With cost savings and efficiencies on offer, corporations and law firms are warming to the idea of legal process outsourcing. How should prospective clients identify the best LPO providers and implement successful knowledge partnerships?

Connie Brenton and Mark Ross explain

Adepressed economy; a changing legal landscape; a willingness to try what was once considered taboo. These factors and more have shed new light on the advantages of legal process outsourcing.

An industry that in its formative years was characterized by the emergence of numerous boutique providers is now scaling up and consolidating to meet the demands of international corporations and law firms. But how should prospective clients differentiate between the plethora of available providers? What kind of work is appropriate to send? How should you package it up and how do you ensure superior quality and decreased costs? These questions and more must be addressed in order to implement and maintain a successful LPO relationship.

Choosing a provider

As a result of the low barriers to entry, numerous LPO providers have entered the market in recent years. But not all have the process expertise, management systems and security infrastructure to support demanding legal work. Choosing a suitable provider is thus crucial to successfully starting and maintaining a legal outsourcing programme. Each situation begs its own set of questions and inquiries, but the following considerations are particularly important when selecting an LPO provider:

Choose a well-established multi-shore company: LPO companies come and go; be certain that your potential partner has financial stability. Virtually all LPO providers are privately held companies so you will need to specifically request key financial information. Request information on capitalization, revenue, investors and financial backing. Know that you have a financially solid organization from which to launch your partnership.

Seek a provider with deep management and domain expertise, good references, end-to-end services, the ability to scale, and onshore, offshore and global delivery capability. There may be certain niche areas of demand that boutique, single geographical delivery centre, providers can satisfy. However, for larger scale engagements with leading global law firms or corporations, a fully owned and integrated technological solution, spanning a broad range of legal service verticals, and backed by access to a scalable workforce should be a serious consideration. Look for providers that can offer scalability through a global, multi-shore delivery platform and that are ISO certified across all of their key delivery centres.

Due diligence should include understanding the company’s background, how long they have been in business, what kind of experience they have and with whom, the services provided, sweet spots or niches, specific project knowledge and experience.

Evaluate employees and training systems: Know your talent pool. For each individual on the team, enquire about their educational backgrounds, skill sets, English language proficiency, and level of experience with the legal culture of the jurisdiction(s) within which they will be operating. Ask about the number of employees and lawyers, the provider’s hiring practices, including candidate testing, and from which universities candidates are recruited. Additionally, understand employee benefits and internal retention and continuing development programmes, as these perks can be directly related to attrition rates and staff motivation.

While enquiring into these issues, be cognizant that, while based on the Common Law, the Indian legal training regime does differ from that found in the US and UK. Most employees in the LPO sector are Indian qualified lawyers, although engineers often work alongside them if intellectual property (IP) support services, such as patent searching and drafting, are offered. The services provided by LPOs are typically not on the academic curricula of Indian universities, and as a result, internal training programmes are vital to any provider’s ability to deliver effective services. Prospective clients should always evaluate each provider’s training provision as part of the selection process.

Consider the services offered: Returns on investment from outsourcing programmes tend to be higher and more sustainable when a long-term partnership is established with a service provider (as opposed to outsourcing individual tasks to different providers on a piecemeal basis). Therefore initial due diligence should consider which providers can offer a broad suite of service lines across the legal services spectrum. Additionally, as the proliferation of electronically stored information grows exponentially, expertise across a range of technology tools as well as the technological infrastructure to offer an end-to-end solution to the electronic discovery process (collection, processing, hosting and review of electronic data), will become increasingly desirable.

Test the quality: Customer due diligence should reveal whether a provider’s internal quality programmes and processes are real or just part of a glossy promotional facade. A reputable LPO should be able to demonstrate understanding of the components of quality and provide a documented and defensible workflow for each and every process they profess to be capable of undertaking. A quality programme should include a comprehensive commitment to quality throughout each aspect of the workflow, and a culture of quality from recruitment, through training, to implementation and project progression, to audit management, etc.. A defined quality assurance programme differentiates between providers that are essentially staffing companies, offering little more than bodies on the ground, and those that bring true outsourcing expertise to the table.

