A quick phone around various businesses by Financial Director in January was met with much head scratching and bafflement when asked if they were making use of legal process outsourcing (LPO). The response was curious given that its non-legal counterpart, business process outsourcing (BPO) is well established among companies.
LPO is enjoying robust demand at the moment – though usually from law firms outsourcing their own work rather than businesses that do not have enough time, money or staff to attend to their own contracts.
Despite the lack of understanding and use of LPO among non-legal businesses, though, a recent survey by law firm Addleshaw Goddard found that 71% of FTSE-350 companies ranked the cost of litigation as their number one concern. And the firm believes the cost of litigation “is a particular issue for FDs”.
There has been debate around whether or not to maintain services in-house or outsource them, with arguments centring around costs and making the best use of over-stretched resources. Essentially, it involves the legal division of a business outsourcing its work to legal support services from an outside company, and is growing in popularity as companies adjust to living on much reduced budgets.
The legal profession has already taken advantage of “the labour arbitrage that was exploited by the BPO and knowledge process outsourcing pioneers in the earlier part of the last decade,” says Mark Ross, vice president of legal services at Integreon, a specialist in legal and finance outsourcing. Ross says that law firms are now more than ever “actively trying new and related approaches: technology, back-office restructuring, process improvement, LPO, alternative fee arrangements and better knowledge management.” Lovells is one example of a prominent law firm that conducts LPO in litigation and real estate.
David Holme, director at business services provider Exigent, believes more companies will make greater use of it. “Within the next three years, most law firms and corporates will have built LPO into their offerings,” he says.
That’s probably because of the potential cost savings. CPA Global, an LPO specialist, notes that many law firms, even those from the ‘magic circle’, took up LPO deals because they came under pressure to cut overheads. CPA global has worked with FTSE-100 mining giant Rio Tinto on outsourcing its legal needs.
Integreon’s Ross says companies need to be aware of the types of work that can be outsourced and the level of skill needed for a particular project. He adds that businesses should be wary of the variation in rates in the LPO world and urges them not to get drawn into the cheapest deals. As the LPO market grows, so does the number of suppliers and some new entrants are low-balling projects in a bid to secure business, but cannot always provide the quality of work required.
FDs need to look at benefits outside of cost when embarking on LPO deals. No business area should be overlooked when it comes to cost-saving exercises and legal departments are no exception. “In past years, companies’ legal departments have avoided facing the challenge of shaving costs, but the fact is that major savings can be made through FDs working with their in-house legal teams to re-assess their legal processes, while improving the effectiveness of operations at the same time,” explains Rob Stichbury, CPA Global’s director of business development.
“Cost is not the only cause of the renaissance in legal outsourcing; more clients are beginning to realise there are also opportunities to improve process efficiency and transparency, while still maintaining exemplary standards of quality and security,” says Stichbury.
He adds that estimates for growth in legal services outsourcing range from 30% to 50% this year. “It is not unusual for litigation work to increase during a recession as companies focus on ensuring the security of their contracts, licensing agreement performance and intellectual property protection”, he says. Matthew Flinton, head of legal at Bupa Care Homes, has embraced LPO to keep up with government and legislative requirements.
“Our biggest area of work by far relates to regulation, compliance and government relations,” he says.
Flinton adds that the company’s internal legal team is developed and organised to specialise in the company’s specific legal needs in the areas of property, regulation and dispute resolution. It then outsources other forms of specialist legal advice, including major litigation and acquisitions that the team can’t manage in-house or specific practice areas, such as insurance claims.
An examination of what LPO can do for businesses seems overdue, but many require a basic education in what it means. Without doing so, they are placing undue pressure on staff that could effectively be managed elsewhere so that core people can be tasked with other, more pressing issues.