The legal process outsourcing (LPO) business is relatively young, having only gotten off the ground in the late 1990’s. Initially, the industry’s focus was to help drive down costs for corporate legal departments and then later for law firms. A new white paper published by LPO provider Pangea3 (a Thomson Reuters business) argues that LPO providers are increasingly moving beyond cost cutting measures to providing services such as end-to-end solutions, bundled services, secondments, and offerings around governance, risk and compliance.
Now valued at $400 million (2010 revenue), the LPO industry is expected to gross $2.4 billion by the end of this year, according to research by Datamonitor, reports Pangea3. This new growth phase, dubbed “LPO 2.0,” is being driven by large law firms and in-house legal departments seeking solutions to expertise, speed and capacity issues as well as cost savings.
While corporate counsel were the first to pioneer the use of “captive” legal departments in India, the use of LPO providers such as Pangea3 and Integreon is increasing by large law firms both in the US and overseas. Firms including Nixon Peabody and Australia’s Mallesons Stephen Jacques (now King & Wood Mallesons) have signed preferred provider agreements with LPO providers as they rethink their traditional models for delivering legal services.
India remains the top choice for offshore work. However, onshore options in the US and the UK are growing. While offering cost savings, they also function as a gateway for those clients who want to have third-party work performed locally or for those who handle documents that by law must be managed onshore. Last year Pangea3 opened a new office in suburban Dallas and Integreon opened a new document review center in the Washington, DC-area. In the UK, Integreon opened an onshore LPO facility in Bristol earlier this year.
LPO 2.0: Why the Transformation?
The paper argues that the 2008 global financial crisis created many of the conditions that led to the expansion and maturation of the LPO industry. Many legal departments found their budgets cut and even large law firms were under pressure to reduce costs.
In addition to a cost saving solution, LPO makes costs predictable, something especially attractive to those working under tight budgets in the unpredictable world of litigation. Many trends we see currently had their beginnings around this time: LPO providers began ramping up their headcounts, offering more, and more comprehensive, services and winning more long term and/or bundled service contracts, as opposed to short term transactional work.
But there are more complex motivators behind the industry’s shift from simply a cost savings solution to a solution based on speed, capacity or expertise, especially in litigation and regulatory areas, reports Pangea3.
Client research shows that a high percentage of LPO clients now choose to use legal outsourcing to increase efficiency and to have access to specialists. Numerous clients turn to LPO to expand their capacity or to react to changes in the environment. LPO’s success lies in its ability not only to cut costs, but to provide solutions when clients need to do more with fewer resources.
The global financial crisis also brought about new regulatory pressures which have helped to drive the need for risk management and compliance services. New regulations, especially in the financial services industry and other highly regulated industries, have put more responsibility on companies to ensure compliance, both in their home countries and wherever they operate globally. “LPO providers have adapted to the new burdens their clients face, and, along with their ability to scale, have created efficient processes allowing them to deal with a large number of policies. “
In addition, litigation practices have been a driving force that is moving the LPO industry beyond the realm of cost savings. As the amount of data created has increased, along with more demanding requirements for data preservation, the volume of litigation document review has grown sharply. Law firms and legal departments involved in large-scale litigation can utilize LPO services “to temporarily expand their teams” and “in hiring full time employees of their LPO provider they are often able to repeatedly work with the same people, who can bring institutional knowledge of the client to bear.”
Finally, the 2008 recession forced law firms and corporate counsel to find innovative ways to do more work with less staff. This was especially true for general counsel feeling pressure to reduce legal spend both inside and outside the company. As a result, LPO clients have used legal outsourcing more often and have demanded more types of services, contributing to the wide range of services that LPO providers now offer.
LPO 2.0: What Has Changed?
Today, the LPO industry has grown increasingly sophisticated, especially with regard to corporate transactions, litigation, and compliance, governance and risk management. But back in 2005, a report on the industry published by ValueNotes, broke the industry down into four very basic categories:
- Legal support (e.g., legal transcription, coding, secretarial and paralegal work)
- Legal research (including some contract drafting)
- Intellectual property (e.g., prior art search and drafting patent applications)
- Non-legal services and higher-end work for in-house counsel that was mainly performed by captive LPO’s
Less than ten years later, LPO providers are now taking these stand-alone services and packaging them into end-to-end solutions. Other industry offerings include bundled services and on-site project managers.
End-to-End Solutions
A good example is in litigation support, a service that has long been provided by LPOs. As mentioned above, the rising volume of litigation document review was a major force in the growth of the industry. As a result, LPO providers today not only help their clients by lowering costs but add value to document review through their processes, quality control and niche specializations.
Today, many legal outsourcing providers provide end-to-end services across the Electronic Discovery Reference Model (EDRM), either by developing a proprietary e-discovery technology in-house, or by working closely with partners to create a seamless transition from data collection to review.
Another good end-to-end example is in corporate services. Corporate transactional work “includes contract drafting, revision and negotiation; M&A due diligence; and contract management and abstraction.”
Bundled Services
Bundled services are reflecting closer strategic relationships between LPOs, law firms and legal departments. Litigation departments, for example, are including LPOs as part of their long term strategy and “litigation support solutions like e-discovery and document review [are] purchased as part of long term bundled service agreements.”
Contract management is another area where bundled services are being seen. Individual contract management services can be sold in combination, thereby streamlining the program and making the process more efficient. “Long term multi-FTE (full-time equivalent) multi-service contracts in this area show a great leap forward for the legal process outsourcing industry as a true strategic partner to legal departments.”
On-Site Project Managers
Another facet of the strategic relationships being forged between LPO providers and their clients is the emergence of project managers who work on-site with the client. These are often long-term secondments, with the LPO attorneys working as part of the client’s team. The white paper reports that:
Demand for these services has increased as legal departments become more stretched, and as the services themselves become more complex, thus better able to demonstrate tangible value beyond cost savings.
Governance, Risk and Compliance
The growth in regulatory oversight has meant an increased need for governance, risk and compliance offerings, most of which were not even on the radar screen at the time of the ValueNotes survey back in 2005. As an indicator of how much the industry has expanded, LPOs now offer a broad array of services that covers activities such as:
“know your customer” due diligence, PEP [politically exposed person] screening, regulatory research and monitoring, policy mapping, insurance research and database maintenance, legal research, and corporate secretarial services, all with sub-sections of services beneath them.
Innovating for the Future
In its relatively short lifespan, the legal outsourcing industry has grown from a group of many small companies into one whose players are larger and much more sophisticated. They have increasingly strategic relationships with their clients that may include services such as end-to-end solutions, bundled services, secondments, and offerings around governance, risk and compliance. “Without a doubt,” the white paper concludes, “legal process outsourcing has graduated from its relatively simplistic and highly transactional beginnings, to LPO 2.0.” Given all the change that the legal industry’s traditional service model has been exposed to during the last few years, it will be interesting to watch how the LPO industry further evolves in the near future.
Posted by Marianne Purzycki
