Legal Process Outsourcing (LPO): 2007 And Beyond

Legal Process Outsourcing (LPO): 2007 And Beyond
Rajashree on -->20 Feb 2008
Over the course of the last couple of years leading law firms have begun to wake up to the reality that we live and operate in a global marketplace. Technology enables an increasing array of legal support services and higher value legal work to be outsourced offshore. The legal profession is now starting to take advantage of the labor arbitrage that has been exploited by other industries for well over a decade. Throughout 2006 and 2007 the offshore legal outsourcing market also witnessed the entry of some of the world’s largest Business Process Outsourcing (BPOs) companies together with a significant level of venture capital and private equity funding.

This article will examine the driving forces behind the emergence of the LPO industry and how it has developed over the last few years. I will also be offering some insight into the direction the industry will take in 2008 and beyond. Finally, I intend to take a more detailed look at the impact that the recently passed UK Legal Services Bill will have on the offshore legal outsourcing market. I am both delighted and fortunate to have contributions to this article from Ron Friedman, Senior Vice President, Marketing at Integreon (http://integreon.com/) and Neeraja Kandala, Senior Research Analyst with ValueNotes (http://www.valuenotes.biz/).

The Driving Forces
The demand for lower cost legal services resulted directly from increasingly cost-conscious U.S. and U.K. corporate clients. The difference between the law and other industries is that outsourcing in the legal market has been client rather than industry driven. In the legal profession, it was not law firms, but corporate legal departments that were the early proponents of the benefits of legal outsourcing. These major corporate clients are now increasing the pressure on their law firms to offer an alternative solution. Historically major law firms on both sides of the Atlantic achieved huge levels of profitability through leveraging their junior associates. The Los Angeles Daily Journal announced earlier this year that pay scales for first-year attorneys rose yet again with a number of firms hitting a staggering $160,000 annual starting salary. Law firm leaders insist that these increases have resulted from U.S. domestic economic forces, necessitating a policy of “Keeping up with the Joneses” in order to retain the top law school talent. The fully loaded cost to the firm of a junior associate at these salary levels will be in excess of $250,000 per annum. Partners look to bill these associates out at hourly rates of $300- $400 plus per hour. These rates simply do not wash any more with major corporate clients when it comes to routine level legal support work such as basic document drafting, litigation support or document review. Over the course of the last 12 months I have spoken to senior executives and managing partners at major law firms who have been advised in no uncertain terms that to retain their corporate client business they must cut their legal fees and offer an offshore alternative. KPMG has estimated that document review can account for between 58% and 90% of the total cost of litigation, and corporate clients view this type of legal work as routine. Law firms are being compelled by their clients to consider offshore outsourcing as a viable strategic solution. 2007 was the year that corporate clients confirmed they were no longer prepared simply to sign a blank check when it comes to paying their attorney’s bills.
Consolidation and Maturation of the industry
Since 2003, in India alone the number of companies offering legal process outsourcing services to both corporations and U.S. and U.K. law firms has grown to well over 100. For further information on the growing number of companies offering offshore legal services check out Ron Friedman and Joy London’s updated list at http://www.prismlegal.com/index.php?option=content&task=viewid=88&Itemid=70#List and the July 2007 ValueNotes report Offshoring Legal Services to India: an Update http://www.sourcingnotes.com/content/view/71/54/.
If 2007 can be categorized as the year when the number of LPO players across India exploded and major law firms began to explore the labor arbitrage benefits available through outsourcing offshore, then the picture will start to change again in 2008. Even while a large number of “mom and pop shops” were clinging on to the major players’ coat tails and jumping on the LPO bandwagon there was evidence of consolidation. This will only increase throughout 2008 and beyond. The dynamic movement within the LPO industry has not gone unnoticed in the private equity and venture capital sectors. The confidence that investors have demonstrated in the industry throughout 2007 illustrates the bright prospects for the coming year. In November this year Infosys, India’s second largest IT company, signaled their intent on entering the legal outsourcing market with the launch of their own legal process outsourcing operation. Established LPOs including Pangea3, Jurimatrix and SDD Global have attracted a significant level of private equity and venture capital funding. 2007 also witnessed the first acquisition of an onshore provider of outsourced legal services, CBF Group Inc, by a company traditionally viewed as being a leading offshore financial and legal services outsourcing company, Integreon. This type of activity has placed legal outsourcing companies in the position to scale up dramatically.According to the independent research company ValueNotes in their July 2007 report, “Offshoring Legal Services to India - An Update”, the revenues from legal services offshoring are forecast to grow from $146 million in 2006 to $640 million by the end of 2010. The legal outsourcing industry in India currently employs around 7,500 people and this number is expected to rise to 32,000 by 2010. Neeraja Kandala, the analyst behind the ValueNotes updated report, believes that consolidation is inevitable:
“Most Indian legal service vendors are self-funded, and may not have the capability to develop adequate marketing infrastructure without VC funding. For a large number of the smaller vendors, growth beyond a point will be difficult. While a few will manage to grow given their strong onshore presence, several smaller players will be vulnerable. On the other hand, the interest of large BPOs such as Infosys and HCL in this space is growing. As these BPOs look to build presence and scale rapidly, the acquisition of smaller vendors is an option. Though there is not much activity yet, over time we will see consolidation, with large BPOs and LPOs acquiring capacity and capability.”
