INTRODUCTION TO LEGAL PROCESS OUTSOURCING(LPO)
- Legal Process Outsourcing – a value added KPO service
Legal Process Outsourcing (LPO) is one of the value added KPO services which involves legal work that companies outsource to more economical offshore destinations.Legal outsourcing consists of various processes which can be classified into low skilled quantitative tasks or high end qualitative tasks.
Low skilled quantitative tasks consist of:
- Paralegal Services & Legal Coding
- Corporate Secretarial Services
- Legal Memo Development
- Medical & Legal Transcription
- Document Management
- Litigation Support
- Data entry
- Immigration data analysis and working on labor relations.
Whereas the high end qualitative tasks include:
- Intellectual Property Rights & IPR Portfolio Management
- Patent Search & Application drafting
- TM and Copyright Registration
- Legal Research/Opinion work
- Document Review and Analysis
- Intelligence Services
- Contracting and Administration
- Evolution of legal process outsourcing
The legal process outsourcing (LPO) industry emerged in the late 1990’s, when a handful of major corporations established “captive” legal departments to handle their high volume, process oriented work. Legal Process Outsourcing (LPO) was at a fairly nascent stage since its emergence and evolved gradually.
The first generation of LPOs was all about redlining documents and very low-end types of legal work. Law firms have gradually engaged in much higher end legal work. LPO 1.0 (“first wave”) was the initial stage for the LPO industry and focused on labor arbitrage for services. LPO 2.0 (“second wave”) noticed the growth from smaller to bigger LPOs and it focused on maturity of legal services delivery models. The LPO 3.0 (“next generation”) is considered as the “third wave” LPO. The third wave LPO is about provision of integrated solutions with the combination of legal and IT knowledge. Enhancement of the conventional practices can be achieved through LPO 3.0.
The advent in technology and the changes observed in market requirements over the years has had quite an impact on the evolution of the legal process outsourcing (LPO) industry. The evolution started with the gradual acceptance of outsourcing legal tasks to third-party service providers by the legal industry. The year 2008 was considered to be a turning point for LPO providers. The industry received a major commercial push following the global economic slowdown, as more organisations and law firms looked out for ways to reduce costs. One of the methods to reduce costs, adopted then by companies was to outsource routine legal tasks, typically of bulk volume.
Legal process outsourcing originally comprised law firms and large corporations outsourcing large document review projects for litigation disclosure or transactional due diligence to an offshore provider. However, the recent economic downturn, along with market liberalization and pressure from clients on prices, has driven many firms to look again at LPO. Legal business culture has seen a dramatic change with increased focus on unbundling legal services in order to benefit from the economies of scale. The most significant change noticed in the LPO industry has been in the quality and complexity of the services rendered by LPO providers. With the growing acceptance of the LPO industry in the corporate space, it has fuelled the expansion of the industry to a large extent. Currently, the much sought after tasks undertaken by service providers include managed document review, due diligence and contract management. The change in these services has been in terms of the augmented complexity and end-to-end breadth of the services. For instance, in litigation, this is likely to involve areas such as deposition prep and surveillance audits. Earlier, these tasks were confined only to the purview of in-house or specialist counsel. Considering the contracts side, services now involve end-to-end contract negotiation and managing open source software licensing programs.
- Growth Trends in LPO Industry:Transformation from Labor arbitration to Labor Innovation
The LPO market has expanded significantly over the last 10 years to include in its ambit different service lines ranging from document review to compliance, research and contract management.LPO, after undergoing different phases of development, have now moved to the next phase. It has undergone an archetypical shift from the previous generation to the next generation.
LPO has no longer remained the source for labor arbitrage only. It has evolved since its inception. The value proposition for LPO is undergoing a change. The LPO concept includes not only off-shoring concepts but also near-shoring, blended shoring. The LPO space has over a several legal providers globally offering a variety of services across a number of locations. While providers have evolved organic and inorganically, there remains a lot more scope in terms of growth and innovation as the industry matures. This innovation includes but is not limited to:
- Further integration of technology within service offerings to ensure quicker and more efficient delivery
- Harnessing corporate and law firm relationships to support growth
- Regulating billing rates given increasing inflation offshore
According to an estimate provided by the Global Legal Post, about half the companies outsource an average of 11% – 30% of their legal work to LPO providers. LPO offerings include cost-effective, high-quality services in corporate, litigation, merger and acquisition, compliance matters, corporate restructuring, etc. The niche work undertaken by LPO providers such as SKJ Juris, Integreon, etc. requires skilled resources for carrying out more complex and high-value tasks. The industry now relies on technology to a large extent, including both third-party solutions and proprietary software, in order to provide technology-enabled services to clients specifically for electronic discovery and contract management and review.
