The Legal Process
Legal process outsourcing (LPO) is an increasingly popular option for organisations globally. But will it prove revolutionary for the legal industry? We take a look at why businesses are currently embracing the model – while three commentators from across the space look at various aspects of its current and future development.
After what seems a veritable age of being perpetually just about to boom, the legal process outsourcing (LPO) and legal services outsourcing (LSO) space appears finally to be hitting the mainstream. The need for organisations to cut costs in the wake of the financial crisis led to a reassessment of the requirement for large, expensive in-house legal teams – at the same time as the increased prominence and capability of dedicated providers and the growing awareness of the value to be found offshore has created a genuine alternative.
“Both the economy and natural business evolution have influenced five major drivers,” says Marilyn O. Primiano, Vice President of European Legal Services for provider Pangea3. “First and second, companies and law firms have had to think about reduction and predictability of legal costs with an urgency that didn’t exist before. Then, resulting from a gradual acceptance of new processes and structures, those same companies and firms saw they could redeploy internal resources to higher-value work, achieve cost predictability, achieve better efficiencies (speed and throughput), and simply get more done. LPO is an innovative way to have it all.”
“In the wake of the global financial crisis, the financial services industry has been under increased regulatory, cost and competitive pressures. For in-house legal departments, this has resulted in even greater workloads, especially in the regulatory and compliance areas, while at the same time, facing a stronger internal focus on achieving cost-efficiencies. Quite simply, they need to do more with less. This is particular evident in areas such as document review for litigation and regulatory investigations – where resources often need to be quickly scaled up to deal with periods of peak demand and unusually high volumes of work,” says Leah Cooper, Director LSO for CPA Global.
Of course, not every aspect of legal activity can – or, maybe, should – be outsourced. Especially within the upper echelons of the industry, the work is too reliant upon personal relations and extremely high-value skill-sets for the kind of streamlining and efficiency-based transformation which makes outsourcing such a compelling proposition. As with other areas of business it’s the more transactional, lower-value elements which have initially been brought into the LPO sphere.
“The largest areas of law where activities are outsourced,” advises Patrice Gilles of EquaTerra, “are intellectual property rights (with activities such as patent drafting and prior art searching, technical research, patent applications, patent review, etc.), litigation support (with activities such as precedent research, review of official documents, document review, document synopsis, etc) and legal research and analytics (with activities such as gathering and summarising of legal information, legal surveys, legal and business research specific to client database, annotated case summaries, etc). Of course, the back office activities of a legal firm are also being successfully outsourced.”
Even the comparatively low-level services currently being offered mean very big business for those offering them. A report published this year by Alok Aggarwal, the chairman of research, analytics and knowledge process outsourcing outfit Evalueserve, predicts that the value of the LPO space in India and the Philippines alone will grow to $960 million within the next five years, employing some 18,000 legal professionals (up from just over 5,000 today). This year saw the signing of the largest deal in LPO history – £580 million ($900 million) over ten years – between leading provider Integreon and UK-based law giants CMS Cameron McKenna (although it should be noted that this mostly encompasses back-office processes rather than legal work per se).
And the bigger the business, the bigger the businesses trying to get hold of it. Shortly before Outsource went to press, it was announced that Pangea3 (see above) had been acquired by information media giant Thomson Reuters for an undisclosed sum (put at around $40 million by the Indian press).
Patrice Gilles believes that the next few years will see the good times continue to roll for LPO: “Law firms will remain conservative in their adoption of LPO. Generally, activity will be reactively driven by their clients… Revenue growth for the LPO market will be rapid and some providers could double in size over the next year or two. The biggest LPOs could reach 700-plus lawyers [and] will expand what they do [with] more capabilities and services inching higher up the value chain but still based around the core services available today. In addition to moving higher up the value chain, LPO service providers will also expand into consumer-related and high-volume legal services such as conveyancing, personal injury, will and probate.”
What have been the risks associated with LPO activity and how do you see the industry evolving to mitigate them through smarter outsourcing?
By Cassandra Burke Robertson, Associate Professor of Law, Case Western Reserve University
Legal process outsourcing is growing quickly, as clients realize that they can save substantial sums of money by disaggregating their legal services and sending some work abroad. Most of the work that is outsourced offshore is fairly low-level work, such as document review and contract database management. Other work, however, may be more complex, such as performing legal research, preparing dispositive motions and even writing legal briefs.
Clients have generally expressed satisfaction with both the quality and cost of outsourced legal work. Nevertheless, as outsourcing gains momentum and complexity, we can see some areas where risks arise. Some of these risks arise from the disaggregation of legal services itself, regardless of whether the legal work is sent to onshore or offshore providers. When the work is divided into discrete portions and different parties are given autonomy to complete different legal tasks, there will be gaps in the chain of responsibility. When mistakes occur – such as when a party fails to disclose relevant material in discovery – it can be difficult to ascertain who in the chain is responsible for the lapse.
The problems of disaggregation are magnified when legal work is sent offshore. First, the increased distance (both geographical and cultural) may increase the chance that offshore service providers do not fully understand the client’s ultimate needs and goals. Second, that same distance may mean that the individuals performing the work offshore have a reduced sense of loyalty to a distant or unseen client. Finally, status barriers may further inhibit loyalty and increase the risk of misunderstandings.
Many LPO service providers have instituted mechanical controls to prevent employees from accessing or sharing confidential information. While these mechanical controls do reduce the risk of opportunistic wrongdoing, such measures cannot, by themselves, increase employee loyalty or provide the balanced social exchanges needed to build a strong client/vendor relationship. A greater focus on the human aspects of the relationship is needed.