Ron Friedman, Senior Vice-President of Marketing for Integreon and one of the world’s leading authorities on knowledge support strategies and the legal outsourcing industry generally provides his view on the consolidation of the LPO marketplace.
“As a general rule, industries consolidate as they mature. In the legal market, we see evidence of that now with electronic discovery vendors and large law firms. Even the traditionally fragmented legal software market is consolidating as LexisNexis and Thomson-West acquire smaller software players.
So I expect that the LPO market will not be an exception. Of course, guessing the time frame is always hard, but I suspect it will consolidate in the next two to three years. Whether that is a result of organic growth of some plus attrition of others or by acquisition is too early to say.
For LPOs, scale will drive consolidation. Scale is important for three reasons. First, it supports operating efficiencies. While lower offshore labor costs continue to offer significant savings today, in the future law firms will expect further savings from process improvements. Achieving these requires a large enough volume of work to gain the requisite experience and resources to re-engineer work flows. Second, scale means being able to offer a range of services which law firms will find valuable as they grow comfortable with offshoring and seek to outsource additional functions to a single supplier. And third, scale allows an LPO to recruit the best talent. Though talent is still readily available, the supply is limited, even in India. Larger operations will be able to invest in recruiting and, more importantly, to offer desirable career paths for the best workers.
Size will also help address whatever reservations law firms may have about offshoring. Law firms are always concerned about supplier stability and frequently have reservations about small ones. Larger LPOs will address this general concern and, as important, have both the reputation and references to allay other fears.”
Public Acknowledgement
Given that the majority of the leading LPOs can testify in 2007 to having received projects from AM law 200 ranked law firms, where are the testimonials, quotes, and press releases from the law firms’ managing partners? I am perfectly aware from my own experiences and numerous discussions with both the press and my peers at other LPOs that although major law firms have begun to explore the benefits associated through offshore legal process outsourcing they are also clearly still operating from a standpoint of reluctance to discuss their outsourcing relationships. There is a feeling within the industry that the major firms still view their own offshore legal outsourcing arrangements as a dirty little secret. Attempts by LPOs to include provisions within their contracts that allow publicizing of the deals have generally been met with rejection to date. Over the last 12 months I and many of my peers at leading LPOs have written articles for or been interviewed by journalists for publications as varied as Time magazine, the American Bar Association, Wall Street Journal, the Los Angeles Daily Journal, and the Association of Legal Administrators, to name but a few. The vast majority of these articles are still missing out on the “major firm” perspective. There is an unwillingness to go on record and confirm that the firm is outsourcing elements of their legal functions, whether back-office support or higher value legal work, to India. This is clearly frustrating for the LPOs who want to shout from the rooftops about every major client they have on their books.
I anticipate that this will change over the next couple of years. Don’t expect a tidal wave of confessions; however in the same way that the major firms’ initial interest in exploring legal offshoring was client driven, so will their eagerness to publicize the fact of their involvement. During the last year many of the law firm partners who have contacted both LawScribe and some of the other leading LPOs have been perfectly content to acknowledge that the reason they are approaching an LPO in the very first place is because their corporate clients are starting to demand that they offer an offshore element in their responses to RFPs or they will simply lose their business altogether.
As it was with the first uptake of offshore legal outsourcing, the public acknowledgement of the actual utilization of these services will of course be client driven. In 2007 we viewed the very first signs that an inherently risk-averse legal profession was publicly embracing the harsh reality that no industry was immune to the forces of globalization. Although the majority of the world’s leading law firms are still reluctant to go “on the record” and acknowledge their interest in offshore legal outsourcing, throughout 2007 AM Law 200 firms have been consistently approaching the world’s leading legal process outsourcing companies, submitting RFPs and inquiring about the various services on offer.
