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Direct Sourcing of LPO Services

By Archiit Sethuraman

The LPO(Legal Process Outsourcing) industry at its nascent stage, witnessed a number of concerns relating to data security arrangements and quality issues. Consequently, the general counsels were very skeptical even about its outside counsel engaging with the LPOs. However, LPO in the last few decades has started gaining prominence – due to its cost and quality benefits. It was later observed that many major law firms have outsourced legal activities to the LPOs or have cooperatively worked with them to offer enhanced services at considerably lower costs to their corporate clients.

In the past two years, LPO players have been increasingly contacting the General Counsels (GC) directly, also the growing budgetary pressure faced by the general counsels in the US and UK have enabled them to directly engage with LPO service providers, by-passing the law firms. For this purpose, GC’s are busy unbundling various legal services and outsourcing all transactional activities (mostly done in-house) directly to an LPO vendor.

COST FACTOR

Cost pressure is the primary driver for this trend, apart from that organisations reap other benefits such as improved governance, quality of work and transparency. Of late, the vendors also have been developing their expertise by appointing in-house attorneys, offering on shore services as per the clients’ demand.

The industry woke up and noted Rio Tinto when it struck a deal directly with an LPO vendor, CPA Global in India for document review and basic drafting. In this agreement the General Counsels directly engage with an LPO vendor for any type of contract review and document drafting services without a Law Firm in the picture.

This mainly marked the beginning of a trend where general counsels engage directly with LPO vendors for certain tactical works. Prior to this, corporates followed a bundled approach – whereby they engaged with a law firm who in turn outsourced/off shored the company’s assignment to an LPO vendor.

Typically, the legal works is unbundled into these two categories:

1) Transactional service: Involves the everyday legal services such as contract management, document review, patent review for which an LPO vendor is engaged directly.

2) Advisory service: Involves interpretation of law, advising clients on litigations, representing a case in the court of law for which a law firm is engaged.

Now, let’s talk about the benefits of directly engaging with an LPO:

• Cost: Organisations reap a cost benefit of about 30% by directly engaging with an LPO vendor, which otherwise is only 5-10% sourcing via law firms. This cost benefits are immediately reaped by corporates in the following ways.

• Reducing In-house resources: An in-house or a law firm associate would typically cost $350 per hour for contract review, document review and drafting whereas an attorney in India would charge $250 per hour for similar services.

Organisations, in order to reap this cost benefit, are increasingly offshoring their day to day legal assignments and rationalising their in-house legal team size and are also reducing their law firms’ engagements.

• Aligning resources for higher value activities: By outsourcing low value transactional services to third parties, organisations can now utilise their in-house attorneys on complex, high end works.

A simple case example: A leading consulting firm’s legal department had several NDAs to review periodically – they outsourced this contract review process directly to a third party LPO in Asia, which enabled their in-house attorneys to focus on complex assignments such as preparing Master level agreements and provide standard consulting. This process also gained the company a cost benefit of more than 50% (Source: Integreon)

• Improved Visibility and Governance: The LPO vendors are typical BPO organisations specialised in outsourcing assignments. According to a survey by Outsource Portfolio, all the top 10 LPO firms globally are six sigma certified for project management. LPO services, with the increasing demand, have gained a prominent position amongst other BPO services. Companies such as Infosys and Wipro (known for their ISO and FAO offerings) in India have also started to offer LPO services.

By engaging with such trained BPO vendors, General Counsels obtain increased visibility into their legal services by obtaining daily reports to monitor the process, establishing SLAs and KPIs, improving turnaround time and leveraging technology effectively. Whereas they do not reap such benefits when they outsource through a law firm who are culturally trained to interpret and advise law.

• Improved Role of Procurement Professionals: The biggest challenge facing the general counsels by this direct sourcing approach is managing this additional list of vendors. As stated above, the LPO vendors are typical BPO organisations and are different from law firms.

Industry experts feel that there is an opportunity now for the procurement to enter the picture, who traditionally have a limited role in legal service procurement in Fortune 500 companies.

 As mentioned above many of the LPO vendors are traditional BPO service providers with whom the procurement has prior experience for HRO and FAO assignments, hence the procurement people opine that they can support LPO sourcing in terms of managing these suppliers in terms of identifying suppliers and contract negotiation thereby getting an entry into the companies legal spend area.

LAW FIRMS’ RESPONSE

In response to this trend, law firms have also started to unbundle their services and offshoring transactional services to low cost countries and entering into strategic partnerships with LPO vendors.

Some prominent UK law firms such as Allen and Overy transferred its back office operations to Northern Ireland; Allen and Overy has partnered with Integreon to outsource litigation document review to India. Taylor Wessing has set up New Street Solutions – a separate division for offering contract management, document management and due diligence services

CONCLUSION

This Direct engagement approach and its cost benefits has been clearly recognised by the General Counsels, who are increasingly focused on unbundling their legal services. Surveys indicate that approximately 37% of the large organisations (revenue >US$3 billion) have already started to unbundle their service and engage with LPO’s directly.It is now time for us to watch how general counsels and LPO service providers work together in the forthcoming years and shape up this industry.

Archiit Sethuraman a Research Analyst in Legal Services with Beroe Inc.

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