greatly effect the way the business law is

    conducted. This being said, it must be kept in mind that legal process outsourcing in a

    global sense is a relatively new concept. While statistically it is not yet possible to

    extensively gauge the impact of legal process outsourcing, the tide of its progress

    continues to build at a considerable rate.

    Academic literature provides two compelling articles demonstrating the ability of

    governments to achieve considerable cost-savings if outsourcing were to become

    widespread. Patrick McFadden provides arguments for the United States government to

    consider outsourcing legal solutions in the same vane it approached numerous other

    public sectors such as the personal staff employed within prisons, wherein privatization

    benefited the government not only through cost-savings, but greater efficiency.

    Similar to McFaddens arguments, Professor Shapiro provides critical

    observations on government regulation and the purchase of legal services occurring with

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    an economical make-or-buy approach. The government, through due planning and care,

    will be able to save considerably if it chooses to buy legal services rather than make

    them through the creation of additional public legal departments. Aside from these two

    articles, contemporary press and an examination of the software programming and other

    industries that have used business process outsourcing for longer periods provide

    guidance as to the startling reaches legal process outsourcing will have.

    A 2004 study by PricewaterhouseCoopers concluded that offshoring is "about to

    dramatically take off" in Canada. This report affirms surveys that assess the willingness

    of Canadian organizations and business to consider outsourcing as a viable labour

    management solution. Many businesses, such as the legal industry, are following the

    trends set by the software programming and telecommunications industries that have

    rapidly expanded in using global service-based outsourcing.

    Previous Outsourcing Models

    It is hard to ignore the fact that many calls to customer service centres of North

    American corporations are answered by call centre representatives in countries on other

    continents. There is no firm estimate on the number of call centres that have originated

    outside of North America, but the boom in telecommunications industry in India and the

    Asian region are well documented. Similarly, backend software programming for Silicon

    Valley technology companies, including start-ups, is often not occurring in California -

    information technology companies now routinely look to outside markets before

    considering North American employee hiring for junior programming.

    Though the effects of these trends are dramatic thousands of North American

    jobs are being vaporized and replaced in foreign markets they are not entirely

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    unexpected. One of Canadas leading pollsters, Angus Reid, predicted the steady rise of

    technology and service-based outsourcing would lead to a dramatic realignment of the

    Canadian economy nearly a decade ago. The cost savings of outsourcing, as Reid

    theorized, are immense and it is only logical that they would be utilized by businesses

    intending to maximize their profit margins.

    Results of Existing Legal Outsourcing Projects

    Existing press coverage of legal process outsourcing rarely provides economic

    data on the effects of the LPO process. A recent news article by CNN Money estimated

    that nearly $(US)15 Billion of legal work would be outsourced from the United States by

    2015. Although the article did not provide the financial calculations CNN used to project

    this amount, it is fair to conclude that the LPO market is quite large. This is evident from

    other media reports and press releases circulating on business wires.

    Nearly everyday a news story emerges indicating the success of a legal

    outsourcing venture. Several companies have issued press releases on their rapid

    successes in the LPO market, but often these reports must be viewed with a critical eye as

    it is in the best interests of individuals involved in the LPO market to emphasize the

    growing trend of their practice. But it is difficult to ignore the rise of LPO movement

    when the worlds sixth largest corporation engages in the practice and intends to expand

    its outsourced staff.

    General Electric hired thirty Indian lawyers in 2004 to assist its legal practice

    group deal with American legal issues. The team of Indian counsel is being supervised by

    American attorneys on-site. GE has further indicated that based on early results of their

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    outsourced staff, there will be further expansion in the near future. Although GE has been

    public about its outsourcing moves, it is quite probable that other corporations have also

    engaged in globalized legal process outsourcing, but have not as forthcoming as GE due

    to the current negative connotation that outsourcing derives in the public eye.

    IV. POLITICAL CONSIDERATIONS FOR LEGAL AND BUSINESS INNOVATION

    As the 2004 U.S. election demonstrated, outsourcing is a hot topic of political

    debate. The threat of losing ones livelihood to foreigners is a scary proposition for

    ordinary citizens. Analytically, bodies of evidence suggest that outsourcing actually

    improves the vitality of state economies and eventually the quality of life for all residents.

    This seems contradictory: the loss of jobs should decrease the vibrancy of a state, as there

    are less people employed and therefore less disposable income available for material

    goods. Yet continually, this is not what is found to occur. Rather more innovative

    occupations emerge in an evolving economy wherein knowledge is expanded and

    inefficiency is eliminated; individuals with more incentive and expertise to complete a

    task do so, at a lower cost in another country.