Adopting a collaborative model of the outsourcing relationship that focuses on cooperation, communication, and renegotiation of status and resources can reduce both the risk of intentional wrongdoing as well the risk of mistakes based on misunderstandings. It can also enhance loyalty, thus encouraging parties to the outsourcing transaction to take the initiative to seek out and close gaps within the chain of responsibility.
How has the emergence of LPO activity affected the US legal industry thus far and how do you see this
developing over the next few years? By Danny Ertel, Partner & Founder at Vantage Partners
Like it or not, legal process outsourcing is a reality. Technology and economic pressures have enabled a new set of providers to leverage good process capabilities and a global talent pool to offer law firms and their clients new choices in where and by whom certain tasks are done, making some current pricing and delivery models in the legal industry unsustainable.
On the client side, these new choices bring familiar challenges: clarifying objectives, unbundling services and identifying the “right” activities to outsource, selecting providers, defining the solution, negotiating terms, and putting in place mechanisms to manage the relationship. It is the intrinsic interdependency of the tasks carried out by an LPO provider with the services to be delivered by counsel that distinguishes them from earlier waves of outsourcing. Much more so than in IT, call centres, or payroll services, an LPO provider must work closely with a firm that is competing for the same dollars of spend yet has a professional/regulatory obligation to supervise their work. When the client has instigated the outsourcing, they must play a critical role in managing this three-way relationship. Much more so than they have in the past, in-house counsel will be called upon to play the role of service integrator, bringing order out of the potential chaos created by the outputs contributed by multiple providers.
For law firms, the challenges are strategic in nature:
Should they proactively blend LPO into their value proposition and compete for work they may otherwise be priced out of? Or should they only agree to work with LPO providers when required by a client who is willing to bear some of the risk and to invest in its mitigation?
Should they seek to build their own LPO-like capabilities in lower cost locations on- or off-shore? Or should they develop some close third-party relationships to mitigate expected integration challenges?
If, as seems inevitable, LPO providers start to take on some of the repetitive, lower-value tasks that comprise some legal services, how should law firms rethink recruiting, training, and leverage? What competencies will become critical? Which services should they offer?
Experimentation is well under way among the AmLaw200 and their transatlantic peers. In the coming years law firms will have to become more efficient – in their SG&A through the use of outsourcing and shared services, and in their delivery of services through better project management and selective delegation of tasks – and more effective, in how they price and structure their service and in how they manage client relationships.
What are the ramifications of the emergence of the LPO sector for the Indian legal industry?
By Lalit Bhasin, President, Society of Indian Law Firms; & Partner, Bhasin & Company
The growth of the LPO sector in India has been driven by the demands of cost-conscious global businesses. Many of these companies have succeeded in reducing their legal bills and India’s outsourcing sector has been the principal beneficiary. The work farmed out to LPOs ranges from small projects like months-long document reviews, transcriptions, litigation support, electronic data discovery, court briefs, patent applications, proofreading and the auditing of legal fees.
However, one major concern is the validity of the works done by the LPOs which are legal in character and involve the practice of law which is the sole prerogative of lawyers registered in India and the law firms. In India, the lawyers practicing in litigious as well as non-litigious matters are governed by Advocates Act, 1961 (“the Act”) and are bound by the rules framed by the regulatory body, namely, the Bar Council of India. As per Section 24 read with Section 29 of the Act, any person intending to practise the profession of law must be enrolled as an advocate on any State Bar Council established under the Act.
The “practice of the law” involves both litigation and transactional works and includes the giving of legal advice and counsel to others as to their rights and obligations under the law, and the preparation of legal instruments by which legal rights are either obtained, secured or given away, although such matters may not then, or ever, be the subject of proceedings in a court. The same position has been approved recently by Bombay High Court in significant judgement of Lawyers Collective vs. Union of India etc. wherein the court held that practice of law by foreign law firms in India is illegal.
The legal position which emerges after the judgment in the Lawyers’ Collective case is:
a) that practice of law in India is open only to citizens of India;
b) that practice of law includes not only litigation but also all transactional / corporate legal work;
c) that it is implicit that practice of law on Indian soil would include practice of laws of other countries if undertaken in India;
d) that while practicing law in India legal professionals cannot associate themselves with non-lawyers by way of partnerships or other arrangements with corporate bodies, foreign lawyers or persons practicing other professions like the chartered accountants etc;
e) that only those who are enrolled as lawyers with the State Bar Councils can practice law in India and no other person including law graduates can practice any form of law unless enrolled with the Bar Council.
One of the largest LPOs in India has been made a party along with foreign law firms in A.K. Balaji’s writ petition filed in Chennai High Court wherein it has been inter alia alleged that foreign law firms are practicing law in India in the guise of LPOs set up by them or at their instance and with their support. This would be in violation of the provisions of the Advocates Act, Immigration Act and possibly some other laws. It would be interesting to see the court’s verdict as it would have a direct bearing on future of LPOs doing legal work in India.
Confidentiality and data protection are also of paramount concern in the LPO industry.
There is a large potential for LPOs, essentially for India, for the very simple reason that the Indian legal profession is second to none in terms of competence, expertise, efficiency and also in terms of delivery: i.e. the speed. Indian professionals can match the best law firms on any subject and if legitimate legal outsourcing develops in India, it would be a step in the right direction for the reason that India can give professional legal services of that level which is expected from any competent lawyer anywhere in the world. There should be legal outsourcing to law firms and lawyers in India.
Indian consultancy ValueNotes estimates the current size of the Indian LPO industry at $440 million, rising to over $1 billion in 2014.