Legal Process Outsourcing Handbook 2012 | 2013€¦ · FATCA Due diligence ... Compliance Assignments • Data gathering/mining ... Legal Process Outsourcing Handbook . s 3 |

Legal Process Outsourcing Handbook

2012

| 2013

The inside perspective for buyers of legal services

Sponsored by

1Contents

Introduction

4 LPo: At a glanceBy Julia Chain & Paulo Penteado, Huron Consulting Group

8 the marketplaceBy Dr George Beaton & Eric Chin, Beaton Research & Consulting

14 Public sectorBy Robert Glennie, NewGalexy Partners

18 the interview: Liam BrownBy The Law Council Review

How to

24 Harnessing technology By Simon Thompson, Venturis

28 offshore or onshore?By Sarvarth Misra, NewGalexy

30 Managed legal servicesBy Andrew Loach, Berwin Leighton Paisner

32 CollaborationBy Mark Ross, Integreon and Carla Goldstein, Seyfarth Shaw

36 Contract intelligenceBy Gururaj Potnis, Manthan Legal

43 Document reviewBy Andrew Goodman, Michel Sahyoun & Philip Algieri, Quislex

LPo Hotspots

50 scotland: an introductionBy Robert Glennie, NewGalexy Partners

52 the scottish legal market Why LPOs are the way of the future

54 India

54 the Philippines

56 Australia/new Zealand

57 Brazil

57 eastern europe

58 China

59 Republic of Ireland

59 northern Ireland

60 south Africa

editorial DirectorMary HeaneyReporter Rebecca HaslerCommercial DirectorMaria SunderlandT: +44 (0) 20 7332 [email protected] executiveHywel KennedyMarketing DirectorBen [email protected] & ProductionPaul Carpentersub-editorDan HayesPicturesShutterstock.comPublisherMark Wyatt

Printed in England by Headley Brothers, Ashford, Kent ©FutureLex 2012

While all reasonable care has been taken to ensure the accuracy of the publication, the publishers cannot accept responsibility for any errors or omissions. All rights reserved. No paragraph or other part of this publication may be reproduced or transmitted in any form by any means, including photocopying and recording, without the written permission of FutureLex Ltd or in accordance with the provisions of the Copyright Act 1988 (as amended). Such written permission must also be obtained before any paragraph or other part of this publication is stored in a retrieval system of any kind.

www.globallegalpost.com Legal Process Outsourcing Handbook

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ISDA-contract reviews Collateral verification Review of thresholdsIssuing ISDA/FX letters CSA gathering

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Due diligence Document verificationClient classification Strategy/process mapping

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Operational Legal & Compliance Assignments

• Data gathering/mining

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• Face-off with General Counsel

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Do you feel the pressure mounting?

Budgetary and resource constraints will continue to increase pressure for compliance professionals amid further regulations.

Let First Derivatives (FD) do the heavy lifting.

Non Core Asset Disposal

Portfolio disposal Data tape creationAviation finance

Dodd Frank

Documentation for contracts Data review & analysis for backloading historical trades Recordkeeping & reporting Compliance ramp up

BusinessConduct Rule

Document inventoryIM account mapping

ISDA Documentation

ISDA-contract reviews Collateral verification Review of thresholdsIssuing ISDA/FX letters CSA gathering

FATCA

Due diligence Document verificationClient classification Strategy/process mapping

Legal & Compliance

Services

Legal & Compliance Services

Some of the regulatory and related reform initiatives - capital, liquidity, recovery plans, bail-in debt, consumer protection, reporting, taxes and levies - will have an unprecedented impact on the costs of banking activities.

The volume of work requiring manual intervention is significant and will require resources with the necessary skill sets and experience to manually intervene. In particular, operational intervention will often require search and extraction of data from multiple systems, analysis of large amounts of paperwork, ability to identify exceptions, and the need to create, categorize and explain enormous amounts of documentation.

With tight deadlines looming, budget constraints and the need to mobilize skilled resources quickly, FD can provide your solution.

We deliver! Renowned for our quality of service, flexibility, professionalism and ruthless commitment to serving our customers. We provide economic value by delivering operational efficiency at a low cost. Combining domain knowledge and technical expertise: we hire high academic achievers and professionally qualified industry specialists. We invest in their legal, regulatory and financial training, developing deep capital markets knowledge including expertise in leading financial market technologies.