    Several scholars argue that the sooner American and Canadian politicians

    embrace the fact that global outsourcing is not a passing fad, the more responsible the

    actions governments can take to position each state to economically thrive in a

    increasingly globalized world. As the results of global outsourcing become more evident,

    it is interesting to note that earlier economic criticisms of the outsourcing process that

    developing countries would not reap the economic benefit of corporations from the

    developed world using labor at more attractive rates have gradually dissipated with the

    rise of middle classes in states such as China and India. As poignantly noted by some

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    critics, while developing countries have become more focused on business innovation,

    traditionally innovative North Americans seems to be slipping: they'll sell us semi-

    conductors and we'll sell them poetry". The criticism of the outsourcing process has

    increasingly become cultural, but it is an absolute certainty that politics of various

    degrees impacts the future evolution and success of legal process outsourcing.

    Politics effects legal process outsourcing in numerous ways. Most prominently,

    American and Canadian lawyers try to safeguard their existing practicing ability with

    zealous force. It is state or provincial legislation that directs the requirements for lawyers

    to practice within a jurisdiction. Competency testing is administrated by self-governing

    legal organizations, typically bar associations or provincial legal societies, to affirm the

    public trust that a lawyer practicing within a state or province is capable of being a legal

    professional. This political action is the first and most powerful of many to safeguard the

    entry of outsiders into the legal business. It should also be the most assuring for current

    practioners.

    Outsourced bogeymen in foreign jurisdictions cannot take away American and

    Canadian legal positions except those that are currently inefficient for the bottom lines

    of sophisticated and modern practices. Contractors however can, greatly supplement the

    efficiency of most legal practices therefore bettering the profit margin of private practice.

    As a basic example of this, an individual operating a boutique practice may currently rely

    on part-time law students to provide legal research and document review for her files. It

    is in the best financial interests of the lawyer to have a competent legal student complete

    tasks for her at the lowest possible price. Globalized legal process outsourcing is thus

    favorable for her because it increases the pool of contractors she may pick from she

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    does not have to hire a local student when one in a jurisdiction several thousand

    kilometers away can complete the work as favorably as the local student, except at a

    much reduced rate. Her overhead has decreased, while her profit margins have increased.

    V. SUSTAINABLE COMPETITIVE ADVANTAGE: FUTURE PROSPECTS FOR LPO

    Legal process outsourcing is most advantageous when the cost-savings for those

    engaging in the process are the greatest. Continuing with the example of the lawyer with

    a boutique practice from above, the lawyer has no incentive to outsource her backend

    work to a part-time student in another jurisdiction if that student is costing as much or

    more than the local student. Currently, emerging common law legal markets can provide

    competent individuals capable of completing legal work at tremendous cost-savings for

    North American employers. As states such as India mature, will this simple application of

    arbitrage continue?

    The simple answer is yes. However as demonstrated by the outsourced

    telecommunications industry in India, often work will have to shift from region to region

    to allow the greatest advantage for North American employers. Call centres in India were

    traditionally concentrated in New Delhi, but as the industry boomed and experienced

    workers commanded higher rates, several other regions began to compete with the city to

    attract foreign investment. Over the long term, the supply of competent workers in

    developing states including India, China, Malaysia, Singapore and Pakistan far exceeds

    the qualified demands of American and Canadian companies looking to outsource.

    VI. RISK MITIGATION: FACTORING TECHNICAL ERRORS IN LEGAL PROCESS

    OUTSOURCING

    Men are only as good as their technical development allows them to be.

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    George Orwell, Charles Dickens

    To date, there have been no reported technical errors in legal work that has been

    outsourced. This likely a result of coverage of the development of legal process

    outsourcing being sparse, rather than the perfection of the technical processes involved in

    transferring large bodies of information instantly over transatlantic oceans. Using the

    examples of other industries that have been in the global outsourcing pool for a greater

    period of time, it is worth considering potential problems that will emerge in legal

    outsourcing, and possible strategies to mitigate these risks.

    Communications, Power, and Data Failure

    In an increasingly evolving world, it is difficult to imagine life without the ability

    to instantly communicate through phones, faxes, e-mails, and instant messaging devices.

