The contract attorney market: status, trends and outlook-Part 1

The paradigm-shift

Almost 7,000 lawyers have been laid off in the first two months of this year.  And all are not yet accounted for.  In today’s New York Times Adam Cohn dissects the paradigm-shifting changes taking place in the legal profession.  Noting the massive layoffs and venerable firm closures, Cohen suggested that these events are a harbinger of reduction in associate compensation, alteration of billing structure, flat lining of law school tuition, and changes in law school curriculum  (for full article click here)

These jobs aren’t coming back.  This dynamic has proved true in past recessions as well, with fading industries pushed to the brink during downturns before others emerged to create jobs when economic growth inevitably resumed. Why should it be any different for the law industry?  But with job losses so enormous over such a short period of time, the latest crisis challenges the traditional American response to hard times.  And the next decade was always going to be difficult.  As retirement beckons for the middle-aged “bulge” in many national populations, governments have been facing an expensive demographic transformation.  The economic crisis makes the outlook only worse.

 

This paradigm-shift has been expertly examined by Richard Susskind in his book The End of Lawyers?: Rethinking the Nature of Legal Services who we profiled in an earlier post when we examined the changing legal landscape (click here).   He was the keynote speaker today at the ABA TechShow in Chicago and we’ll have a report later in the day on his speech ( click here).

And nobody has chronicled and analyzed this upheaval in the legal industry better than Jordan Furlong on his blog Law 21  (click here)  and David Lat on his blog Above the Law (click here).  

So where does that leave the contract attorney industry?

The contract attorney market – in brief

We’ll get into specifics shortly but first some brief observations:

1.  The market has been dead for the last several months.  But in the last few weeks there has been an uptick in contract attorney work (which we are defining as large-scale document reviews and projects, the bread & butter of the contract attorney industry) in every U.S. market except the NYC metro area.  Our measure?  An increase in Posse List job postings and an increase in our representative Posse List members whom we poll telling us “I am getting calls from agencies again.”      

2.  In several earlier posts (here and here) we noted how the drive to cut costs has led corporations and law firms to seek other ways to cover their e-discovery work without sending it overseas.  A law firm or client’s desire to simply seek lower cost alternatives has led to a growing development of “farmshoring” or “onshoring” by staffing projects in preferred U.S. locales. 

[Note:  we caught a lot of flack for our use of the term “farmshore” sourcing.  It has long been used by the IT industry which has been engaged in offshoring/outsourcing/farmshoring for over 20 years.   For just one site of many with the reference click here.  It is also called “rural sourcing”.  It is the placement of IT jobs/work in low-cost regions of the service recipient’s country.    The legal outsourcing industry is very, very late to the game of outsourcing in general. It has simply picked up most of the structure and vernacular long used by the IT and manufacturing outsourcing industries.  Legal outsourcing dates to about 1995 (the first significant project in India) but the trend did not really pick up until 2000.  We intend to post our “history of legal outsourcing” later this spring to give you a better idea of how the pieces came together and contract attorney jobs were lost.] 

3.  We normally see a surge in Posse List membership in February/March and July/August which coincides with the bar exams as many attorneys seek temporary work pending their bar results.  The last two months have seen a greater surge and much of this is due, we think, to the lay-offs at BigLaw.  Many new members have described themselves as “recently laid-off” or have attached resumes, and many have also mentioned a change in their attitude about the “stigma” associated with contract work.  Gabes Guide covered “the stigma issue” in a series of recent articles (click here). 

4.   There are English language projects out there but so far the majority continue to be foreign language because of the steady flow of IP litigations, FCPA cases and cross-border civil litigations.  Over the last few months we have posted many more projects on our Mid-West, Far West and Southwest listervs (click here for all of our listservs) than we have on the DC Metro and NYC Metro listservs — the traditional contract attorney work centers.  But D.C. is picking up for reasons we describe below.

