Client demand for more competitive fees, coupled with the advancement of information and communication technologies, has fuelled a market for outsourced legal processes, both in Australia and abroad. What may have been labelled a ‘trend’ some years ago is now a thriving business model for many Australian firms.
Our legal industry is now seeing the routine outsourcing of complex core business tasks including research, contract negotiation, intellectual property services and due diligence to low-cost, foreign service providers. While some have established their own offshore subsidiaries for this purpose, a growing number of third-party vendors are now the provider of choice for top-tier Australian firms to manage and coordinate outsourcing requirements.
While this obviously creates marked savings for firms and clients alike, it also raises a number of questions around ethics, confidentiality, quality and liability. So what do firms need to know about legal process outsourcing? And what are the benefits?
The biggest draw for most firms is the immense cost savings. Low-cost providers are typically sourced from South Africa, India, the Philippines and other Asian countries, where wages are around 30 to 70 per cent of those in Australia and overheads are significantly less. As a result, total savings on large litigation matters have been reported to exceed 70 per cent.
But it doesn’t stop there. The flexibility afforded by LPO is also of significant commercial benefit for small to medium-sized firms. Having access to a large mobile pool of qualified workers without the fixed salary and overhead costs enables firms to respond dynamically in response to demand. Firms can quickly upscale and downscale for capacity and acquire specifically skilled talent as required to fill gaps in internal competencies.
Having a second task force in a different time zone also enables teams to work around the clock, reducing turnaround times and meeting otherwise unattainable deadlines.
But what are the risks?
Relinquishing direct in-house control over critical legal tasks can create potential risks. After all, quality, accuracy, attention to detail and timing are at the heart of a lawyer’s work. If these are compromised, it may affect the rights of a client, the outcome of a matter, client satisfaction and ultimately a firm’s reputation. On the other hand, many argue the same risks are encountered with in-house staff.
Another factor to consider is how outsourcing may affect existing employees. In-house processes will probably require significant adjustment, and if introduced in conjunction with layoffs it may create negative moral among remaining employees.
The replacement of graduate lawyers with low-cost foreign providers is also predicted to have untold long-term consequences for the profession and the industry.
Ethics and confidentiality
While there is currently no enforceable regulation regarding LPOs, guidelines published by the New South Wales Legal Services Commission in 2013 provide some direction on how firms can maintain ethical standards.
The guidelines state that while legal practices are free to use LPOs, professional obligations under the Solicitors Rules cannot be avoided and ultimate responsibility for maintaining ethical and practical standards falls back on the practitioners.
As such, firms engaging an LPO must be prepared to:
- Obtain client consent to use LPO on their file and disclose personal information to third parties.
- Bear any additional security and confidentiality risks posed by sharing firm or client data with third parties in a foreign jurisdiction.
- Ensure the LPO has capable policies to prevent and deal with any conflicts of interest that may arise, especially where they act for numerous firms in the same jurisdiction.
- Bear professional liability for breaches of confidentiality or the negligent work of an LPO.
Legal practitioners must become excellent project managers, giving careful consideration to the selection of technology and personnel, the establishment of communication and security protocols and clearly defining the scope of tasks to be outsourced.
No doubt the coming years will see greater familiarity with LPOs by firms and clients alike, and the development of accepted protocols surrounding these matters. Until then, firms must do their homework to ensure their LPO provider will offer both the savings and quality they require.