    In legal process outsourcing, these tools are essential for even the most basic project. It

    should come as no surprise that in states that are still developing, some of these facilities

    may not function with the efficiency of their North American counterparts. Almost as

    startling however, is the rapid rate at which outsourcing hubs match or exceed the

    capabilities of American or Canadian complements.

    For example, broadband internet access is more affordable in parts of Southern

    India than nearly all regions of North America. Dedicated networks were established

    during the technology boom of the 1990s. While the chances of communication failure in

    such developed regions are nearly equivalent to those expected in North American

    business environments, any well-developed legal or business process outsourcing model

    will require a plan for the possibility of communications failure. A risk mitigation

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    strategy may include the automation of data transfer processes so that vital information is

    more frequently available between satellite offices.

    Like communications, because much of the outsourcing process involves a

    reliance on technology, there is an inherent risk presented by power and/or data failure.

    The good news for the future vitality of the LPO process is that state governments have

    implemented measures to protect specially designated zones intended to draw

    outsourcing companies. It is quite common for example, for outsourcing campuses to

    have electrical generators operating at the same time as conventional power sources, to

    limit the chances of a power failure interrupting business.

    Protection of Intellectual Property

    India and China are both signatories to the Paris Convention for the Protection of

    Industrial Property, and India has recently implemented legislation intended to further

    enhance the protection of intellectual property specifically to further its role as one of

    the worlds foremost destinations for business process outsourcing. Like the conventional

    protection of IP, private lawyers must pay special attention to how they protect their

    assets along with those of their clients, regardless of where they practice.

    VII. RISK MITIGATION: FACTORING HUMAN ERROR IN THE LPO PROCESS

    Malicious or Incompetent Errors in Judgment

    It is quite probable that the largest legal settlement in United States history would

    not have been possible, if not for the deliberate breach of error committed by an out-of-

    firm paralegal that was hired by a law firm representing tobacco manufacturer Brown and

    Williamson in the late 1990s. The contracted paralegal, Merrell Williams, was hired to

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    perform backroom sorting duties on behalf of the firm for B&W at the rate of $9/hour.

    Williams stole thousands of pages of B&W documentation containing sensitive

    information that provided evidence that cigarettes were essentially nicotine delivery

    devices. This was information B&W never anticipated to end up in the public sphere,

    and certainly not in the hands of several state attorney generals and powerful courtroom

    litigators who would use the leaked and illegally attained internal documents to force the

    tobacco industry to settle billions of dollars in state-by-state and class-action litigation.

    Merrell Williams actions are a striking example of potential pitfalls in legal

    process outsourcing: the possibility of human errors, deliberate or otherwise, resulting in

    irreparable damage to lawyers and more grievously their clients. The law firm

    representing Brown and Williamson required Williams to sign an extensive confidentially

    agreement, which was of little consideration in the eyes of the court as the stolen

    documents would be accepted as evidence in trial after trial. The Williams example

    though spectacular for the amount of damage an errant contractor caused to an entire

    industry, should not be dismissed as being isolated. Human error is a factor in business-

    to-business interactions. There are several strategies that can be used by lawyers

    interested in outsourcing their work to mitigate against the risk of human error resulting

    in damage to their clients businesses.

    Chief among any strategy is responsibly delegating any outsourced processes. In

    the Williams example, the law firm representing Brown and Williamson would have been

    well served to have had internal staff sort through sensitive information while outsourced

    clerks processed information that would cause only minimal damage if it were to fall

    within the hands of a third-party. Of course the circumstances of a project could be

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    directed by time restraints, and numerous other factors, which may make it prudent to

    implement a system of checks and balances.

    A simple strategy to circumvent human errors in legal process outsourcing is a

    regimented system to detect errors early in the process so they may be corrected before

    they cause harm. This may be as simple as appointing staff that serve in a supervisory

    capacity and review all processes that have been outsourced by the firm/organization.

    State Corruption

    As Elizabeth Economy discusses, using contemporary China as her model,

    Western businesses must confront the reality that state corruption still exists at

    heightened levels relative to North American environments in certain foreign regions.

    The corruption Economy refers to is not deliberate sabotaging of an outsourcing project,

    but rather the inherent cost of doing business that must be built into an well-planned

    outsourcing model.

    VIII. PASSING THE BUCK OR KEEPING IT - ETHICAL CONSIDERATIONS FOR LPO

    There are considerable cost-savings in legal process outsourcing. Paying for legal

    services is often done on an hourly basis, with attorneys billing clients per hour for

    services performed. Attorney rates are usually set by the complexity of the matter being

    addressed, the expertise and experience of the lawyer, and often the competitive rate

    charged by other lawyers within the jurisdiction for similar work. Often backend work

    will be performed by newly graduated lawyers or articling students, if not paralegals and

    legal assistants. It is common practice to provide clients with a legal bill that allocates the

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    breakdown of services rendered by the firm according to the hours devoted by each

    lawyer.

