INTRODUCTION TO LEGAL PROCESS OUTSOURCING(LPO)
A.
Legal
Process Outsourcing – a value added KPO service
Legal Process Outsourcing (LPO) is one of the value added KPO
services which involves legal work that companies outsource to more economical
offshore destinations.Legal outsourcing consists of various processes which can
be classified into low skilled quantitative tasks or high end qualitative
tasks.
Low
skilled quantitative tasks consist of:
•
Paralegal
Services & Legal Coding
•
Corporate
Secretarial Services
•
Legal
Memo Development
•
Medical
& Legal Transcription
•
Document
Management
•
Litigation
Support
•
Data
entry
•
Immigration
data analysis and working on labor relations.
Whereas
the high end qualitative tasks include:
•
Intellectual
Property Rights & IPR Portfolio Management
•
Patent
Search & Application drafting
•
TM
and Copyright Registration
•
Legal
Research/Opinion work
•
Document
Review and Analysis
•
Intelligence
Services
•
Contracting
and Administration
The legal process outsourcing (LPO) industry emerged in the late 1990's,
when a handful of major corporations established "captive" legal
departments to handle their high volume, process oriented work. Legal Process Outsourcing (LPO) was at a fairly
nascent stage since its emergence and evolved gradually.
The first generation of LPOs was all about redlining documents and very
low-end types of legal work. Law firms have gradually engaged in much higher
end legal work. LPO 1.0 (“first wave”) was the initial stage for the LPO industry
and focused on labor arbitrage for services. LPO 2.0 (“second wave”) noticed
the growth from smaller to bigger LPOs and it focused on maturity of legal
services delivery models. The LPO 3.0 (“next generation”) is considered as the
“third wave” LPO. The third wave LPO is about provision of integrated solutions
with the combination of legal and IT knowledge. Enhancement of the conventional
practices can be achieved through LPO 3.0.
The advent in technology and the changes observed in market requirements
over the years has had quite an impact on the evolution of the legal process
outsourcing (LPO) industry. The evolution started with the gradual acceptance
of outsourcing legal tasks to third-party service providers by the legal industry.
The year 2008 was considered to be a turning point for LPO providers. The industry received a major
commercial push following the global economic slowdown, as more organisations
and law firms looked out for ways to reduce costs. One of the methods to reduce
costs, adopted then by companies was to outsource routine legal tasks,
typically of bulk volume.
Legal process outsourcing originally comprised law firms and large
corporations outsourcing large document review projects for litigation
disclosure or transactional due diligence to an offshore provider. However, the
recent economic downturn, along with market liberalization and pressure from
clients on prices, has driven many firms to look again at LPO. Legal business
culture has seen a dramatic change with increased focus on unbundling legal
services in order to benefit from the economies of scale. The most significant
change noticed in the LPO industry has been in the quality and complexity of
the services rendered by LPO providers. With the growing acceptance of the LPO
industry in the corporate space, it has fuelled the expansion of the industry
to a large extent. Currently, the much sought after tasks undertaken by service
providers include managed document review, due diligence and contract
management. The change in these services has been in terms of the augmented
complexity and end-to-end breadth of the services. For instance, in litigation,
this is likely to involve areas such as deposition prep and surveillance
audits. Earlier, these tasks were confined only to the purview of in-house or
specialist counsel. Considering the contracts side, services now involve end-to-end
contract negotiation and managing open source software licensing programs.
C.
Growth Trends in LPO Industry:Transformation
from Labor arbitration to Labor Innovation
The LPO market has expanded significantly over the last 10 years to
include in its ambit different service lines ranging from document review to
compliance, research and contract management.LPO, after undergoing different
phases of development, have now moved to the next phase. It has undergone an
archetypical shift from the previous generation to the next generation.
LPO has no longer remained the source for labor arbitrage only. It has
evolved since its inception. The value proposition for LPO is undergoing a
change. The LPO concept includes not only off-shoring concepts but also
near-shoring, blended shoring. The LPO space has over a several legal providers
globally offering a variety of services across a number of locations. While
providers have evolved organic and inorganically, there remains a lot more
scope in terms of growth and innovation as the industry matures. This
innovation includes but is not limited to:
•
Further
integration of technology within service offerings to ensure quicker and more
efficient delivery
•
Harnessing
corporate and law firm relationships to support growth
•
Regulating
billing rates given increasing inflation offshore
According to an estimate provided by the Global Legal Post, about half
the companies outsource an average of 11% - 30% of their legal work to LPO
providers. LPO offerings include cost-effective, high-quality services in
corporate, litigation, merger and acquisition, compliance matters, corporate
restructuring, etc. The niche work undertaken by LPO providers such as SKJ
Juris, Integreon, etc. requires skilled resources for carrying out more complex
and high-value tasks. The industry now relies on technology to a large extent,
including both third-party solutions and proprietary software, in order to
provide technology-enabled services to clients specifically for electronic
discovery and contract management and review.
