LPO (Legal Process Outsourcing) – Outsourcing The Law



 LPO (Legal Process Outsourcing), over recent years, has grown steadily across the globe as the industry matures and develops. However, supply may be outstripping demand as more and more competitors enter the market. View list of LPO (Legal Process Outourcing) Providers.

LPO refers to the practice of corporations or law firms obtaining legal support services from an outside law firm or legal support solutions company, operating in a low cost location such as India or the Philippines.

India is currently the main location for the LPO industry. Like the U.S., U.K. and Australia, India’s legal system is grounded in British common law. And English is the language of instruction in Indian colleges and law schools. Legal process outsourcing is occurring in nearly all sectors of the legal industry and involves the work of lawyers, paralegals, legal secretaries and litigation support personnel.

Why LPO?

LPO (Legal Process Outsourcing) growth imageLPO providers offer services in the areas of document review, legal research and writing, drafting of pleadings and briefs, and patent services outsourcing. According to research conducted by Evalueserve, there were over 5,200 professionals in the LPO industry, as on April 2011, in India and the Philippines, contributing an annual revenue of USD 300 million, and this is expected to reach 18,000 professionals with an annual revenue of USD 960 million by December 2015.

The potential global LPO market is enormous. Just considering the US market, the legal services industry is worth about $US 245 billion, of which 80% of the dollars is generated from law firms and 20 per cent from in-house counsel. According to First Research, the US market is highly fragmented and includes about 180,000 law offices, with 50 of the largest firms generating only about 15 per cent of revenue.

Due to concerns around quality and security it took some time for the industry to gain traction particularly in Australia. But over the last few years these concerns have diminished, where LPO is now one of the fastest growth areas of outsourcing.

As with other forms of outsourcing, a key benefit that can be delivered to an organisation by LPO is cost.  Maurie Dobbin, Director and co-founder of outsourcer Legal Resources highlights that a lot of mundane legal work, such as reviewing documents, is passed onto paralegals to perform. He says, “Australia organisations can pay up to $150 – $200 an hour for a paralegal. By outsourcing this work, and depending on the size of the project, you will be paying half the amount for the services of a fully qualified lawyer.”

As well as cost savings, legal process outsourcing offers many benefits, including:
  • Access to outside talent
  • Round-the-clock availability
  • The ability to quickly scale up or cut back operations.

The type of organisation, according to Dobbin, that has most to gain from an LPO arrangement is a large trading enterprise that needs to manage a large number of contracts or legal forms. Most of the work is mundane reviewing, which can easily and securely managed offshore.

Latest trends

Market Oversupply: As with many new markets, there’s a stage where supply is likely to overshoot demand and the market will need to rationalise itself at some stage through mergers, take overs, etc.[1] Whether it is potential suppliers believ the extreme forecasts or genuinely believe they can compete, there is, and there will continue to be, a surge of new entrants flooding the market.

Technology: Most LPO activity focuses on lower-level legal work such as document review, contract review, legal research and intellectual property support. Technology developments in document and data management over the last few years combined with things like predictive coding and concept search, are being used by law firms and LPOs to analyse and reduce volumes of documents for litigation review. Technology and its evolution is fundamental to the delivery of LPO and its future development.

LPO Providers will move up the value chain: Like ITO and BPO, the initial driver of LPO has been lower costs available through labour arbitrage. Clients initially feel most comfortable sending discrete work with low complexity and low criticality offshore[2]. Client organisations will increasingly source work that has medium complexity and medium criticality  to major law firms, to offshore LPO providers via major law firms, or to offshore LPO providers directly.

And as clients and providers build long-term relationships based on trust, transparency, and collaboration, clients will likely engage providers for more end-to-end solutions.

Engagement models will mature and evolve[3]: besides extending services and moving up the value chain, the methods and avenues enterprises utilise to engage LPO providers will evolve and mature. Currently, enterprises engage LPO providers directly (requiring more hands-on management) or indirectly from their legal firms.

Law firms are developing or will gain core capabilities in managing offshore LPO providers, where they can replicate a model across a range of clients. LPO relationships are generally built using one to half a dozen engagement/pricing models[4]:

  • Per hour – an hourly rate is paid for each expert employed to handle the work
  • Manpower – a dedicated number of experts are on call to manage the requested work.
  • Virtual captive – a certain amount of resources in terms of staff, resources and management are allocated and/or kept in reserve to handle the work load.
  • Transaction – engagement and pricing is calculated by the number of transactions completed
  • By Unit – pricing per document reviewed or transcription completed.
  • Project – One fixed price for a project with a particular start and finish date
An LPO contract and relationship can use one or more of the above engagement models. As the relationships become more strategic and value add driven, the less likely they are of using the per hour engagement model. They only way a provider can increase their margins in this engagement model is to reduce their costs rather than add value to the services they provide.

LPO mergers, acquisitions, and strategic alliances: As the ITO and BPO markets matured, we saw that growth for larger providers occurred inorganically, that is, by mergers and acquisitions. Inorganic growth has many benefits including rapid market expansion, improved suite of services, elimination of competition, lower operating costs, and access to human and intellectual capital.

LPO is an exciting area to watch over the next few years as the industry grows and matures. The question is: how well will the supply of services meet the demand. If supply outstrips demand that will mean cheaper services and greater choice for client organisations, but may also mean in a number of areas, poorer quality of service from providers who are not able to compete effectively.

View list of LPO (Legal Process Outourcing) Providers.



May 2, 2013

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