The Highs and Lows of Legal Outsourcing

According to the Commonwealth Bank’s Legal Market Pulse report: “71 per cent of top-tier firms and 42 per cent of mid-tier firms agree that the pressure from clients to use Legal Process Outsourcing (LPO) is increasing.” So what benefits and disadvantages do firms experience when outsourcing legal processes? And how can businesses achieve success in outsourcing these processes?

The rise of LPO: Doing more with less

Whether it’s automated precedents, the slow death of the billable hour, emerging virtual firms or cloud computing, new ways of looking at legal service delivery are on the rise. LPOs and third-party providers are the latest craze and they’re here to stay.

Advances in technology have allowed a flexible, and often virtual, low-cost workforce to flourish in different locales and perform routine or administrative tasks that were usually performed in-house at a company or law firm.

Speaking with Lawyers Weekly, Kevin van Tonder, a director at LPO provider Exigent, believes third-party providers are becoming more popular among Australian lawyers.

“From my observations, there is an increase [in LPO use], but it’s still early days,” he said. “I suspect there will be more use of LPO services in future. We’re starting to see some big corporates in Australia showing interest and we are piloting a few projects at the moment.”

The highs

Allocating work to a cheaper resource allows lawyers to focus on assisting clients with high-level strategic work and providing a more competitive service model. For example, in 2011, Herbert Smith Freehills established a wholly owned centre in Belfast to take care of its document management and review at a much lower cost.

So why outsource? Firms and lawyers will likely achieve the following benefits by using LPOs:

  •  Reduced spend on areas like document review, contract management, due diligence, discovery, compliance and legal research.
  •  In-house counsel under pressure to cut costs can add value to the company’s business.
  •  Access to external high-level or niche talent.
  •  Reduced turnaround time.
  •  Flexible staffing models and scalability.

And if other firms outsource, it’s a challenge to compete against their pricing and service models. Canadian barrister, author and legal futurist, Mitch Kowalski believes that “traditional firms whose partners ignore it will find themselves elbowed out by more nimble and keenly priced upstarts”.

The lows

Some of the disadvantages of this delivery model are the theft of graduate and paralegal jobs, security, confidentiality and data risks, and the risk that poor communication with outsourced firms will cause a sense of fragmentation or discontinuity when advising clients.

As noted by the College of Law, the rise of LPO has created a backlash for graduate lawyers who would usually have been employed to assist with more administrative tasks during their training period. With document review tasks now sent off-site, the pool of potential work has dried up, leaving fewer work opportunities for young, hungry lawyers and paralegals. Even the Australian Law Students’ Association (ALSA) has called for a review of how law firms use cheap offshore labour for routine advice work.

In relation to security threats, it will be important for LPOs to demonstrate they are 100 per cent committed to data protection and privacy if firms are to feel confident using their service.

“If LPOs can give comfort to firms that their data is secure, there are no issues in terms of confidentiality and the quality of their work is going to be as good as if they had sent it to a law firm, then there’s no reason why they shouldn’t be sending it offshore”, said Van Tonder.

Tips on managing LPO work

ALPMA advises that firms look at the following checklist to minimise risks when using LPOs:

  •  Ensure the LPO has policies and procedures in place to maintain client confidentiality.
  •  Check your insurance so that it covers LPO services.
  •  Supervise the legal work to be performed by the LPO (always ‘sign off’ on it to uphold your professional responsibilities).
  •  Obtain client consent to use LPOs.
  •  Ensure the LPO has processes to perform conflict checks.

Whether computers and third-party providers have ‘stolen’ lawyers’ jobs remains to be seen. However, the winning practitioners will be those tech-savvy lawyers who embrace the legal outsourcing trend to meet the unmet needs of the marketplace.

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