    While a newly called Canadian lawyer will generally bill at a rate exceeding

    $(Cdn)110/hour, more seasoned Indian lawyers working with outsourcing firms will

    typically charge $(Cdn)10-25/hour for equivalent work. The cost-savings for using a

    contracted lawyer for back-end work become readily evident. The question that lawyers

    must confront is whether the cost-savings achieved by employing a contracted lawyer

    should be kept by the firm or passed through to the client.

    The Law Society of Alberta provides no guidance to this question. Several

    publications intended in to clarify value guidelines for counsel make note of provisioning

    legal services at reasonable rates. There is no direction given on how an Alberta law

    firm should be billing the work performed by it by a contracted lawyer.

    An easy solution to this dilemma would be to bill a client at the mid-point of what

    a contracted lawyer commanded in wages and what a client would have likely have paid

    to a junior associate for equivalent work. This solution may seem like the most ethical

    way to address the billing concern, but it is not in the best interest of any law firm or the

    legal industry in general to proceed in this manner.

    As the software industry, which eagerly adopts business process outsourcing

    solutions, has demonstrated countless times: decreasing prices for customers occurs only

    after profit maximization has been optimally achieved. For lawyers in private practice,

    the eventual goal should be to gradually decrease the billing rates for ordinary individuals

    using legal services, but this should only occur after the highest level of profit

    maximization has been derived from using the powerful tool of legal process outsourcing.

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    A client should be made aware that his/her file is being handled by outside contractors,

    but the cost of that contractor to the firm does not need to be revealed to the client and the

    difference in quality of work delivered should make the client satisfied, regardless of

    whether it was a veteran Pakistani lawyer that prepared the legal research or a newly

    minted law graduate from Pennsylvania or Ponoka, Alberta.

    IX. CONCLUSION

    The business reality of legal process outsourcing, particularly the considerable

    cost-savings that can be achieved by law firms outsourcing their backend work, makes its

    evolution and adoption in the North American practice of law inevitable. The business

    advantage presented by well-developed legal process outsourcing models that consider

    proper risk mitigation techniques will result in a considerable shift to the existing legal

    environment: the efficiency of legal work performed will be greatly enhanced, as will the

    quality of services rendered, allowing for greater profit maximization for law firms and a

    reduction of costs for governments and private individuals using legal services.

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    http://www.bernama.com.my/bernama/v3/news_business.php?id=148128

    http://www.itjungle.com/tfh/tfh080105-story03.html

    http://www.post-gazette.com/pg/05195/537848.stm

    http://www.cio.com/weighin/column.html?ID=9651

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    http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20050731/BUSINESS/507310

    573

    http://www.moneyweb.co.za.login.ezproxy.library.ualberta.ca/moneyweb_radio/mny_po

    wer_hour/467109.htm

    http://www.legalit.net/ViewItem.asp?id=25173

    http://infotech.indiatimes.com/articleshow/1183861.cms

    http://www.guardian.co.uk/business/digitalnetworkedeconomy/story/0,,1516582,00.html

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    Appendix

    Representative List of Online Legal Process Outsourcing Firms and Organizations (includes law

    firms with a practice that assists other organizations and law firms implement outsourcing

    strategies)

    Organization Internet Address (http://) Originating Country

    E-Lance

    www.e-lance.com United States

    Legal Research Network

    www.lrn.com United States

    Kirkland & Ellis LLP

    www.kirkland.com United States

    Atlas Legal

    www.atlaslegal.com United States

    Bickel & Brewer

    www.bickelbrewer.com United States

    Taran Virtual Associates

    www.virtualassociates.com Canada

    Litem Legal

    www.litemlegal.com Canada

    IndianLegal

    www.indianlegal.net India

    Jatin Popat Company

    www.jsp-associates.com India

    Legal and Paralegal

    Services India

    http://freewebs.com/legalprofessionals-

    india

    India

    Law Wave Litigation

    Support

    www.lawwave.com India

    Rajinder Narain & Co.

    http://www.rajindernarainco.com India

    The Shared Services and

    Business Process

    Outsourcing Association

    www.sharedexpertise.org Belgium