Support centres: our friends in the north

Herbert Smith Freehills and Allen & Overy were among the first international law firms to kick-start ‘near-shoring’ in the UK by establishing support centres in Belfast in 2011. Many others have followed since. The most recent examples of firms branching out in regional British cities and Northern Ireland are Hogan Lovells’ legal service centre in Birmingham and Baker & McKenzie’s global services hub in Belfast.

Near-shoring (or north-shoring) is nothing new in other sectors of professional services, including banking. And just as law firms have been following their clients across the globe, they are now doing the same closer to home. Large financial groups already have support centres in UK regional cities, which they established before the credit crunch to take advantage of lower pay and property prices. These services were unsuitable for relocation to longer-established outsourcing centres in India or south-east Asia.

While London remains the centre for most high-level, client-facing work, law firms are looking at other cities in the UK not only for support functions, such as IT, HR, finance and business services, but also to deliver more routine aspects of legal work, such as reviewing documents for litigation.

Commenting on the move to cheaper locations, David Ellis, managing partner of consultants OMC Partners, says that while the post-2008 economic crisis was a factor, ‘the major trigger’ has been demand from clients, including the in-house legal departments of major corporations.

‘It’s good business practice,’ says Ellis, who has advised a number of firms, including Mills & Reeve and CMS Cameron McKenna, on establishing wholly-owned, value-for-money centres in Norwich and Bristol respectively. ‘All of these firms’ clients are doing the same thing to their own business and are saying to firms: “I do not understand why your business has junior staff who I never see, sitting in expensive real estate in London, whereas in my business I have these kinds of services delivered from other locations,’ he says.

In the north of England, Scotland and Northern Ireland, firms can employ paralegals and graduates in ‘alternative sourcing roles’ at an annual salary of £18,000-£22,000, compared with a Greater London salary of £30,000 or £45,000 in the City, according to an OMC Partners survey.

The annual rent for high-end office accommodation in Belfast is under a third of that paid in London, while in cities such as Glasgow, Manchester or Birmingham it is less than half. Even though the average wage for paralegals and graduates is much lower in top offshoring locations like the Philippines (£5,500) and India (£8,000), ‘the perception is that near-shoring is less risky than going offshore’, Ellis says. Other considerations such as language and time zone weigh against moving functions overseas.

Pioneer Allen & Overy’s Belfast office opened at the end of 2011. Housing business support functions such as HR, IT, business and library services, and a Legal Services Centre (LSC), the office has 400 staff, including 180 support roles relocated from London to Belfast. By 2019, it is expected to have a further 80 staff, making Belfast A&O’s second biggest office after London.

The move to Belfast led to redundancies among support staff but not among lawyers. LSC employs 65 fee-earners, among them eight City-qualified solicitors with at least six years’ PQE. The remainder are what are called ‘legal professionals’, whose roles are similar to paralegals.

Jane Townsend, who heads the LSC, says the firm examined several locations around the world. Northern Ireland was chosen because of its: highly regarded education system, supplying a pool of quality legal and other graduates (Belfast-based institutions include Ulster University and Russell Group member Queen’s University); strong IT infrastructure; ‘physically safe environment’; and cost. An initial £2.5m grant from the Invest Northern Ireland regional development agency also helped.

‘We cover basically everything that the rest of the firm does, but we don’t have our own clients, we work only on files from the other offices,’ Townsend says of the practice areas the LSC handles. These include banking, corporate and capital markets, with routine legal tasks such as corporate due diligence, share purchase agreements, loan portfolio sales and filing prospectuses with UK listing authorities.

The LSC also handles litigation. Although the resource-intensive, first stage of large-scale document reviews is typically done by legal process outsourcers (LPOs), the team works with London ‘in sampling and supervising the work of the LPO’, Townsend says. The LSC also performs more detailed second- and third-level review.

Townsend extols ‘the high level of integration of the offering’ as one main advantage of keeping functions in-house, and nearer to clients and the firm in London. She explains: ‘It is very easy to  think that legal work breaks neatly into high-end work and commoditised work but actually, certainly on the sorts of projects that A&O does, that is not true. The area between the two can be quite blurred.’

So personnel travel frequently between London and Belfast, and legal professionals in the LSC routinely spend time in other offices in the network when capacity crunches arise. Furthermore, upon joining the LSC (the firm has a yearly intake) new recruits undertake a ‘tough’ five-week induction course, followed by an exam that A&O jointly developed with the University of Law (formerly the College of Law).

Ashurst was the first international firm to open a legal and business support centre in Glasgow, in June 2013. Like Allen & Overy, Ashurst considered a number of options around the globe and went for Scotland because of the quality and quantity of available graduates, the strength of the legal industry (the Scottish legal sector contributes well over £1bn to the Scottish economy every year and accounts for around 20,000 jobs), the infrastructure and £2.4m  in financial support from economic development agency Scottish Enterprise.

‘We want to grow a very significant operation here,’ Glasgow managing partner Mike Polson says. The Glasgow office employs 155 people, including 30 legal analysts, and the aim is for 200 by the end of 2016, with the emphasis on more legal staff. The process has led to redundancies among business support staff in London, but the firm would not reveal numbers.

