Legal Service Providers During Quarantine: Who’s Exposed?
We talked with twenty legal service providers–here’s what they said.
This is a challenging time for legal service providers. Not only do we need to comply with new workplace standards brought on by COVID-19, but we’re also in the wake of the most significant security breach in our industry’s history. The ransomware attack carried out against Epiq was a wake-up call for many that had been taking data security for granted. Clients are now asking, “If Epiq can get hacked, what stops me from getting hacked? Or my outside counsel? Or hosting providers?” The truth is the fallout from Epiq’s failure will have long-lasting consequences. However, it’s still early and the consequences have been temporarily overshadowed (and delayed) by the more imminent threats brought on by COVID-19.
All at once, the entire world–including those of us that provide services in the legal industry–have begun transitioning to a virtual workplace and advancing data security methods. There’s no denying the effect that the world’s current crisis has had (and will continue to have) on the legal industry, so we decided to “take the pulse” on our LSPs. Overall, we wanted to know what they thought their business would look like post-crisis. We also wanted to know if they’ve had to change the way they work to meet new expectations.
The Questions: What We Asked
Oasis led twenty conversations with individual business executives selected from our customers (LSPs) and vendors (software companies). We wanted to understand what they had experienced so far and what they anticipated for both the short and long term. Here’s what we asked them:
- When things start to calm down, do you think your business will be changed for better or worse?
- Do you foresee any changes in the type of services you provide or how they are delivered?
- What are the key issues clients are reporting?
- Any silver linings? Unexpected positives?
- We also asked generally, about the state of the industry from their perspective and what concerns they had about the future.
The Sample: Who We Talked To
We intentionally selected interview subjects that represented a cross-section of the industry, broadly classified by their primary sources of revenue:
- Legal Service Provider–Project Management, Collections, Processing and Hosting
- Managed Review–Document Review and Staffing
- Software Provider–Licensing and SaaS Hosting
- Law firms or corporate legal teams were not interviewed for this article
We selected different sized organizations to represent their unique perspectives:
- Small–less than 20 employees
- Midsize–20 to 100 employees
- Large–100 to 1,000 employees
- Global–more than 1,000 employees
Our interviewees also reflect regional differences:
- Western US
- Midwest US
- Eastern US
- United Kingdom
- Mainland Europe
The Results: What We Found
Based on the responses received from our legal service providers, we’ve identified certain types of organizations that may be more vulnerable to the impact of either COVID-19, the renewed scrutiny being placed on security, or a combination of the two.
- Law Firm Clients & Transactional Services: Service providers that receive a large portion of their income from managed service contracts or even simply recurring revenue (like hosting) are in a much better position to weather this storm. Other companies that rely on a steady stream of new business–regardless of the organization’s size–are anxiously anticipating business-as-usual.
- Most respondents described their law firm customers’ preference of working on a transactional basis and “pay when paid.” They expect these clients to exceed payment terms soon.
- Clients working with law firms reported more disruption with fewer remote collections or understanding of remote collection requirements (asking clients for permission, organizing collection timetables). This meant that their projects were slowing down or being paused.
- Although data collection work had slowed down, 60% of our clients reported increased activity in review databases with increasing numbers of people on the corporate client-side requesting access.
- 30% of clients reported that their law firms were actively bringing document review projects inhouse from outsourced providers. This suggests some firms are trying to maintain billable hours by repositioning litigation and having lawyers work on document review.
- Small Businesses: It’s a fact of life that small businesses have few options when it comes to absorbing disruptions to cash flow. Small businesses (in all industries, not just ours) simply do not have access to big banks, private equity, venture capital, or other debt markets, putting them in an especially difficult situation until things return to normal.
- Smaller businesses without an ‘anchor client’ or diverse service offerings will struggle.
- Four to six weeks in lockdown was noted as manageable to interviewees. Two months was reported to be the maximum amount of time manageable without seeking other resources.
- Organizations with varied service lines have already been moving resources into high-demand groups like bankruptcy, restructuring, and insolvency services, leading eDiscovery teams to be repurposed in those areas.
- Big, Complex Service Providers: It takes time to turn an aircraft carrier. Big, complex organizations that are the result of the M&A frenzy over the last five years face challenges adapting to the new reality of both working from home and the recent focus on end-point security.
- 80% reported that they had been asked to provide additional information on their security and data privacy policies.
- 70% of our interview subjects said their clients were willing to pay a premium for service providers that could “pivot” and create solutions to problems in difficult circumstances.
- Organizations that maintain a lot of physical space are absorbing that cost on an ongoing basis. Organizations with a lower footprint (particularly businesses with a large remote workforce) have fewer of these costs and are better able to adapt to new and unexpected market conditions.
In addition to identifying those in vulnerable economic positions, we also gathered feedback from the LSPs and vendors regarding their feelings on the state of the industry.
- All of the legal service providers we spoke to were confident that they would be okay over the next few months. While some reported a slowdown in new projects, it was evident that new and continuing business was not going to stop.
- 90% of clients interviewed have the majority of their staff working remotely or have the capacity to work remotely. No clients reported the need to reduce staff numbers or furlough staff at this time, though clients with paper processing said they are now running a ‘skeleton crew’ to complete certain tasks.
- Software companies reported no impact on their business operations as almost all staff worked remotely prior to the state closures. They did report increased demand in the areas of support and training.
- Almost all clients predicted that receiving payment (collections) will be an issue in the months ahead.
During this process, we recognized that the impact of the global pandemic is not evenly distributed and that it’s difficult to gather results on “general industry impact.” Each organization faces unique challenges based on its business model, revenue sources, access to capital, and geographic location. While some organizations face serious threats, others are operating normally during this time.
Yet the conversations had with our clients led us to summarize that while they felt the current state of the legal industry was healthy, they also thought the general focus will change in the future to center around people, technology, and service. The overnight conversion to a global remote workforce will have shown naysayers what is possible and will have (finally) broken down the barriers to flexible working and cloud-based technology. That said, it was apparent that not everyone will be able to take advantage of these opportunities. Large organizations that have grown via acquisition and integration are going to have a much tougher time reorganizing to keep up with the ‘new normal’ as they begin shedding staff, facilities, and service lines that are no longer profitable.
We may see fewer global ‘end to end’ or ‘full service’ service providers in the future, as clients see the value in working with smaller, more nimble ‘specialists’ that can deliver with less overhead and higher quality. We’ve all seen some businesses taking action sooner than others. As the conversation shifts to easing restrictions on business operations, it’s time for organizations to sink or swim, making way for the ‘new normal’ in the industry to emerge.