Operational Legal & Compliance Assignments

• Data gathering/mining

• Document inventory

• Specialist system/document

knowledge

• Face-off with General Counsel

• Valuation/credit modelling

• Programme management

• Analytics (incl. security assessment, derivatives attaching, client/document

verification)

Further Info:

+44 28 3025 2242

[email protected]

www.firstderivatives.com

3


Introduction

4 LPo: At a glanceBy Julia Chain & Paulo Penteado, Huron Consulting Group

8 the marketplaceBy Dr George Beaton & Eric Chin, Beaton Research & Consulting

14 Public sectorBy Robert Glennie, NewGalexy Partners

18 the interview: Liam BrownBy The Law Council Review

4

Legal Process Outsourcing Handbook www.globallegalpost.com

IntRoDuCtIon: LPO at a glance

Legal process outsourcing (LPO) is the provision of legal-related services by non-traditional providers. This is not a new concept, but recent growth in the market – some estimates suggest up to around 60 per cent annual expansion – has been one of the most notable trends in the legal world over the past few years.

Back in 2005, the LPO market comprised just 15 companies, but this figure has now reached more than 20 and, although LPO currently accounts for only about 2 per cent of the global legal industry, forecasts suggest that its eventual market share is likely to reach 10 per cent or more.

But what is legal process outsourcing? It’s surpris-ingly difficult to make a precise definition of the term, since it is applied to many different services; and, as new areas of legal services become capable of being outsourced, so too will the types of LPO service provider expand. The list below identifies the main types of LPO provider, but is by no means exhaustive.

l Offshore law firms with lawyers qualified in other jurisdictions (for example, firms based in Bermuda but with US and UK lawyers).

l Regional law firms (whether standalone, in partnership with other firms, or providing parts of unbundled services).

l Providers of legal-related services (for example, e-discovery, research, document review and so on).

l Providers of non-legal BPO services to law firms.

l Captive offices, operated both by law firms and large corporations (not strictly outsourcing, but frequently bundled into the LPO industry).

It is clear, however, that while LPO has often histori-cally been regarded as a cheap offshore solution for scalable commodity or low-value work such as con-fidentiality agreements or due diligence, the reality is far more complex.

It is also notable that in spite of the hype over offshoring, most LPO work is in fact done onshore. Some of the most effective LPO solutions are offered by low-cost onshore providers using both lawyers and non-lawyers for work that might once have been seen as the province of the traditional (or ‘City’) law firm.

Why is the LPo industry growing?The rapid growth in legal process outsourcing over the past few years has its roots in four main drivers.

the economic environmentIn a recessionary economy, most law firms have faced a reduction in their revenues and legal departments in their budgets – frequently against an increase in work volume. In this context, everything is a trade-off. Cutting costs is impera-tive and sending low-value work to an LPO can reduce both costs and risk. Similarly, legal

LPo: moving up the value chainBy Julia Chain, managing director, and Paulo Penteado, director, Huron Consulting Group, London

5



departments are under enormous pressure to cut the costs of their external legal spend, by retaining the larger law firms for high-value work and sending all other work to an LPO – which could be a smaller or more regional law firm. In some cases, this has enabled general counsel to generate savings of up to 20 per cent.

GlobalisationIncreasing globalisation means that using low-cost centres and non-UK qualified lawyers no longer means sacrificing quality or efficiency. High-quality attorneys can be found in abundance overseas – for example, in India and the Philippines – and there is also a growing pool of well-qualified lawyers based onshore who prefer the certainty of working regular hours for an LPO rather than sac-rificing home life and free time in a large law firm – however good the pay!

Better use of technologyThe emergence of new technology by both law firms and law departments – for example, communica-tions tools and matter management systems – has been a significant enabler of LPO because it facili-tates information sharing and collaboration.

In the USA, this has resulted in a more active use of technology by both law firms and law depart-ments where, for example, matter management and e-billing are already the rule, rather than the excep-tion. The UK is fast following suit.

Changing attitudesA willingness to consider the unbundling of legal services, commoditisation and improved regulatory regime has also been a major growth factor.

Benefits of LPoFrom a purely practical point of view, cost savings, scalability and flexibility, speed and efficiency are all considered to be crucial in making the decision as to whether or not to outsource.