Clients demand ‘more for less’ and so they want to see efficiencies and ‘more innovative ways of delivering services’, Polson says, adding: ‘Quality is still very important, and clients get the Ashurst badge of quality for the work that we deliver from Glasgow. It gives them a great deal of comfort.’

As with other firms’ low-cost support centres, the legal team in Glasgow mainly consists of law graduates who join as legal analysts. Polson says this new role is different from paralegals, which implies specialisation in particular areas of law. ‘What we are looking to do with legal analysts is to train them to work across a range of discipline areas, so they are not pigeon-holed into an individual practice,’ he says.

This gives them a more varied workload and the firm ‘a much more flexible resource’ that it can use across its network of 28 offices in 16 countries. Glasgow-based legal analysts have already delivered services to 12 offices worldwide. ‘This model can apply to all our practice groups and is not really just a UK play. It is very much looking to support the global firm,’ Polson says.

The team handles volume disputes work, due diligence in the areas of commercial, corporate and finance and project management of cross-border activities, among other ‘common tasks’. There are also specialist ‘work streams’, for example, supporting the firm’s large securities and derivatives group.

Other firms only provide legal support from their low-cost bases. Addleshaw Goddard’s transactional services team (TST) began in Manchester in November 2010 with a staff of five that has now grown to 115. The team, largely consisting of paralegals, also includes eight legal apprentices.

‘The team is there to support each of the firm’s five divisions [corporate, commercial, litigation, real estate, finance and projects] across all the UK and overseas offices,’ TST head Mike Potter says. Paralegals are also seconded to clients. Physical proximity to London means that paralegals can receive guidance and oversight from experienced lawyers within the firm.

To achieve further efficiencies, Addleshaw has centralised paralegal support within TST, including paralegals working in the London office. ‘There are efficiencies that are generated by work being done at the right level, which is by paralegals rather than lawyers, and by centralising this type of work, as it is activity around which you can put a process,’ says Potter. TST nearly doubled its fee income in 2014 and now accounts for 6% of the firm’s revenues.

Herbert Smith Freehills was the first global firm to open in Belfast, in April 2011, with a team of 19 fee-earners that has since expanded to 122, of whom two-thirds are full-time permanent employees. Qualified lawyers account for around half of all fee-earners at HSF Belfast, with the balance consisting of graduate-level legal assistants who perform paralegal-type functions. 

‘We are a legal team, we don’t operate as a back office,’ says Lisa McLaughlin, deputy director of HSF Belfast, which has been offered £1.1m in grant assistance from Invest NI for creating new jobs. HSF Belfast initially focused on large-scale document-intensive aspects of litigation, arbitration and regulatory investigations, but has since broadened its remit to provide support in non-contentious areas, such as corporate, funds and real estate.

‘We now effectively have a full-service offering and support our instructing teams around the world,’ McLaughlin says. In June 2013, HSF Belfast launched Respond, a team consisting of part-time salaried employees who work alongside the full-time team during busy periods to meet urgent deadlines. ‘We are continuing to grow and diversify our service offerings, in response to client demand, and are currently recruiting solicitors and legal assistants across our disputes and transactional practice areas,’ McLaughlin says.

‘Our clients get the benefit of a seamless joined-up HSF team. The major advantage for the firm is that we are in Belfast and London isn’t too far away. We still do the majority of our work for London and for London-based clients. A number of them have come over to meet the team who are going to work on their matters.’ Meanwhile, London-based partners and associates go to Northern Ireland to train the Belfast-based legal assistants. ‘People being able to pop over really connects us to the rest of the network,’ she adds.

If there are differences in firms’ low-cost bases, this is particularly evident in Hogan Lovells’ Birmingham office, which opened at the start of this year with eleven qualified solicitors. They include partner Alan Greenough, who relocated from London to Birmingham to lead the team. ‘One of the differences in what we are doing is that the Birmingham lawyers are very much an extension of the London team so, for example, the corporate lawyers will be working as part of the London corporate group on transactions just like other associates within that group,’ Greenough says.

The West Midlands city, the third largest legal centre in the UK after Manchester and London, was chosen because of its proximity and good transport links to the capital. Other practice areas covered from Birmingham are litigation, real estate and finance. ‘We have got a lot of positive client reaction and interest,’ says Greenough, who expects the team to double in size by the end of this year, with a few paralegals thrown into the mix.

The near-shoring bug is catching, and for international firms which have already established low-cost centres offshore, the distinction between the two is the legal element.

Baker & McKenzie opened an office in Manila in 2000 and in December 2014, the global firm, whose largest office is in London, launched in Belfast. Unlike the Manila office, which focuses primarily on business support functions (IT, billing, finance, business development and marketing, and document processing) the firm’s second ‘global services centre’ will also undertake legal work.

The centre will move to permanent premises at Belfast Harbour’s City Quays One in May. It is expected to employ around 120 professionals by the end of its first year of operation (with between a third to a half undertaking legal work), rising to between 200 and 250 after three years. Law school graduates will form the bulk of the legal team working in the areas of due diligence and deal closing, supporting the firm’s transactional teams around the world.

