Legal Process Outsourcing (LPO) – Now Just Part Of The Legal Landscape

Legal process outsourcing is still a growing market but faces competition today from many other alternatives to large law firms. This article was originally published in a slightly different form as "Client market power means continuing cost-cutting" in the Legal Efficiency supplement to the The Times of London (11 June 2013), available on the web via Raconteur, publisher of the supplement.

A decade ago, legal process outsourcing (LPO) seemed new and exotic. Today, it is just one of many alternatives to large law firms. What is LPO and why is it now just a small part of a new legal landscape?

Until recently, corporations had two ways to meet their legal needs: in-house law departments and outside counsel, typically the top 50 law firms in the UK and the top 200 in the US. That worked well for many years but the legal market boom from 2000 to 2007 planted seeds of change.

During the boom, law firms raised billing rates well in excess of inflation, leading to growing partner profits. A few entrepreneurs saw the opportunity to do well by offering lower legal costs. They created legal process outsourcing companies. Today, well-established ones include CPA Global, Integreon, Pangea3, and United Lex. These and others perform high volume legal tasks such as document review, contract management, and due diligence. They can save as much as 50% relative to law firms.

Much of the savings comes from tapping lower cost lawyers in India. Some of it comes from the efficiency of applying industrial techniques such as process improvement, metrics, formal governance, and detailed playbooks.

The biggest share of LPO business is from disputes that involve high volumes of documents such as e-mail, word processing files, and PDFs. Reviewing these documents requires large teams of lawyers. A big team operated with industrial precision in Mumbai costs much less than one operated lackadaisically in London or New York.

The early buzz - and skepticism - about LPO centered on sending legal work to India. After a few years, many legal buyers realized that offshore lawyers provided high-quality work and that ethical and security concerns were readily addressed. Just as LPO was becoming established, however, the economic crash of 2008 occurred.

The crash put severe and ongoing pressure on corporate legal budgets. That boosted LPO sales but also spurred entrenched and new players to develop other costs-saving approaches as the examples here illustrate:

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