5.  What is happening in DC and NYC is probably emblematic of what is happening across the entire U.S. contract attorney market. Based on conversations we have had with law firms, staffing agencies and e-discovery companies: 

    a.  Most agencies have enough people on their internal rosters so they do not need to go to The Posse List, Monster.com, etc. They turn to their favorites (their best reviewers, steady billers, the “non drama queens”, etc.) and when they need extras they get a bit pickier.  Law firms tell us they see many of the same names on project after project although we are not sure how that impacts conflicts.

    b.  Law firms seem to be setting more precise qualifications (told to us by both law firms and agencies) and often ask for experience in a particular kind of case or in several subject areas.  They often set a floor:  minimum of 3 years of doc review experience, or even 5 years in some cases. 

    c.   Agencies’ profit margins are being slashed and we keep hearing about bids that are lost because someone else bid a price well below “market levels” — and “market level” is a pretty loose term given the spread of hourly rates (see below).  Law firms are allowing counter-offers and late bidding in many cases.

     d.  The technology is getting better (we covered that here)  and project teams are getting smaller in many cases.  A few law firms told us they are dealing with smaller litigation budgets,  the “lopping off” of potential litigation issues that law firms and clients were initially willing to examine, and assumptions that early case assessment will find most of what they need to focus on.   [NOTE: Early case assessment, the new technology,  etc. will be covered in later postings via our link-ups with Orange Technologies, ONSITE3, Fios, Merrill Brinker and other technology vendors].

    e.  Gridlock in law firm and corporate decision making.  For instance, based on chats with several DC agencies/e-discovery companies, law firms have issued at least 7 RFPs (request for proposal) out to the DC market and most are “on hold” and we suspect a multitude of agencies and e-discovery companies are bidding on each.

6.  The firms staying busy during this downturn are focused on the “still hot” practice areas such as litigation, intellectual property and bankruptcy.  And we have had significant feedback that mid-sized firms are taking advantage of clients’ desire for lower rates and alternative billing by opening offices in other cities to meet the ever-growing demand.

7.   While the e-discovery hiring outlook remains strong for 2009 (click here) the e-discovery landscape is changing.  It consists of pure-play e-discovery software vendors (like Kazeon, Autonomy, Guidance etc.),  legal service providers (staffing agencies and companies like FTI and ONSITE3),  hosting service providers and law firms.  All of these entities sell their product and services to corporations.   Increasingly, we have seen a trend wherein corporations are starting to adopt e-discovery in-house for reasons of cost, risk management and information control.  The current economic climate is aggravating the situation.  And they are starting to eat each other.  Atttenex was bought by FTI for a relatively small amount for its Patterns product offering, Stratify was absorbed by Iron Mountain, MetaLINCS by Seagate, Discovery Mining by Interwoven, Applied Discovery by LexisNexis and the list continues to grow.

So let’s look at a few selected contract attorney markets based on feedback from a large number of Posse List members in each of those markets.    

The D.C. Market and Federal Government Work

As we have all seen in the media, the various administration stimulus packages will increase government hiring, full-time and part-time.    So first, let’s take a quick look at the full-time job market.

The federal government will need to hire an additional 200,000 workers over the next three years as a result of President Obama’s federal stimulus plan and additional spending included in his budget plan.  That may sound like a lot of jobs, but it’s just slightly less than half of the 384,000 additional employees Uncle Sam already needed to pick up between 2009 and 2012 just to replace existing federal employees expected to leave their jobs.  That 384,000 is a projection for retirements, voluntary separations, reductions in force and a few folks who will die on the job.  [We get our information from the Partnership for Public Service, a Washington, DC, advocacy group working to advance public-sector careers, which tracks all this stuff].

With a total of nearly 600,000 openings over the next three years (and an estimated 12,000 legal jobs), what options could there be for you?

About 85 percent of federal jobs are located outside Washington, DC. But, since many stimulus-related jobs involve command, control, tracking or oversight, a sizable proportion — up to 22 percent – will be located in the District of Columbia itself.

And who’s hiring?

The federal government currently employs 1.9 million civilians — about the same number it did during the Kennedy administration. Gerald Ford, Jimmy Carter, George H.W. Bush and Bill Clinton downsized the federal bureaucracy, while Ronald Reagan and George W. Bush increased it.

