Legal Process Outsourcing: A Billion-Dollar Industry, Complete with Trade Shows, Fierce Competition & Risks

Outsourcing anything from discovery to document review to patent searches, firms and companies appear to be finding great “efficiencies” of several varieties, the most obvious being cost savings.  But with those savings comes other opportunities as well as risks for companies and firms.  Whether embraced or not, the now $1 billion Legal Process Outsourcing (LPO) industry is considered to be one that is here to stay by many firms and companies. 

The glossy U.K. magazine Legal Business, along with legal service providers at Clutch Group, teamed up to conduct a survey of challenges facing in-house counsel and what role outside services play in meeting those challenges.  Topping the list was managing legal risks relating to company data, which 87% of the respondents said was more difficult than just five years ago. The amount of money spent on managing risks and compliance has increased, say 69% of the responding legal executives.  

Varun Mehta, vice president at Clutch, said the survey—titled The Future of Legal Process Outsourcing—demonstrates demand among in-house counsel for technology solutions.  “Alternative legal providers and LPOs will have to continually evolve, develop breakthrough technology legal solutions and provide a litany of new services” to meet emerging demands facing corporate counsel.  Eighty percent of the survey respondents say they expect to see the LPO industry expand and improve in the next five years.  Fifty-eight percent say LPOs and law firms should work together on compliance and risk matters, and 37% of the in-house attorneys say LPOs are “better equipped” than law firms to use advanced technology and use data and risk analytics.

“If alternative providers can satisfy blue-chip clients—and a sizeable group of clients report that they do—they will keep moving up the value chain,” says Alex Novarese, editor in chief at Legal Business.

In-house counsel are using LPOs primarily for investigations and due diligence; general litigation support and e-discovery.  Half of the U.S. respondents said they have used LPOs, compared to 38% of the UK respondents.

Time to Make Lemonade

As the costs go up—which the respondents to the Future of Legal Process Outsourcing survey said was driven first by increased civil litigation and second by greater regulatory scrutiny—law firms participating in another survey, this one conducted by Altman Weil, say they are feeling the pressure.  

Altman Weil reports that, not only are firms feeling the pinch, they are concerned that the demand for legal work is either flat or shrinking in many practice areas.  Firms also shared that while clients are pressuring them on price, they recognize the competitive forces of commoditization and the emergence of low-priced, non-traditional service providers.  

The survey, conducted last year of managing partners and chairs at 791 U.S. law firms with 50 or more attorneys, asked whether certain trends were temporary or permanent.  Regarding the outsourcing of legal work, 22.8% say it is temporary and 46.4% believe legal outsourcing is here to stay.  The rest were not sure.   With regard to non-traditional service providers, 78.6% say that is a permanent part of the landscape.  A large majority, 74.6%, feels the use of contract lawyers also is here for good.  

Price competition, a focus on practice efficiency and more commoditized legal work, will all be lasting elements of legal practices, nearly all respondents say, with 95.6% predicting that pricing and efficiency pressures are permanent forces, and 89.7% saying commoditization will remain with us.  

See an overview of Altman Weil’s 2013 Law Firms in Transition.

But even the Global Outsourcing Association of Lawyers, or GOAL, which is holding trade shows in several major U.S. cities as well as New Delhi and London this year, says outsourcing is not an across-the-board solution for legal work.  “You should evaluate your overall legal service needs to see which services, if any, are suitable to outsource to an LPO provider. While high-risk, proprietary work may be best tackled directly by your own legal staff, recurring and commodity-type services such as corporate forms or high-volume services such as litigation document review may be considered for outsourcing to a lower-cost LPO provider,” the GOAL website says.  

The association, which expects to have an average of 100 attendees at its conferences, each of which has an impressive faculty, reminds firms and companies alike to ensure that the work is adequately supervised.  They issue these cautions:  

1. Avoid unauthorized practice of law by assuring proper supervision.
2. Provide competent representation.
3. Adhere to duties of disclosure and communication.
4. Avoid conflicts of interest.
5. Ensure confidentiality and security.
6. Bill appropriately.

In other words, apply the same rules of conduct an attorney applies in their practice today.

The American Bar Association weighed in a couple of years ago with a list of things to avoid and ways to mitigate risk.  As with any contracted work, a request for proposal should make sure you are not dealing with a first-timer, that security and privacy measures are in place, that they have the ability and infrastructure to do the work, that they are able to remain current on technological and legal developments, that they have sound customer references, that they have quality control measures training programs in place, and that there is plenty of transparency.  The ABA offers that paper, Legal Process Outsourcing: A Guide to Important Considerations, Risk Mitigations and Achieving Success.

“Clearly,” GOAL says, “an LPO strategy can be a viable alternative to legal practitioners seeking to reduce their legal costs. Successful LPO implementation, however, demands thorough consideration and careful accounting of the engagement’s circumstances and needs. If you are considering an LPO, you should objectively evaluate the type of LPO model best suited to your unique needs.  More about the organization can be found at www.Connect-GOAL.com.