Legal process outsourcing (LPO) is evolving into a sophisticated mechanism based on innovative processes and technology solutions also require highly skilled legal professionals at onshore locations. With greater recognition from the legal community and large corporations in the U.S., LPO vendors now perform high-end tasks and generate much higher revenues.
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Legal process outsourcing (LPO) is evolving into a sophisticated mechanism based on innovative processes and technology solutions also require highly skilled legal professionals at onshore locations. With greater recognition from the legal community and large corporations in the U.S., LPO vendors now perform high-end tasks and generate much higher revenues.“We clocked $40 million with 670 employees last year,” says Pavan Vaish, global chief operating officer of UnitedLex. This revenue figure of $60,000 to $70,000 per employee, according to him, is far more than the $15,000 and $25,000 averages generated by the business process outsourcing industry and finance and accounting outsourcing respectively.
Furthermore, UnitedLex has registered a 60 percent revenue growth in 2011, and hopes to continue the trend.
Global delivery
It is noteworthy that the stagnation in the major economies of the world has not dampened spirits in the industry, which is benefiting from its ability to provide increasingly higher value addition. A critical aspect of its recent achievements has been global delivery – being capable of delivering services from multiple centres around the world, and most importantly, from close proximity of their client locations. A physical presence in the U.S. and UK not only attracts hitherto reluctant customers, but also helps in devising new cost-effective delivery models.
“With very robust processes and extensive use of technology, we create a tripartite relationship between law firm on one side, and company’s legal department on the other,” says Ram Vasudevan, CEO of QuisLex. According to him, the big LPO providers, including QuisLex, are involved in complex work streams relating to litigation, M&As, due diligence, and end-to-end contract management.
With its new-found confidence, the primary pitch of the LPO industry does not any longer centre around cheap delivery options for the traditional legal tasks. According to Mark Ross, vice-president of Integreon, it is important that they are able to deliver a suite of options to their clients. “A global delivery platform provides clients with choices, and enables LPO providers to allocate the most appropriate resources to a particular engagement,” he says.
Integreon has 17 offices around the world including LPO delivery centres in New York, Washington D.C., Atlanta, Los Angeles, Fargo (North Dakota), London, Bristol, New Delhi, and Mumbai. It employs over 750 lawyers, paralegals, eDiscovery support staff, and project managers. “They help us provide 24x7 follow-the-sun legal services delivery to our clients,” says Ross.
Onshore delivery also adds to the confidence and the comfort of the clients. According to Suchorita Mookerjee, director, legal operations at Bodhi Global in Pune near Mumbai, “most of the prospective customers are usually averse to outsourcing due to a perceived risk of poor operational performance of delivery centres at far away locations”.
Anti-outsourcing debate
Furthermore, the outsourcing debate in the U.S. is as alive as ever before. Recently, while outlining the proposed amendment to the model rules of professional conduct for legal outsourcing in the U.S., a commission set up by the American Bar Association (ABA) made some very pertinent observations on the industry. In its report to the ABA’s House of Delegates, the “Commission on Ethics 20/20” said that “certain outsourcing is controversial in light of the current employment market for lawyers, and the economic hardships faced by lawyers currently seeking jobs”.
The commission’s report said that the proposed changes are “neither an endorsement, nor a rejection of the practice of outsourcing”. Rather, it said that the proposals “respond to the existence and continuing growth of these practices, and are intended to clarify a lawyer’s obligations in this context so that lawyers who decide to outsource do so in an ethical and responsible manner”.
In fact, the commission’s recommendations, which will be considered in ABA’s annual general meeting in August, do not demand any sweeping changes. One of them, for example, merely clarifies that the “lawyers may not engage in outsourcing when doing so would facilitate unauthorised practice of law”.
At the same time, while admitting the complexities associated with the definition of outsourcing, the commission, in its 17-page report, said that the “diversity of outsourcing arrangements make bright lines impossible to draw”.
