Offshore LPO / Legal Outsourcing: Opportunities and Risks
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| "The LPO Revolution" | |
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In the above-titled article in the India Business Law Journal by Ben Frumin, a respected journalist whose writing has been published in several newspapers, magazines, and websites, the author has charted the development of the legal process outsourcing industry and assessed the opportunities and risks it poses to global businesses and law firms: Indeed, the (LPO) industry, which was valued at US$146 million at the end of 2006, is expected to grow to US$640 million by the end of 2010. Manpower in the sector is expected to quadruple from 7,500 to 32,000 over the same period. And Sanjay Bhatia, head of operations at SDD Global Solutions, an LPO founded by New York law firm SmithDehn LLP, is confident this figure will grow significantly: "Western companies and individuals now spend US$250 billion per year on legal fees," he says. "We figure the vast majority of the work can be done in India for half the cost, so we are actually looking at a legal outsourcing industry worth up to $100 billion or more.". "India is the outsourcing market of choice for the US and UK," says Rob Stichbury, business development director at legal process outsourcing firm CPA.
Frumin points out that there are several reasons for India's emergence as the world's primary offshore legal outsourcing market: Widespread use of the English language, a legal system based on common law, a plentiful supply of well-educated graduates (not to mention graduates in other fields of technical expertise like engineering, chemistry and biology) and, of course, the potential for huge cost savings. "No other country has the scale, skills availability and legal system equivalent to India today," says Stichbury. And as businesses have succeeded in reining in their legal spending, the outsourcing sector in India has been the principal beneficiary. As a result, there are now more than 100 LPOs in India, although Stichbury estimates that 80% of the market is served by about 10 of these companies. Major players include Aphelion, CPA, Evalueserve, Infosys, Integreon, LawScribe, Mindcrest, Pangea3, QuisLex, SDD Global and others, but according to Stichbury, "no dominant player has yet emerged."
Frumin also indicates that "[t]he work farmed out to LPOs ranges from small projects like Rab's to months-long document reviews, transcriptions, litigation support, electronic data discovery, court briefs, patent applications, proofreading and the auditing of legal fees." He mentions that the clients of the legal process outsourcing companies "are typically western legal publishers, law firms and corporations - each with unique requirements." He explains: Many of them are skittish about publicizing the fact that they outsource work. "They fear backlash from people in their home country who are concerned with the effect that offshoring will have on the job market," says Bhatia, noting that among the better known clients of SDD Global Solutions are Twentienth Century Fox, Calvin Klein, John Wiley & Sons, and Elsevier. "But you will find that most providers of offshore legal services keep their client lists very private." "Initial outsourcing clients were legal departments of large corporations," continues Bhatia. "Such clients are now driving large law firms - the last to outsource work that will cut into their own billing - in the offshoring direction as well."
Noting that the majority of employees at LPOs are Indian-trained lawyers, Frumin adds that, "[a]t SDD Global, for instance, Bhatia says that new employees 'are hired only after a three-hour written aptitude test, a written essay, multiple interviews and a thorough background check.'" Frumin moves on to analyze the argument from many LPOs that the work they produce is not only cheaper but better than that of US employees: Several LPOs also claim to be faster than their western counterparts, an advantage Bhatia describes as "extraordinary.". "Our legal outsourcing teams add approximately 12 hours to the normal legal services workday," echoes Bhatia. "As law firm attorneys or in-house counsel in the West head home to sleep, a fresh round of legal work on the day shift in India is just beginning." Bhatia's firm is also able to meet the demands of clients that require a large number of lawyers to work on a single project: "We can provide the assistance of a single researcher or an entire platoon of trained professionals thus enabling clients to 'flood the zone' where such an approach is warranted." "This is virtually the opposite of the practice of many large western law firms, which, by necessity, must promise their clients, 'lean staffing' to address well-founded fears of compounded hourly fees climbing through the roof."
Frumin also refers to the problems on the client side of legal process outsourcing: Trouble can arise, for example, if a US lawyer utilizing an LPO adopts a "wash-their-hands" approach to a particular outsourced task or function, says Ross (Mark Ross, LawScribe's director of business development and a former partner at Underwood Solicitors). "Maintaining clients' reasonable expectations is sometimes difficult," Ross continues... Clients also need to be aware of what Ross describes as "fly-by-night" LPOs. Lawlor (Aaron P Lawlor, vice president of project management at Aphelion Legal Solutions) views such companies, which often offer services in areas in which they lack expertise, as the "major problem" for the budding industry.
Frumin believes that amongst the criticisms leveled at the LPO industry, security and confidentiality concerns often top the list: This is not only an issue for clients to worry about, but also for the LPO vendors themselves: A well-publicized breach would be devastating and could destroy international confidence in the industry. "[Security] is a legitimate concern of clients," concedes Bhatia, "regardless of whether the legal service provider is a western law firm or an offshoring company in India." Bhatia says several US ethics panels have scrutinized LPO work, and have concluded that everything "is perfectly ethical as long as the work is supervised by a licensed US attorney who is finally accountable for the product." It is also important that the primary client is aware that one legal service provider is outsourcing its work to another.
The author concludes by cautioning the prospective clients that irrespective of the dangers that do exist, it's important that they exercise a great deal of care when selecting a legal outsourcing vendor: Watertight contracts between a client and an LPO are another important safeguard. These should contain provisions setting out specific recourses in the event of a breach of confidentiality by the LPO or one of its employees. They should also specify performance targets and penalties that apply if these are not met.
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