Back in 2005, ValueNotes, a research firm, was one of the first analyst
firms to track the (then fledgling) LPO industry. At the time, outsourcing of
legal services was a “hot” new service line with much promise. Growth rates
between 2003 and 2008 averaged more than 40% a year, though on a small base.
Coupled with low entry barriers, this attracted hordes of new entrants.The
number of Indian service providers jumped from around 40 in 2005 to more than
125 by 2008. Early adopters (buyers) were willing to experiment with pilot
projects, and this allowed start-ups to win small contracts and get going.
According to a report by ValueNotes in 2010, the industry employed about
24,000 people and earned revenue of $640 million.In late 2010, a ValueNotes
survey of legal service buyers in the US and UK revealed signs of disillusionment
amongst customers. Significantly, complaints about quality, consistency and
skills were complemented by concerns over data security and client
confidentiality.
The 2012 legal outsourcing market global study estimated the
global LPO market had grown on average at a rate of 32% in each of the past
three years and suppliers it consulted expected a similar rate of growth for
the next three years.It stated that the total LPO market, which currently
employs nearly 9,000 people, equated to a mere 0.25% of the global legal
services market, while anecdotal evidence suggests existing LPO users “have
only outsourced about 5% of what they could potentially outsource”. The report
further revealed that LPO arose because of a perception value gap between the
law firms’ outputs and the costs they were charging for those costs.Key future
drivers for growth in the LPO industry were “continued budgetary pressure from
general counsel” and “client pressure on law firms”, it said. A lesser driver
for growth was alternative business structures.
In the past three years, the legal outsourcing industry has
grown about 60% annually.
In a
recent article dated January 05, 2015 published by Value Notes, it has been
predicted that “The Global Legal Process Outsourcing market to grow at a CAGR
of 27.4% over the period 2014-2019”. According to the report, one of the
primary drivers of this market is significant cost reduction. Labor arbitrage,
which is the shifting of processes from more expensive locations to less
expensive locations, is regarded as one of the most advantageous benefits of
outsourcing business processes. The outsourcing of legal processes helps firms
gain access to local expertise and advanced technologies in other countries,
while simultaneously maintaining a lean workforce.
D.
Outsourcing venture in India
Legal outsourcing has gained tremendous ground in the past few years. LPO
firms, primarily from India, have had success by providing services such as
document review, legal research and writing, drafting of pleadings and briefs
and providing patent services.
Today, India is one of the most important destinations for
LPO.India is geographically placed in a time zone that is distinct to that of
the US and UK, thereby enabling round the clock legal support to these
countries.In the context of an LPO initiative, a client company selectively
delegates certain legal functions and services that are traditionally performed
in the United States to an LPO provider based in an offshore location such as
India. The provider offers the client a skilled or trainable workforce at costs
that are significantly lower than those demanded by US counterparts. The basic value proposition of the LPO, then,
holds that outsourced legal work will be performed offshore by trained,
qualified and locally licensed lawyers and paralegal staff at a fraction of the
cost of having the same work performed by US-based legal professionals.
The LPO industry in India is expected to grow at an average
rate of 30% annually and, according to a NASSCOM-CRISIL study, LPO in India is
the fastest growing segment. Driven by an impetus from a post-recession
environment characterized by higher bankruptcy cases, regulatory compliances
and cost pressures, LPO is also expected to grow by USD 1.3 billion globally by
2015. In India, over the same period, it is expected to reach 18,000
professionals with annual revenue of USD 960 million. NASSCOM also indicates
that the Indian KPO sector has engaged more than 250,000 KPO professionals in
the last year.
After the economic meltdown of 2008, the Indian LPO industry
witnessed a major change. With a number of global companies opting for mergers
and acquisitions to stay afloat, bankruptcy and lawsuit filings became more
prominent, creating the need for an independent sector for documentation review
and legal research. But, as market conditions troubled corporate clients with
rising legal expenses, enterprise legal functions were forced to transform into
leaner organizations and in-house counsels underwent cost cutting and
streamlining, along with all other support functions.
With law firms and corporations becoming increasingly
selective about the resources they hire and instead choosing to outsource,
India has become an attractive destination for law firms, corporations, and
other businesses from the US, UK, Australia, and other countries looking for
LPO providers. Soon, corporations began to pressure their internal legal
departments to outsource certain processes to cut costs and, as a result, they
began using the services of Indian LPO providers.
In the contemporary context, outsourcing legal work to
economically viable destinations has become a practical necessity. And after
achieving success in the BPO segment, India is set to emerge as a leader in the
KPO segment as well, particularly in the LPO sector, considering the country’s
large base of talented and qualified legal professionals.
To sum up, due to the continuous increase in costs and
greater advances in technology, LPOs are increasingly attracting legal work.
Notwithstanding the distance and time zone differences, attorneys who outsource
must undertake efforts to supervise LPO work. It has been an interesting
journey for LPOs until now and the future seems bright for LPOs to be seen as
transformational partners for law firms and corporate legal departments rather
than the perceived outdated thought of it just being a back office.
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