Fading distinctions
Indeed, some of the complex tasks now undertaken by the LPO providers could easily be classified as those of law firms. For example, UnitedLex undertakes patent drafting assignments for the electronics, automotive and medical devices companies, which according to Vaish, is an extremely high-end task for them. “We also have eDiscovery professionals who are certified 30(6)B experts and testify on behalf of our clients,” he says.
Regarding the talent employed to gain domain expertise for such specialist tasks, Vaish says that with the exception of some financial services, sector-specific skills are not required for LPO work. “We (only) need very deep skills in particular horizontal areas like forensics, eDiscovery, document review, contract management, and intellectual property,” he says.
Choosing delivery centres
To maintain a cost-effective model, the LPO providers try to deliver most of their routine legal work out of India or other offshore centres. However, at the same time, clients are offered a choice from the available resources along with the linked cost structures. As expected, the services delivered from offshore locations are always cheaper than those from within the U.S. or UK.
In addition to cost, there are numerous other factors that determine the choice of outsourcing location. According to Ross, these include legislative restrictions such as the Data Protection Act in the UK, and the Export Control Regulations in the U.S. Furthermore, he says that the decision could depend upon the complexity of the task, familiarity with the client’s particular legal system, the amount and type of communication required, project duration, client comfort with a location, time zone preference, and language skills.
While giving an example of a legislative restriction, Ross says that when a U.S. patent application drafting is outsourced to India, it is possible that the information sent to enable this drafting could be deemed technology, export of which may have been prohibited. He, however, adds that: “The ultimate arbiter as to determining the suitability of outsourcing a particular engagement must rest with the client; otherwise, we would be providing legal advice to our clients, and (thereby) engaging in the unauthorised practice of law.”
Technology application
For managing their global delivery operations, it is important that LPO providers install workflow technology platforms to enable seamless interaction among various teams around the world. “Platform LPO vendors have an extra edge in the market as they offer integrated service delivery,” says Mookerjee. “Processes relating to document review for litigation support, contract management, due diligence, legal research, and intellectual property are best managed through a platform,” she says.
As technology applications are integral parts of the LPO business, its innovative and integrated platform-based solutions tend to be far superior than the other systems. For this reason, many law firms and corporate legal departments prefer not to have in-house technology solutions, and instead subscribe to SaaS (software as a service) solutions offered by LPO providers.
According to Vaish, UnitedLex benefits hugely from this new trend of sharing technology platforms as it manages to attract even those customers who do not outsource their legal work. “The customers log in and work on our SaaS environment hosted in our private cloud,” he says.
Furthermore, Vaish says that the clients are willing to pay a premium for processes that help in the effective use of its technology. No wonder then, the technology solutions generate almost half of UnitedLex’s revenue. The practice also helps the company to understand customer business, and become capable of offering other outsourcing solutions in the future.
However, contrary to expectations, UnitedLex does not claim to use the latest technology, and there are good reasons for it to be slightly conventional. “While we want technology solutions that are best of breed, some of them may not be fully established, and therefore, we prefer proven and stable solutions,” says Vaish. “At the end of the day, we are in the business of reducing risk for our clients,” he says.
Cost pressures
Risk minimisation and compulsions of cost reduction always emerge as the two big competing factors in the corporate boardrooms discussing outsourcing options. According to Vaish, until a few years ago, there was no pressure on the in-house legal departments to cut costs; however, it is no more the case. “Companies are going into more and more litigation, and at the same time, legal budgets cannot go on increasing,” he says, “these companies then also put pressure on law firms to be more cost efficient.”
The choice is not easy and initially, the companies and law firms are always very tentative in their approach to outsourcing. According to Vasudevan, who is based in the southern Indian city of Hyderabad, “the streams of work from a new client are often limited. But once they get comfortable with our quality and performance, the work increases significantly”. Furthermore, he says that most of the growth for QuisLex, which also has offices in New York and Chicago, comes through references and more work from existing clients.
Though corporate in-house legal departments initiate the outsourcing trend, law firms are equally good customers for LPO providers. Confirming the trend, Ross says that both the streams contribute equally to Integreon’s business. The outsourcing benefits for law firms, according to him, include increased flexibility, increased scalability, use of the best technology, and continuous improvement in service delivery.