There are many ways to test quality – thorough diligence, references, certifications, tests (pre-pilots), and pilots to name but a few. A reputable LPO should be able to demonstrate that it has auditable, defensible, documented processes and a performance metrics system, which accurately monitors and ensures quality and builds continuous improvement processes into the system.

It is also important to remember that quality is a moving target. For this reason, LPO providers with a formal Six Sigma process, or another quality programme in operation, will be best placed to ensure minimal defects in their deliverables.

Assess the data security provisions: Ensuring the security of client confidential information is of paramount importance within the legal outsourcing industry. Reputable LPOs meet stringent ISO information security standards and may also be EU Safe Harbor certified. Many LPOs (well over 100) have sprung up during the last few years since barriers to entry are low. Only a few, however, have the security infrastructure to support demanding legal work.

Ensure that adequate disaster recovery plans are in place: Does the supplier have an effective disaster recovery plan? Is this documented and frequently tested? Ask to see a copy of the provider’s business continuity plan. You will want to establish how the disaster recovery plan works in practice. Does the provider have more than one facility, off-site data storage capability, back-up generators and access to adequate fuel supply? These are genuine concerns when engaging a provider with offices in an offshore location subject to severe climatic conditions, an unreliable power supply or potential terrorist activity.

Check for conflicts of interest: Verify that the provider does not also work for adversaries on the same or substantially related matters. Do they have effective systems to identify potential conflicts? How are data and systems kept up-to-date? Will the provider turn down assignments when a potential conflict arises? Don’t be satisfied with a bland statement as to policy; ask to see a copy of the provider’s formal conflict of interest policy. Who within the organization is responsible for monitoring potential conflicts of interest? This should all be documented. In addition to litigation conflicts, it may be in your interest to insist on certain assurances as regards potential business conflicts.

Evaluate cultural compatibility: It is important that the culture of your organization aligns with that of your LPO partner. If possible, visit the LPO providers in person. The initial introductions and meetings with an LPO are generally with its founders or senior executives. Many of those on executive management teams have worked at large international law firms and have received their legal training in the US or Europe. But these are not the people who will be working on, or even managing, most LPO engagements. When getting to know your team, meet the entire team. Evaluate the quality and character of the employees likely to have access to your information. If you are unable to physically meet these individuals, at a minimum request to review their résumés and “virtually” meet them. Keep in mind that formal opinion 08-451 of the American Bar Association (ABA) recommends “interviewing the principal lawyers, if any, involved in the project”.

Assess cost savings and billing arrangements: Cost savings are a key motivating driver in the decision to outsource. Legal departments routinely faced budget cuts of up to 20% in 2009 and the squeeze looks set to continue. Legal process outsourcing, alongside alternative fee arrangements (AFAs), can assist corporate legal departments in achieving cost clarity and control. Make an internal assessment of how you would like to be billed by the LPO you engage. LPOs offer multiple billing schedules: hourly rates; fixed fee pricing; alternative pricing structures; cost per project, per agreement, per document, per page, per gigabyte, per employee, per month/day/year, etc. Use your imagination. The options are virtually limitless within the LPO industry. If you are engaging an LPO through your outside counsel, compel your counsel to consider AFAs in conjunction with the overall delivery of your legal services.

Research the LPO provider market: Utilize independent resources when conducting background investigations and gathering industry knowledge. At the same time, be wary when utilizing ranking tools. While inherently useful in your evaluation process, revenue, headcount and facility data referenced by independent resources, publishers and ranking organizations are largely provided by LPO vendors themselves.

Check references: Always check references before engaging an LPO. Consult other clients that have used the same LPO for similar work.

Ethical concerns

The outsourcing of legal work raises important issues in relation to a lawyer’s obligations to their client. Six US bar association ethics committees and the ABA Standing Committee on Ethics and Professional Responsibility have released opinions discussing the outsourcing of legal work. All of these reports have concluded that a lawyer in the US can outsource legal work and, at the same time, satisfy his or her ethical obligations.

Arguably, the opinion that carries the most weight is the one released by the ABA in August 2008. An interesting point about the ABA Opinion, as opposed to those by the individual bar associations, is the noticeably conciliatory tone used with regards to outsourcing both generally and specifically within the legal profession. The opinion comments that: “The outsourcing trend is a salutary one for our globalized economy”.