The picture has started to change. On occasions representatives from leading firms have joined their LPO providers on panel discussions at a variety of legal conferences that have begun to address the subject in 2007. I believe that in 2008 we will reach the point where having the law firm’s name out in the public domain as one that embraces offshore legal process outsourcing will actually be an attractive bonus for potential corporate clients, hence helping generate new business rather than turning people off.
Ron Friedman provides his own unique insight on whether 2008 will be the year that the major law firms come clean and publicly acknowledge that offshore legal outsourcing is firmly on their agendas:
“There is a common “tipping phenomenon” among large firms where no one wants to be first. Of course, a firm does go first and eventually a couple follow. Once a half-dozen or so have moved, the market tips – then, no one wants to be left behind not doing the new thing. Looking at adoption of e-mail and creation of marketing departments as examples, it seems to take at least five years for a cycle to play out. Today, firms are reluctant to acknowledge publicly that they offshore. Once a few go public, it will likely take little time for the rest to follow. And because of perceptions, more are likely to go public soon…
Law firms have many constituencies but clients come first. Large firm clients are, by and large, cost-sensitive in-house counsel. Firms can gain both a perception and actual advantage with clients by making clear they understand and are responding to the cost pressures facing their clients. Cutting associate or partner rates (whether directly or by discounting) is not attractive. And, talk notwithstanding, fixed and alternative fees have yet to gain significant share. So the number of ways to reduce costs is limited. As firms gain comfort with offshoring quality, they will understand that it is a good way to offer savings without affecting the firm’s core business. It therefore seems likely that market pressures will cause the early law firm adopters of outsourcing to also be the early “announcers.”Neeraja Kandala, of ValueNotes agrees that public acknowledgement is just around the corner:
“Early adopters among US and UK law firms are gaining comfort with the idea of offshoring. There are several law firms that are inhibited by various concerns. Those who have held back are now seeing the success stories of some of their competitors. I’m quite optimistic that once the law firms and corporates get more comfortable with the idea of offshoring, they will openly acknowledge their participation.”
Regulation, Accreditation and Certification
New companies without any real U.S. or U.K. physical presence or without the requisite legal background and qualifications are springing up all the time. The original ValueNotes report in December 2005 estimated in the region of 40 LPOs. 18 months later the numbers had swelled to well over 100. Many are simply jumping on the legal outsourcing bandwagon, seeing it as the latest “get rich quick” scheme. Last October LawScribe were forced to threaten legal action against a new LPO called LexGenius whose website was a virtual word for word plagiarism of the LawScribe site. It went as far as completely to copy the LawScribe CEO President, Kunoor Chopra’s, profile but simply to substitute in the name of the LexGenius founder!
There have been numerous calls from some of the major players within the industry relating to the formation of trade associations, independent training programs, regulatory bodies and best practice procedures. To date there has been no specific general consensus in these areas. It is likely that 2008 will witness the development of at a very minimum best practice rules for the industry.
2007 saw the first moves from within the industry towards accreditation and self-regulation. Russell Smith from SDD Global Solutions led one initiative with the formation of the first LPO trade association with the inaugural meeting held in Delhi in the summer of 2007. In November, through the forum of the International Association of Outsourcing Professionals, LawScribe led the first Legal Outsourcing Topic Chapter meeting attended by senior representatives from leading LPOs, BPOs, Law firms, academics and other interested stakeholders. 2007 also witnessed LPOs Jurimatrix and QuisLex, in association with one of India’s leading training organizations, develop the Global Legal Professional Certification Test.
Throughout 2008 I anticipate that both at legal conferences and on their own initiative senior representatives from the world’s leading LPOs will continue to meet and discuss these issues. While it is clear that many within the industry are committed to achieving higher standards to inspire confidence among their clients, to date there has been no general consensus as to how best to achieve this.
Deregulation of U.K. Legal Sector and its Impact on the Legal Process Outsourcing Industry.
In the U.K. the Legal Services Bill finally received Royal Assent on October 30, 2007. The true impact of this piece of legislation will only start to be felt in 2008 and beyond. The particular section of the Bill that will have the most far reaching consequences on the legal profession and provide a colossal boost to the growth of offshore legal outsourcing, is the provision allowing the formation of Alternative Business Structures. The summary to the Bill at paragraph 15 states as follows:
“Alternative Business Structures (ABS) will enable lawyers and non-lawyers to work together on an equal footing to deliver legal and other services. External investment will be possible”.