Back in 2005, ValueNotes, a research firm, was one of the first analyst firms to track the (then fledgling) LPO industry. At the time, outsourcing of legal services was a “hot” new service line with much promise. Growth rates between 2003 and 2008 averaged more than 40% a year, though on a small base. Coupled with low entry barriers, this attracted hordes of new entrants.The number of Indian service providers jumped from around 40 in 2005 to more than 125 by 2008. Early adopters (buyers) were willing to experiment with pilot projects, and this allowed start-ups to win small contracts and get going.
According to a report by ValueNotes in 2010, the industry employed about 24,000 people and earned revenue of $640 million.In late 2010, a ValueNotes survey of legal service buyers in the US and UK revealed signs of disillusionment amongst customers. Significantly, complaints about quality, consistency and skills were complemented by concerns over data security and client confidentiality.
The 2012 legal outsourcing market global study estimated the global LPO market had grown on average at a rate of 32% in each of the past three years and suppliers it consulted expected a similar rate of growth for the next three years.It stated that the total LPO market, which currently employs nearly 9,000 people, equated to a mere 0.25% of the global legal services market, while anecdotal evidence suggests existing LPO users “have only outsourced about 5% of what they could potentially outsource”. The report further revealed that LPO arose because of a perception value gap between the law firms’ outputs and the costs they were charging for those costs.Key future drivers for growth in the LPO industry were “continued budgetary pressure from general counsel” and “client pressure on law firms”, it said. A lesser driver for growth was alternative business structures.
In the past three years, the legal outsourcing industry has grown about 60% annually.
In a recent article dated January 05, 2015 published by Value Notes, it has been predicted that “The Global Legal Process Outsourcing market to grow at a CAGR of 27.4% over the period 2014-2019”. According to the report, one of the primary drivers of this market is significant cost reduction. Labor arbitrage, which is the shifting of processes from more expensive locations to less expensive locations, is regarded as one of the most advantageous benefits of outsourcing business processes. The outsourcing of legal processes helps firms gain access to local expertise and advanced technologies in other countries, while simultaneously maintaining a lean workforce.
- Outsourcing venture in India
Legal outsourcing has gained tremendous ground in the past few years. LPO firms, primarily from India, have had success by providing services such as document review, legal research and writing, drafting of pleadings and briefs and providing patent services.
Today, India is one of the most important destinations for LPO.India is geographically placed in a time zone that is distinct to that of the US and UK, thereby enabling round the clock legal support to these countries.In the context of an LPO initiative, a client company selectively delegates certain legal functions and services that are traditionally performed in the United States to an LPO provider based in an offshore location such as India. The provider offers the client a skilled or trainable workforce at costs that are significantly lower than those demanded by US counterparts. The basic value proposition of the LPO, then, holds that outsourced legal work will be performed offshore by trained, qualified and locally licensed lawyers and paralegal staff at a fraction of the cost of having the same work performed by US-based legal professionals.
The LPO industry in India is expected to grow at an average rate of 30% annually and, according to a NASSCOM-CRISIL study, LPO in India is the fastest growing segment. Driven by an impetus from a post-recession environment characterized by higher bankruptcy cases, regulatory compliances and cost pressures, LPO is also expected to grow by USD 1.3 billion globally by 2015. In India, over the same period, it is expected to reach 18,000 professionals with annual revenue of USD 960 million. NASSCOM also indicates that the Indian KPO sector has engaged more than 250,000 KPO professionals in the last year.
After the economic meltdown of 2008, the Indian LPO industry witnessed a major change. With a number of global companies opting for mergers and acquisitions to stay afloat, bankruptcy and lawsuit filings became more prominent, creating the need for an independent sector for documentation review and legal research. But, as market conditions troubled corporate clients with rising legal expenses, enterprise legal functions were forced to transform into leaner organizations and in-house counsels underwent cost cutting and streamlining, along with all other support functions.
With law firms and corporations becoming increasingly selective about the resources they hire and instead choosing to outsource, India has become an attractive destination for law firms, corporations, and other businesses from the US, UK, Australia, and other countries looking for LPO providers. Soon, corporations began to pressure their internal legal departments to outsource certain processes to cut costs and, as a result, they began using the services of Indian LPO providers.
In the contemporary context, outsourcing legal work to economically viable destinations has become a practical necessity. And after achieving success in the BPO segment, India is set to emerge as a leader in the KPO segment as well, particularly in the LPO sector, considering the country’s large base of talented and qualified legal professionals.
To sum up, due to the continuous increase in costs and greater advances in technology, LPOs are increasingly attracting legal work. Notwithstanding the distance and time zone differences, attorneys who outsource must undertake efforts to supervise LPO work. It has been an interesting journey for LPOs until now and the future seems bright for LPOs to be seen as transformational partners for law firms and corporate legal departments rather than the perceived outdated thought of it just being a back office.