Legal Process Outsourcing: not a fad

In 2010, as clients demand more for less, law firms may find LPO more relevant than the LBO. The legal process outsourcing (LPO) industry, particularly in India, is soaring. For years, some law firms have been outsourcing back office (e.g., IT) functions. Increasingly, however, the outsourcing option becomes more attractive for routine or repetitive legal work, such as research, doc review and due diligence. In India, LPO companies hire Indian legal graduates with starting salaries at about $7,000. Compare that to the $160,000 base for BigLaw first-years doing essentially the same work, the math does itself.

Last year, the international mining conglomerate Rio Tinto, in an effort to shave 20 percent off its annual legal spend—some $100 million—became the first major multinational corporation to build its own team of Delhi-based lawyers to tackle work that might otherwise have fallen to its usual outside counsel, including such pricey heavyweights as Linklaters and Baker & McKenzie.

This week, telecom behemoth BT announced an agreement to outsource part of its global in-house legal work to LPO provider UnitedLex, beginning with an India-based team of 15 lawyers. According to Dan Reed, the UnitedLex CEO, the role of LPO companies is evolving: "The first generation of LPOs was all about redlining documents and very low-end types of legal work … Law firms are doing much higher end legal work, very judgement based legal work. But they don’t use technology like we use it: we stay very much in the mid-complexity sort of zone. … We don't compete with Indian law firms and we sure as hell don't practice Indian law." (The emphatic nature of that last remark is presumably an effort to distance UnitedLex from the reach of this recent anti-legal market liberalization decision.)

In the latest Technolawyer BigLaw newsletter, Marin “Pls Hndl Thx” Feldman interviewed Jonathan Goldstein, managing director of Pangea3, one the world’s largest LPO providers. Some excerpts:

Legal was the only part of companies' sales general and administrative spend that consistently went unmanaged and seemed to grow year after year with abandon. Companies finally came to grips with that fact that they could use outsourcing to manage legal expenses the same way they used it to manage other SG&A expenses.

[W]e work mostly on a fixed-fee basis, our dual incentive is to work efficiently and well. People go offshore because they want solid work done at a predictable price. Mere cost savings is often not enough if the quality isn't there.

Historically, law firms used to have all the power and the in-house departments used to cower. But now, LPO providers talk directly to the corporate clients, and they don't need much convincing because they already experience the benefits of outsourcing in all other aspects of their businesses. Law firms are being told by their clients that they have to use outsourcing. Clients have the pen. Clients sign the checks. If outsourcing is something you're thinking about and not taking action on, you're going to be left behind. LPO is not some fad, like lava lamps or sideburns. It's not going away.

In the words of legal futurist Richard Susskind, slashing legal costs ‘was emerging as a trend even before the credit crunch; now it is an overriding imperative,’

-posted by brian