The ABA goes on to caution that the legal landscape should also be assessed for “risk of loss of client information or disruption of the project in the event that a dispute arises between the service provider and the lawyer and the courts do not provide prompt and effective remedies to avert prejudice to the client.”

In the event of a breach of confidence or security, are effective remedies available within a reasonable time? Are local courts balanced, impartial and effective? What are local customs and practice concerning conflicts of interest and client confidences?

Another recent opinion, this time by the Bar of the City of New York Committee on Professional and Judicial Ethics, succinctly consolidates the major ethical issues for consideration: “A New York lawyer may ethically outsource legal support services overseas to a non-lawyer, if the New York lawyer (a) rigorously supervises the non-lawyer, so as to avoid aiding the non-lawyer in the unauthorized practise of law and to ensure that the non-lawyer’s work contributes to the lawyer’s competent representation of the client; (b) preserves the client’s confidences and secrets when outsourcing; (c) avoids conflicts of interest when outsourcing; (d) bills for outsourcing appropriately; and (e) when necessary, obtains advance client consent to outsourcing.”

LPO quick tips

Key considerations for law firms and corporates that are considering outsourcing their legal work

  • Choose only one or two LPO providers with which to partner. It is difficult to manage and provide adequate resources to more than one or two providers.
  • Assign sufficient internal resources to manage the project from inception to completion. Create detailed, thoughtful, tested processes and from the onset include training and support.
  • Communicate early and often at the onset of an engagement (several times a day if the engagement is complex). Identify process gaps early.
  • The failure to provide internal resources from the outset of an engagement is the most frequently made mistake and the most serious in terms of consequences (other than choosing a financially unstable provider).
  • If there is a reluctance to outsource, move in baby steps. There are LPO providers who have both onshore and offshore capabilities. Start onshore and move offshore later. Alternatively try a blended shore approach.
  • Run concurrent projects onshore and offshore. Track metrics (quality, cost, speed).
  • Many LPO providers offer pilot projects for those wishing to dip their toes into the LPO pool.

What should you outsource?

Ethical, legislative and practical considerations govern the legal services that are suitable for outsourcing. Reputable LPO providers will take care to avoid engaging in any substantive legal work that could be viewed as the unauthorized practise of law. Although leading providers are expanding the scope of their services and moving up the value chain, outsourcing assignments are generally most successful when the work is somewhat repetitive and process-driven. The following categories of work are generally considered suitable for outsourcing. However, this list is by no means all-inclusive.

E-discovery and document review: Electronic-discovery and the reviewing of documents for discovery purposes, for privilege, relevance and confidentiality, is the legal task most commonly outsourced. Law firms and corporations are increasingly using offshore service providers as a convenient and cost-effective option for document review services. LPO providers have extensive experience with this type of work and can deliver high quality at reduced rates.

Coupled with the physical staffing and project management of large-scale document review projects, major corporations are seeking LPOs with the capability to provide an end-to-end solution to the entire e-discovery lifecycle, i.e. the collection, processing, hosting, review and production of electronic data. Be aware that very few providers can attest to being able to offer an integrated, end-to-end solution that is wholly owned internally. If your provider is proposing to subcontract any element of the e-discovery process, you should go through the same rigorous due diligence that you undertook in the search for your LPO provider with any other entity that will be involved in the handling of your data.

Contract review and management: Outsourceable contract work includes drafting, reviewing and managing high-volume, routine contracts. Contract review can involve reviewing the terms of a contract and flagging any abnormalities or inconsistencies based on revision parameters set forth by the outsourcing lawyer, as well as maintaining contract databases and repositories. Outsourcing contract review and management is geared towards freeing up in-house lawyers from routine, low-value work.

Litigation support: Services in this area include imaging and optical character recognition, database creation and population, coding and indexing documents, deposition summarization, high-volume printing and the publishing of electronic files.

Clearing the clutter: LPOs make light work of high-volume, low-value tasks.
Clearing the clutter: LPOs make light work of high-volume, low-value tasks.

