That's the question posed by Mark Ross, an expert on legal process outsourcing (LPO). For example, if a lawyer believes that an outside vendor (say lawyers in India) could perform litigation document review more cheaply and just as effectively as a young associate, does the lawyer have an obligation to tell the client about that option?
It's a fascinating question, because a lawyer is supposed to put the client's interests first. But let's consider what that obligation might mean using two examples that don't involve LPO. In the first example, imagine that the law firm could use a cheaper person to perform certain services and the cheaper person is within the firm. For example, imagine that a law firm puts a first year associate on some discovery document review that could be performed more cheaply and efficiently by a paralegal. Or perhaps the law firm has a partner working on a matter that could be easily and just as effectively performed by a more junior and less expensive attorney in the firm. Does the law firm have an obligation to explain to the client that a cheaper alternative is available before letting the more expensive person work on it? The answer is probably no. This type of thing happens all the time, and unless the fee charged is unreasonable under Rule 1.5 (a hard standard to violate), it's difficult to see how this is an ethical violation, troubling though it may be.
I'm more confident with my answer if the cheaper option takes business away from the firm. Imagine, for example, that a large firm lawyer thinks that a particular legal matter could be handled much more cheaply at an entirely different and highly qualified firm. Does a lawyer have an ethical obligation to tell the client about that alternative? I doubt it. If the client thinks the lawyer's rates are too high, the client can shop around. Imposing a duty on a lawyer in this situation to tell the client about a cheaper firm sounds to me like the Macy's Santa Claus sending customers to Gimbels.
So where does LPO fall? I guess it depends on whether the law firm is marking up the outsourcing or simply farming it out at cost. If it's the latter, the firm is not profiting from the engagement, and it starts to sound like my second scenario. In that case, I don't see any ethical obligation to tell the client about it. If it's the former, it sounds more like the first situation. Even then, I don't think there is an ethical obligation, but the question is certainly more interesting.