Some of this administration’s 200,000 extra workers will be added thanks to changing priorities. For example, President Obama’s 2010 budget increases funding for the Social Security Administration (SSA), so it can hire additional employees to work through a backlog of cases. The agency will hire more than 5,000 people by September 2009.  These include front-line positions in the local field offices and Teleservice Centers as well as legal support positions in our hearing offices.

Another budget priority — better care for veterans — resulted in a $25 billion increase for the Department of Veterans Affairs.  A good part of that will go into hiring more medical and health professionals in the VA.

Jacque Simon, public policy director for the American Federation of Government Employees, says agencies expected to add staff due directly to the stimulus include the Environmental Protection Agency; the Department of Defense; the Food and Drug Administration; the Border Patrol; the Small Business Administration; the departments of Labor, Education, Agriculture and Housing and Urban Development; and the National Science Foundation.

Many agencies are still toting up the numbers. The Environmental Protection Agency estimates it will take tens of thousands of contractors and employees to handle clean up, assessments, design and monitoring of the projects in the areas it will target with stimulus money. These areas include Superfund sites, brownfields, leaking underground storage tanks, clean water, drinking water and reducing diesel emissions.

Bring on the Watchdogs  

With so much stimulus money flowing out of Washington, virtually every agency will have to hire additional auditors, attorneys and investigators to handle the fraud that will inevitably follow. In government, those positions are part of the Inspector General’s office within each agency or department.

The Inspectors General are going to be beefing up staff.   The Department of Health & Human Services (www.hhs.gov) for example, has $27 million for increased oversight. In addition, Congress slotted $50 million to create the Recovery Act Transparency and Accountability Board, a group of Inspectors General that will watch over stimulus spending.

Given the tighter regulatory scrutiny of the financial markets, we already heard there will be job openings at Treasury, FDIC, SEC.    But besides Traesury, the FDIC and the SEC, the other players will be the Office of the Comptroller (part of Treasury), the NY State Insurance Department, the Office of Thrift Supervision, the CFTC and OFHEO.    We will have a lot more on this in a later posting (we have a lot to cover) but right now do yourself a favor and get your cover letter/resume into:  http://www.ustreas.gov/initiatives/eesa/jobs.shtml

For while Treasury is settling nicely into its new digs (click here)  we know that at least 75 Posse List members have picked up jobs in the TARP program although they are spread out over town.

The Government Accountability Office started hiring 100+ people familiar with government auditing.  We don’t have a web link for your yet but we’ll find one.  These jobs will be tough:  prior federal government auditing experience is great, but it’s not the only way to qualify for these positions.  If they’ve done any kind of state or government auditing, or you’ve audited public entities or nonprofits, that would be qualifying experience.

Focus on the Mission

As we have discussed in previous posts, if a federal job is your best career move, don’t look for a stimulus job — look for a government job.  Look at who’s got a job to fill and which agencies have a mission that you’re interested in.  Gather career information by visiting the official federal government hiring site as well as the individual agency Web sites.  And keep plugging.  Posse List members have experienced wait times between 9 months and 2 years.  But they keep hammering, hammering, hammering. 

And yes, it will be tough.  Example:  in January 2009, after the Federal Bureau of Investigation said it wanted to hire 2,100 professional staffers, it received 230,000 applications.

Ok, let’s discuss doc reviews, 8(a) jobs, etc.

 While the direct-hire Federal jobs described above are greasing the market, the D.C. contract attorney market is also seeing an uptick due to:

1.  The slow manifestation of financial melt-down/credit crisis litigation

2. More agencies/e-discovery/Federal contractors getting work/bidding on work that is direct-to-the-government

3.  Regular work trickling into the market

The FannieMae and FreddieMac investigations launched last fall (click here) are now in the data collection stage and e-discovery companies (not staffing agencies) have been selected for the processing, and the actual document review.  We can’t tell you which companies … yet … because we signed NDAs with the agreement that The Posse List will post the first announcement when they staff.  Each of these investigations have 125+ custodians and a few TBs of data so we expect the processing to go for awhile.