‘There will be some qualified lawyers mixed in as team leaders, but most of the services will more closely resemble paralegal services,’ says global director of operations Jason Marty, who has relocated from Chicago to Belfast to serve as the initial executive director of the Belfast office.

‘Belfast came at the top of the list primarily because of the quality of the workforce and education system there,’ he says. Cost was also an important consideration (Baker received a £1.3m grant from Invest NI) as was time zone. ‘[From Belfast] we can service our EMEA [Europe, Middle East and Africa] and US offices more easily than we can from Manila,’ Marty says.

Bucking the near-shoring trend is magic circle firm Clifford Chance. Mark Ford, director of knowledge management at the firm, says: ‘We were the first major law firm to establish a shared service centre in India back in 2007. The unit was established to give us better control of costs and tighter central coordination of administration services within the business and its growth has been rapid – today 11% of our business support staff are based in India.’

Significantly, the New Delhi office also employs 60 paralegals. ‘They do not practise law, but they support lawyers in various offices and practice areas by handling routine work that would otherwise be done by junior staff in higher-cost locations,’ Ford says. It remains to be seen whether Clifford Chance’s approach is a rather more ambitious bid to slash costs and boost efficiency than its competitors, and so is a sign of things to come.  

So, how much are firms saving by moving services out of London?  

‘The bottom line is about improving margins at the firm and being able to deliver those services at a lower cost,’ says Ellis. ‘The cost-reduction benefits of going out of London to other cities in the UK are significant,’ he adds, pointing to operational, or run-rate, cost savings of between 30% and 50% within two to three years of setting up. Beyond moving back-office functions to cheaper locations, the ‘biggest opportunities’ are precisely in the areas that firms to which the Gazette spoke are moving north.

Known as ‘alternatively sourced legal processes’, these routine legal tasks are expanding rapidly, and now include securities review, real estate portfolio management and lease assignments. ‘This is where firms are reaping benefits,’ Ellis says.

Firms would not comment on the cost savings that they have made or expect to make from their low-cost centres. But Allen & Overy’s Townsend says: ‘The cost saving is passed on to clients. It is a benefit to clients rather than to the firm because obviously the fees are lower.’ This can typically amount to a 25-35% fee reduction on the element of legal work done in Belfast instead of London. ‘The benefit to the firm is that it will win more work; it will increase revenue and market share because it is now able to price work at a lower price,’ she says.

HSF’s McLaughlin says that for work carried out in Belfast – a document review or the preparation of a lease, for example - the client can expect to achieve savings of around 50% compared to London.  

Baker’s Marty says: ‘We are not seeing [the Belfast office] simply as a cost reduction exercise. We fully expect to win more work in a way that is a growth story and not a cost reduction story. We don’t have, at the moment at least, any sort of redundancies planned.’ In the 14 years since the establishment of the Manila office, which now has a staff of 700, the firm has grown ‘tremendously’, Marty says. This helped propel Baker & McKenzie into the global number one spot, after it posted a 5% rise in revenue to $2.54bn for the fiscal year ended 30 June 2014.

Cost is not the only factor: near-shoring has also involved re-engineering and streamlining of the whole business.

‘If you look at firms such as A&O, Addleshaw Goddard or Ashurst, they [now] have a much more varied resources pool,’ Ellis says. Today, they deploy senior solicitors and young solicitors, non-qualified but legal professionals, legal executives, paralegals and, most recently, legal apprentices. Ellis contrasts this with ‘the old-fashioned model of everybody is a solicitor with a few paralegals doing very junior stuff.’  

Addleshaw recruited its first legal apprentice to its TST centre in September 2013. All eight are on the point of becoming paralegals with a fresh set of apprentices due to be recruited this year. AG is part of the Trailblazers Apprenticeship in Law initiative, a government-backed scheme to create apprenticeships that will lead to qualification as a solicitor, chartered legal executive or paralegal through workplace-based training.‘We don’t just recruit people with law degrees, we are looking for bright and enthusiastic people to join us,’ Potter explains.

‘It is really about having the right people with the right skills doing the right level of work,’ says Polson. ‘People label Ashurst in Glasgow as just a low-cost [centre] but it is much more complex than that. It is about efficiency, which then drives cost benefits.’

It is also about centralising less complex tasks in one location, which can carry them out routinely as part of a more streamlined business process. Townsend says: ‘If you take something like due diligence on an M&A transaction, then a unit like the LSC will really prioritise that element of a project. And because we are doing a lot of it, we also get a lot of practice in thinking about efficiencies.’

Townsend observes: ‘We also make good use of and pay a lot of attention to the type of technology tools that can be used to enhance the project management of that type of work.’ These include iSheets for handling data, managing transactions and producing reports.

Although international law firms have been ‘early adopters’, Ellis says ‘the opportunities for  improving efficiency and reducing the cost of legal service delivery are not restricted to either very large firms or international ones. It is for anyone, even quite modest-scale firms, because it is just good business practice.’

Marialuisa Taddia is a freelance journalist