Put simply, non-lawyers can own and invest in law firms. To all intents and purposes this opens the doors to banks, insurance companies, supermarkets and other corporate entities both owning and investing in existing law firms or alternatively setting up their own firms and marketing legal services to the general public.Tony Williams, a former Clifford Chance Managing Partner, recently penned an article for the Times Online, http://business.timesonline.co.uk/tol/business/law/article2718339.ece referencing ten trends that will shape the legal market over the coming years. At trend number 4 the author commented that:“Technology will enable projects to be ‘unbundled’. This may mean that parts of the project are outsourced to India and that they are done in a systemized manner. This could have a significant impact on the need for junior lawyers, particularly if they start to price themselves out of the market.”Trend number 6 stated:“High Street legal services will be fundamentally transformed by the Legal Services Act. A number of major brands will dominate the provision of retail legal services. Will that be law firms, or outsiders such as supermarkets or banks? It is too soon to tell whether existing law firms will be able to develop strong enough retail brands.”Finally, at trend number 7, the author went on to say:“If the Clementi reforms (the forerunner to the Legal Services Bill) are broadly successful, one can expect firms higher up the chain to take in outside capital and float on the market.”
Over the coming years there will be an influx into the legal market of major corporate entities that previously were prohibited from providing legal services. I do not anticipate that in the near future banks and supermarkets will necessarily be providing high end, premium legal advice, however I do believe that these corporations will come to dominate the provision of routine, retail legal services. None of these corporations will be bound by the traditional and antiquated existing methods of legal services delivery. They will simply look for the most cost-effective method of providing legal services to the general public. These companies either already have offshore locations or have the capability to scale up significantly quicker than even the world’s largest law firms to provide legal support from offshore destinations. This in turn will have a domino effect and will inspire the world’s leading law firms to look at new operational models for delivering routine legal support, with offshore legal outsourcing being the logical choice.
In addition, the potential floatation of some firms “higher up the chain” only reinforces my belief that this will give the offshore legal outsourcing industry a huge boost. When major firms also have responsibility to their shareholders, as well as their clients, then the salaries that they pay their junior associates to perform relatively routine, offshoreable level legal work, will raise more than a few eyebrows. When corporate clients increasingly demand that law firms provide an offshore solution in responses to Requests for Proposals, shareholders will not be happy if the firm is incapable of responding to these requests.
The face of the legal profession in the U.K. is changing dramatically. These changes will have far reaching, cross-Atlantic repercussions. The U.K. and U.S. legal markets are inextricably linked, with many of the world’s leading law firms having offices on both sides of the pond. Together the U.S. and U.K. account for over 90% of the world’s $250 billion legal services market. What happens in the U.K. does not stay in the U.K. but will soon be felt all around the Western legal world.
The Future – What can’t be done?
I firmly believe that within 5 years, in a much consolidated industry, offshoring routine level legal work will have become the norm for the world’s leading law firms and corporations. Of the current 100 plus LPO providers, many will have ceased to exist and have been swallowed up by BPOs or will simply have gone out of business. We will have witnessed the development of clear and unequivocal ethical standards of practice and procedure relating specifically to the industry. New destinations and talent pools in Africa and South America which are currently virtually untapped will be in the process of being developed as the rupee continues its rise against an ever-decreasing dollar. I believe that as advances in technology continue to grow exponentially and the quality of the offshore attorneys improves that the question will move beyond what can offshore employees do to what can’t they do?
About the Author :
Mark Ross is a professional member of the IAOP, and Chapter Chair of the IAOP Legal Outsourcing Topic Chapter. He was formerly a partner at the UK law firm Underwoods Solicitors Underwoods is referred to as “a highly influential flagship firm and model for other firms…It has pioneered offshoring of legal work.”
Mark also developed a case management system for the offshoring of personal injury cases to South Africa. He immigrated to Los Angeles and joined LawScribe in 2006. He has been a regular speaker at legal conferences on outsourcing and offshoring and have had numerous articles published in legal journals on subjects as varied as: death of the hourly rate, liberalization of the Indian legal sector and the ongoing salary hikes by the US and UK’s top law firms. Mark can be contacted at mross@law-scribe.com or (818) 442-4615.
Views expressed here belong to the author and do not represent those of the ThinkingStreet or the author’s employer.

“ The above article has been reprinted from http://thinkingstreet.com/business/2008/02/20/legal-process-outsourcing-lpo-2007-and-beyond-2/and LegalEase Solutions LLC does not hold any rights to the same”.