Plus, the anticipated New Century/KPMG law suit filed yesterday.  KPMG is being sued for $1bn by the liquidators of New Century, the collapsed subprime lender, and is the first big case against an auditor arising from the current financial crisis.  Almost all of the KPMG doc reviews have been done in D.C. and we assume the pattern will prevail.  Well, assuming KPMG does intend to “rigorously defend” the suit as its press release said.

Plus, the start of some financial melt-down/credit crisis litigation (slowly) hitting the D.C. market (and other markets) as we have reported in the past, which we have been following courtesy of our “tracker” colleague Kevin Lacroix  (click here).   

And every survey/grid we have read shows the surge in securities litigation.   As examples click here, here, and here.

But it also important to note that getting to doc review can be a slow grind (click here).

So what has happened in D.C. is that after a significant drop-off, contract work has increased and remained steady for a number of agencies such as American Legal Search, Hudson Legal, JurisStaff, Kelly Law Registry, Law Resources, Legal Placements, and Lexolution.  But these agencies have not had the need to post regularly on The Posse List,  Monster.com, Craigs List, etc. because they can draw on their internal lists of contract attorneys. However they continue to look for qualified candidates.

In addition several staffing agencies are getting Federal staffing contracts because they are specially qualified by being 8(a) certified companies (these are firms eligible to get “first preference” on Federal contract because they are owned and operated by socially and economically disadvantaged individuals), or they are certified woman-owned, GSA approved staffing firms (such as Pat Taylor & Associates).    D.C. agency contact information can be found on our home page under Staffing Agencies.

 And how is the D.C. market doing right now?   The rate band has been $30-35 per hour, with many of the most recent projects (last 45 days) at $32 or $33.   D.C. Posse List members report a total of 21 projects, 15 being English language review and 8 being all or part foreign language review.  Based on this information, we guesstimate about 1,200 D.C. Posse List members are working.

Now, onto other markets:

ARIZONA

 Riley Carlock & Applewhite may be the largest user of contract attorneys in Arizona although there are many others.  In 2006-7, the hourly rate in Arizona (mostly Phoenix) was $40 but that has dropped to a range of $30-34.  Most projects are long term litigations although there are several short-term projects.

 Based on Posse List members, there are 6 projects spread out in Flagstaff, Phoenix and Scottsdale.   None are foreign language. 

CHICAGO

Chicago has seen an uptick in work.   Chicago projects seem to be running a band of $28-35 per hour.   Of the 14 projects reported, 8 were capped at 40 hours per week.  But all 14 of the projects have run 4+ months or longer, with 4 at 1+ years.

Chicago also seems to have more flat-rate (no overtime) projects than anywhere else in the country although we know NYC also has a high percentage.   Only 3 projects reported by Posse List members had paid overtime although they allowed 50 hour weeks.

Also, Posse List members (and Chicago agencies) tell us NYC agencies are moving into Chicago and low-balling RFPs to get business.  In one case a project moved from $32, to $30 to $28.

DALLAS/HOUSTON

We’ve paired these markets although Dallas is not as busy as Houston.  But most of the projects share similar traits.  Of the 14 projects in Dallas/Houston the work:

• a. is IP related or energy related, with a number of bankruptcy doc reviews
• b. has been long-term (8 of the projects reported have gone 1 year+)
• c. has paid $35 an hour
• d. has overtime

Dallas, on the whole, has maintained a $35 hourly rate but most of the projects are capped at 40 hours unlike Houston.  But many are long-term (4 now going over 1-1/2 years).

Houston has a larger share of foreign language projects and one project (part requires German fluency required) has a 50 hour min/75 hour max with most contractors doing 60 hours.   The German piece of the project started in June 2008 and is expected to run through June 2009.

Legal People has a long-running document review in Houston (started in September 2008) with an hourly rate of $35, unlimited hours.  But everything over 40 hours is still paid at straight time.   The minimum hourly requirement is 50 per week and the project is expected to last until at least June 2009.