Intellectual property: Work related to the early stages of the patent process makes up the bulk of outsourced IP projects. IP support services include patent and trademark searches, IP monitoring, infringement research, application drafting, and status tracking. US-based clients must consider whether the US Export Administration Regulations impact any of the technological information that they propose to outsource. Your provider should be able to demonstrate a clear understanding of these regulations and be willing to turn down work that is not appropriate for outsourcing. Because this type of work is often repeatable, outsourcing intellectual property work can provide substantial cost savings while freeing up internal resources.

Legal research: This includes primary and secondary research for case-specific legal issues, compiling 50 state surveys on a particular area of law and gathering information for legal newsletters and journals. Additionally, LPOs may create work product libraries and provide work product updating. Consequently, outsourcing legal research activities to LPO providers has the potential to significantly increase the efficiency of in-house legal departments and decrease the turnaround time for various projects.

Preparations for outsourcing

Once it has been established that the work you are outsourcing is appropriate, you are ready to begin the preparation phase to package and send the work.

Obtain client consent: Depending on the level of supervision required for the project, obtaining client consent before engaging an LPO may be necessary (onshore or offshore).

Draft an LPO contract: LPO contractual agreements generally mirror those of other business service providers and a master services agreement or master procurement agreement is normally signed between the parties. Either within the master services agreement, or in a supplemental statement of work, ensure that all key areas are covered, including: deliverables, metrics, quality controls, pricing, project management, supervision, methods of communication (e.g. video conferencing), privacy and confidentiality.

Additional areas worth highlighting include issues of subcontracting and supervision. Taking into account that in virtually all legal outsourcing engagements, confidential client data will be involved, subcontracting should be prohibited or subject to stringent approval requirements.

Effective supervision within a legal outsourcing engagement requires robust governance, with frequent reporting and regular conference calls or video conferences. The agreement should clearly stipulate structures for efficient management, prompt decision-making and dispute resolution.

Engage with your provider: Corporations and law firms must work alongside their chosen LPO provider to create an effective process for managing the outsourced work. The benefits of a well-designed process include consistency, predictability, quality, productivity and defensibility. These benefits apply across many legal tasks of varying complexity, not just straightforward, standardized and routine functions. The LPO process brings a method that is common, documented, repeatable and scalable. Beyond labour cost savings, working with an LPO helps clients to reduce work volume and improve consistency, therefore decreasing operational risk.

Test the internal processes and workflow: Experiment with the process you have created using your own in-house team as guinea pigs to check for gaps in the workflow before sending it offshore. Reputable LPO providers have experience in developing best-in-class processes with a number of different clients. They should be able to draw on this knowledge to help clients identify any aspects of the process that have been overlooked.

Invest in the relationship: Never skimp on the up-front investment. Dedicating internal resources to develop a thorough process as well as to assist in training and support throughout the entire project is highly recommended. Never simply throw a project over the fence and expect success. Engaging an LPO is a two-way street. It will take resources on the client’s part to monitor, provide training, and tweak the processes until the engagement has stabilized. Depending on the scale of the engagement, it may be beneficial for the client to allocate a full-time staff member to work with the LPO on a permanent basis. From the onset, talk frequently, several times a day if necessary, until your process is stable. Communicate.

Create a formal training curriculum: If possible, travel to the LPO and provide onsite training. For larger scale engagements, consider sending someone from your team for several weeks. For smaller, less complicated projects, training can be undertaken via conference calls or video conferencing.

Agree on performance metrics: Many LPO providers routinely track metrics on each project as part of their Six Sigma discipline. Discuss processes and procedures to be put in place to ensure continuous improvement during an engagement. Specifically discuss quality checks. How they will be handled and by whom?

More than cost savings

Legal process outsourcing works best when it is not about “lifting and shifting” a function from a high cost location to a lower cost one. The benefits should not be perceived merely as labour cost arbitrage. Lawyers are often too quick to overlook or discount the process component of LPO work.

Clearly not all legal work is suited to a process orientation. Much is, however, and lawyers tend to underrate the value of process engineers, Six Sigma Black Belts and technology experts that are an integral part of a mature LPO offering.

Connie Brenton is deputy general counsel and chief of staff to the general counsel at Sun Microsystems. She can be contacted at [email protected]

Mark Ross is the vice-president of legal services at Integreon. He is former chair of the International Association of Outsourcing Professionals’ (IAOP) Legal Outsourcing Chapter. He can be contacted at [email protected]