U.S. Legal Work Booms in India

U.S. Legal Work Booms in India
New Outsourcing Industry Is Growing 60 Percent Annually
By Rama Lakshmi

Washington Post Foreign Service Sunday, May 11, 2008; Page A20
GURGAON, India -- When Aashish Sharma graduated from law school two years ago, his father had visions of seeing him argue in an Indian court and eventually become an honorable judge.
Instead, Sharma, 25, now sits all day in front of a computer in a plush, air-conditioned suburban office doing litigation research and drafting legal contracts for U.S. companies and law firms. He is part of a booming new outsourcing industry in India that employs thousands of English-speaking lawyers such as him to do legal work at a small fraction of the cost of hiring American lawyers.
"It is much better than going to court in India and dealing with all kinds of rough people. Working in legal outsourcing is a happy career move for me, although my father does not fully understand what I am doing here after my education in Indian law," said Sharma, who began working in February for an outsourcing company called Quatrro. "I am getting valuable exposure to the American judicial system, corporate law and their way of working."
Legal process outsourcing is being called the next big thing in Indian business. It marks India's climb up the chain of outsourcing jobs -- from low-end, back-office service functions in call centers to high-value, skilled legal work.
In the past three years, the legal outsourcing industry here has grown about 60 percent annually. According to a report by research firm ValueNotes, the industry will employ about 24,000 people and earn revenue of $640 million by 2010.
Indian workers who once helped with legal transcription now offer services that include research, litigation support, document discovery and review, drafting of contracts and patent writing. The industry offers an attractive career path for many of the 300,000 Indians who enroll in law schools every year. India and the United States share a common-law legal system rooted in Britain's, and both conduct proceedings in English.
The explosion of opportunity here was triggered by what are known as "e-discovery laws," a set of U.S. regulations established in 2006 to govern the storage and management of electronic data for federal court actions. Overnight, the volume of information to be stored, archived, filtered and reviewed for litigation swelled. But there were not enough affordable lawyers or paralegals to do the work in the United States.
"The new e-discovery rules sent American companies scurrying all over the place. Neither the corporates nor the law firms in America are geared to do this kind of work at short notice. And that is where the Indian players come in. We can bring together a large number of skilled lawyers in no time at all and at one-fifth the cost," said Srinivas Pingali, executive vice president at Quatrro, which also offers technical support, credit card fraud management, consumer research and architectural services for American clients, among other work.
Pingali said that the economic slowdown in the United States has not hurt his company's business. In fact, legal work related to bankruptcies has increased.
Because of the sensitive nature of legal work, Indian outsourcing companies have tried to allay the concerns about confidentiality. They have installed closed-circuit televisions, network safeguards and hack-proof servers.
Many outsourcing companies in India already have those security measures in place because they have been handling the credit card and banking operations of global companies for more than a decade. Industry members say that outsourcing of legal work to India is a natural next step.
"Ninety percent of a lawyer's work is legal research and drafting, and all this can now be offshored to India," said Russell Smith, who worked in a Manhattan law firm called SmithDehn before moving to India to set up an outsourcing company in 2006. "A large portion of our fees in the U.S. is because of office rent. It is often a big decision to hire one attorney in the U.S. In India, we can hire 10 at a time and train them all at once."
Smith's Indian company, SDD Global Solutions, handled much of the legal work for the film "Borat." Other clients include the Washington-based firm Appleton & Associates and U.S. movie studios and television networks.
"My people in India can do everything from here, except sign the opinion letter and appear in an American court," he said.
Smith's Indian office recently researched and drafted the motion papers for the dismissal of a libel case against the producers of HBO's "Da Ali G Show." Smith said that if it had not been for the cheaper option of outsourcing, the producers would have settled.
For many law graduates, the contrast between the Indian and American judicial systems comes as a surprise. India's overburdened courts, with 13 judges for every 1 million people, are characterized by backlogs and delays.
Sharma, the Quatrro employee, said he was fascinated by the speed of proceedings and judgments in the American system.
Indian employees have to undergo rigorous training in U.S. legal and judicial practices before they can take on projects. But lawyers with experience in the United States say there are challenges in training Indians.
"They write in flowery, British-style English," said Kunoor Chopra, who came to India to set up the offshore legal support firm LawScribe in 2004 after working for Fulbright & Jaworski in Los Angeles. "It is almost like an unlearning process. They have to be retrained to write in crisp, short sentences. A licensed attorney from California comes to train all my new employees in contract writing, review and research."
Meanwhile, Sharma said he learns something new every day doing legal work for Americans.
"I have learned so many new words," he said. "I keep Dictionary.com on standby. Recently, I had to look up the word 'esquire.' I always thought it meant a respectable gentleman. But in America, it means an attorney."