We have also seen many more projects allowing “independent contractor” status (1099) in Texas than elsewhere.   We have several Posse List members on projects as independent contractors at $40/hour, some at 40 hours per week and a few at unlimited hours. 

One element keeping contract attorneys employed in Texas (and the other energy states of Colorado and Oklahoma) is that many U.S. energy producers are being forced into bankruptcy or asset sales by banks, which are using annual reviews of company debt to cut permittable levels below existing borrowings. 

As one law firm explained, producers have few choices in terms of raising new finance when confronted with repaying debt immediately, with many unwilling to tap equity markets, given the dilutive effect of issuing stock at today’s low prices and the inability of finding buyers for new equity.   In addition, the severe drop in commodity prices has slashed the value of their assets.

“This is forcing companies to sell assets they don’t want to sell or to sell whole companies.  Or has led to complex Chapter 11 bankruptcy transactions.  These lead to doc reviews.”

 NEW MEXICO

 A large number of Posse List members recently wound up two long-term (14 months plus) litigations.  These were small: 8-10 contractors each.

The terms were similar:  40 hours per week (overtime not permitted) and the pay was $32/hour for contractors at the beginning of the project and reduced to $28/hour for people hired at the end of the project. 

 Posse List members reported 6 other projects, all short-term (ranging 2 weeks to 2 monhs) at $32 per hour, no overtime.

 These were the only projects reported by Posse List members.  None are foreign language.

OHIO

There has been a smorgasbord of projects throughout Ohio (mostly in Cleveland) due to the presence of Jones Day and due to the document review centers run by Hudson Legal, Kelly Law Registry, Lumen Legal, etc.

Rates have been all over the ballpark but Posse List members report:

1.  Approximately 12 projects

2.  $21/25 hour

3. 40 hour maximum

PHILADELPHIA

The best blog we have found that covers Philadelphia is Black Sheep of Philly Contract Attorneys and they recently posted a complete run down of Philadelphia projects which you can access by clicking here.   It is an extremely detailed list and rather than repeat it here just click above.

Legal process off-shoring (the Indian LPO market)

We will address the LPO market in a subsequent  posting, but just a few points.

 About 43 members of the US Congress have written to financial services firm JP Morgan Chase, asking it to explain its plans to increase outsourcing to India.  The media has reported that JP Morgan plans to increase outsourcing to India by 25%. The financial services firm has been the recipient of $25-billion from the U.S. government’s Troubled Assets Relief Program (TARP).  The outsourcing jobs are both legal and financial.   In a letter addressed to JP Morgan Chase CEO Jamie Dimon, the Congress members asked: “How should these American workers, many of them your consumers, be expected to have hope for a better future when the very companies they contributed to through TARP outsource the jobs they desperately need?”    A JP Morgan Chase spokesperson in India refused to comment on the matter.

We spoke to several Posse List members in India who are project managers (all U.S. attorneys) and they said the bulk of what they have is FCPA review and securities litigation review (credit crisis related).  Three of them (who have been there for 1+ years) say “the stuff coming this way is increasingly complex”.  

We also spoke to Posse List members who are EU barred and they were working on IP litigation and IP prosecutions.

And issues discussed by all our Indian contacts:

1.  The number of U.S. attorneys going to India for work is increasing. 

2.  There has been a move by Indian LPOs to offer CLE programs (click here).

3.  The legal process outsourcing industry will consolidate (click here).

 Thinking “outside the box” 

And in answer to a number of questions about several of our “nontraditional postings”.   We will continue to post non-attorney positions since many Posse List members are trying to think “outside the box” and find work outside of normal contract attorney work but work that fits their experience profile.   For instance, this is why we post a fair amount of contract manager/administrator/negotiator positions on all the lists, many of which stipulate “attorney preferred” although the position is not a lawyer job per se.    We are just trying to assist in a difficult market.

THIS WEEKEND,  PART 2:  more on Federal government work, some info on freelance work and going solo, and the (growing) work in Europe.