Over the course of the last three years, says Ross, law firms like Simmons & Simmons, Allen & Overy, Pillsbury Winthrop Shaw Pittman, King & Wood Mallesons, and Corrs Chambers have publicly acknowledged LPO relationships with Integreon. According to him, “the law firms that embrace legal outsourcing are now viewed as innovative, ground breaking, and cognisant of their clients’ concerns”.
Challenges ahead
There are many issues that the LPO companies themselves would need to resolve before they succeed in helping others. According to Mookerjee, there is a lack of industry wide standardisation of processes, materials and configurations, which according to her, makes global delivery difficult. Mookerjee is particularly concerned about the lax attitude among various Indian LPO providers towards information security and confidentiality aspects. “There are some small time players who do not put proper preventive measures for confidentiality and data protection,” she says.
Mookerjee says that during recruitment interviews for Bodhi Global, many lawyers with prior LPO experience disclosed that in previous jobs, they were never subjected to body searches and used to carry personal electronic items including pen drives in the office premises. This, she says, may give a bad name to the entire industry.
Furthermore, according to Mookerjee, the clients who experience laxity in quality or delivery of service in their first outsourcing venture rarely agree to consider that option again. She, however, claims that in the past decade of the LPO industry, she has never heard of an instance of a data leak.
Regarding the availability of workforce in India, Mookerjee says that though young lawyers in the country have the required qualification, they lack some important skills. For example, she says: “American English is very different from the English that is taught in our schools. So we do have to train them in basic American business correspondence.”
Another problem affecting the capability of global delivery is the fluctuations in the amount of work, which is particularly common in litigation assignments. According to Vaish, “in the U.S. we are able to get temporary workforce. However in India, flexible staffing for professional talent like lawyers does not exist”. For this reason, he says that the offshore delivery centres are usually assigned with the base work, while the fluctuations are handled onshore. In UnitedLex, its India delivery centre employs 500 lawyers, while there are around 150 in the U.S. and 20 in UK. British Telecom is one of its major clients. (Most of the outsourcing work for BT is done outside UK).
Availability of highly-trained lawyers in India was the basis for the start of LPO services, and will probably remain a major factor for the country’s position in the industry. “Today, 85percent of all the offshore legal outsourcing companies are still located primarily or exclusively in India, and despite the ongoing emergence of other destinations, India will continue to play a dominant role,” says Ross.
However, the high attrition rate among these young lawyers, who form the main task force, is another challenge that the LPO industry has to deal with. “They have many career options, and by just becoming the highest payer, one doesn’t reduce attrition,” says Vaish.
Hiring senior lawyers – with more than 15 years of experience – having appropriate skills face a different kind of problem. “The cost of hiring such a talent at offshore locations is very high, sometimes very similar to the cost in the U.S.,” says Vaish, “there are very few people with specialised skills, and (a) lot of companies are going after them.”
According to Mookerjee, LPO providers in the U.S. look for qualified Juris Doctors with an experience of seven to twelve years in law firms of relevant jurisdictions.
Bright future
With almost all the LPO providers employing less than thousand lawyers, a consolidation seems to be on the cards. “LPOs are progressing towards large-scale acquisitions and mergers, wherein big players would like to consolidate their market spread, capacity, and provide wider span of legal services through takeovers,” says Mookerjee.
However, according to Vaish, currently there is very little to acquire, for achieving higher scales and companies have to build the business. For this reason, he says there are large venture capitalists investing in smaller companies. According to him, the LPO companies could provide global delivery only if they achieve a certain scale because as the labour cost will keep rising, the smaller LPO providers will face severe margin pressures. The only way out, he says, is by increasing productivity through investment in technology and processes, which will be a tall task for a small company.
At the time, when corporations have to deal with increasing regulations around the world and a virtual explosion in electronically stored information, the role played by the LPO industry cannot be overstated. Vasudevan says: “LPO is enabling access to much better information, which is leading to more effective decision making and an improved way of implementing the law as a practice.”
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