Changes Ahead in Sourcing U.S. Legal Services

Businesses have traditionally relied on a combination of in-house legal departments and outside law firms for all of their legal work.  During the past few years, maturing processes, technologies, and legal-services-delivery-perspectives have created an environment where corporations now have a spectrum of choices from which to source legal services.  General Counsels can globalize in-house legal departments by consolidating legal staffers in low-cost jurisdictions or outsource legal work to Legal Process Outsourcing firms (LPOs) at significantly lower costs than traditional U.S. law firms can offer. 

The delivery of legal services from offshore locations, primarily India, has grown dramatically in the last few years, and will continue in 2009.  While LPOs are compelling, they are not the only option.  Whether delivered through globalized in-house functions (international, legal, shared services functions) or LPO firms, mature legal processes now make it possible to deliver high quality work from across the globe despite the unique legal challenges of privilege, supervision and conflicts.  Some large law firms have created their own “captive” units to offer lower cost legal services to their clients.

Why Now

The availability of global legal processes has arrived.  During the past five years Business Process Outsourcing (BPO) vendors have provided human resources and accounting services, and as a result, shown that many types of professional services can be successfully outsourced.  More recently, the recession in the U.S. has forced a more vigorous evaluation of legal costs than ever before, while, the volume of legal work, particularly e-discovery, has been soaring.  The American Bar Association (ABA Formal Op. 08-451) and several regional bar authorities have implicitly authorized legal outsourcing.  Finally, major BPO players such as Infosys and Wipro have entered the LPO market and the major independent LPOs have announced significant growth plans for 2009.  Given the clear economic drivers, the removal of previous barriers, and the stated intentions of many of the major service providers, globalization of legal services will certainly quicken in 2009. 

Implication for Corporations

To take advantage of the relatively new legal services sourcing options, corporations must organize and optimize legal services like any other shared corporate services.  For example, a corporation that operates in the U.S., the U.K. and India, may need attorneys in each of these jurisdictions, but may choose to concentrate the bulk of its legal team in India instead of London or New York; thereby taking advantage of resources that cost 50% to 80% less.  Multinational corporations, such as Accenture, DuPont, GE and Oracle, have already taken advantage of their global presence to consolidate some of their common legal functions in lower cost jurisdictions like India.

Some organizations may not have sufficient legal work or sufficiently predictable volumes of certain types of work to warrant global shared legal services.  These organizations have traditionally retained outside law firms when they become parties to litigation or acquisitions.  These situations, that create sudden, large volumes of documents to review, are exactly the circumstances for which LPO vendors are well suited.  Many LPOs have the ability to quickly deploy large teams of young lawyers using the latest technologies to assess the responsiveness, privilege, confidentiality of litigation-related documents or to review the assignment and termination clauses of acquisition-related contracts. Indian LPOs can typically deliver these services for $20 to $50 per hour as compared to $60 to $100 or more for legal temps in the U.S.  Low cost legal services sources are also emerging in such places as Israel, the Philippines, South Africa and Costa Rica. 

For many corporate legal departments, the prospect implementing and managing a global legal operation can be a daunting.  Combining the practice of corporate law with business process redesign and outsourced vendor management requires a new set of skills.  Working across cultures and time zones with a business in India or other distant countries adds to the complexities.  There will be both stories of success and tales of woe, but the advantages of moving to new legal sourcing models are compelling, and the trend towards both corporate global shared services models and legal process outsourcing will increase significantly in 2009.

Originally published with the title “Time to offshore the law” in Phil Fersht’s blog, Horses for Sources.

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