The range of savings varies depending on the level of service provided and the amount of work per-formed, but with outsourcing costs as low as £25 an hour compared to some paralegal work at £125 an hour and junior associate level work at over £200 an hour, the potential for savings is obvious.

Scalability, meanwhile, provides the benefit of increased capacity without the need for additional headcount and allows clients to focus on core stra-tegic activities rather than repetitive tasks. Fixed costs can replace variable costs and fixed fees can replace the hourly rate.

The 24-hour work cycle and ‘follow the sun’ work patterns increase speed and efficiency of delivery. Many firms in India have several hun-dred employees dedicated to providing 24/7 service. While the UK-based law firm employees sleep, their time-consuming work is being com-pleted throughout the world at various LPO sites.

Employees concentrate solely on specific tasks, so processes and end products improve simultaneously.

Increasingly, the final product of work completed through offshoring methods is of higher quality than the same work done by employees in the US or Europe. Whereas associates in traditional law firms commonly see the sort of tasks that might be outsourced as ‘busy work until they are given real work’, LPO employees are highly motivated to per-form such tasks.

In addition, while traditional law firms manage commodity tasks in the same way as they approach specialised work, an LPO is more likely to build operational processes that handle such activity with assembly line efficiency. Recognising that the work is repetitive, they create protocols and Key Performance Indicators (KPIs) to ensure quality.

Economies of scale and scope can enable good LPOs to utilise technology and processes that are unavailable to the client. Maintaining a large talent-pool also allows for easy, flexible hiring and highly efficient training. Finally, LPO profes-sionals are often dedicated to clients for long-term projects, reducing the need for supervision. In such cases, the LPO becomes an extended back office of the client.

the risks of LPoOf course, risks are inherent in any outsourcing arrangement, and LPO is no exception. Effective project management and careful attention to detail are essential if these risks are to be mitigated, and it is important to incorporate consideration of the following factors, among others, during the plan-ning process.

l Distance, time zone differences, cultural and language barriers can hinder communication, and teams don’t always gel.

l LPO lawyers sometimes lack key capabilities and training can still be patchy, so there can be a steep learning curve until work is truly productive.

l Information security can be problematic, because there are numerous opportunities for failure and because breaches could violate attorney client privilege – meaning that it is essential to verify security credentials and, in some cases, conduct security audits.

l Implementation and transition can require significant initial investment.

l If not managed well, working with an LPO firm can strain the relationship between a company and external counsel, since law firms may view work being allocated to an LPO provider as work being taken away from their associates and paralegals.

l Law firms considering outsourcing often argue that it can make it difficult for them to train associates.

l Redundancies in the traditional resource pool may affect law firm/legal department morale.

While the UK-based law firm

employees sleep,

their time-consuming

work is being

completed throughout

the world at various LPO sites

6



l While improvements have been made, political and regulatory issues are still a factor – such that, for example, LPO lawyers cannot give legal advice, must be supervised by a US/UK lawyer and cannot testify in court.

LPO works best when it is a real partnership between the client and provider, with shared interests and goals, common values and a complete under-standing by each party of the expectations of the other. When LPO fails it is almost always because that shared understanding did not exist and the process was not managed effectively. The quality of work may be compromised if a poor partner is selected and there is no doubt that general counsel and law firms need to dedicate a lot of time to man-aging LPO and monitoring the service providers with whom they work.

Getting it right If properly executed, LPO can save significant costs and hugely increase efficiency. But the market is diverse and unstructured, with a number of large, trusted providers and numerous upstarts. It is fun-damental to plan effectively – beginning by clearly determining the objectives and identifying what work can be outsourced.

Those considering embarking on an LPO strategy should perhaps consider the following as a checklist of factors to take into account prior to making a final decision as to whether or not to outsource.

l Conduct a careful analysis to select appropriate types of work to be outsourced (with an eye towards cost and risk avoidance).

l Identify and communicate with industry peers who are already utilising LPOs.

l Understand security concerns, industry certifi-cations and how to conduct security audits.

l Create a well-designed and implemented selection and due diligence process.

l Define the required internal processes, improve and prepare them for the transition.

l Define the transition plan and manage its implementation.

l Set up SLAs and define KPIs and other vendor management criteria.

l Conduct vendor audits.

Once you have decided to go ahead and defined the area you want to LPO – and perhaps identified a potential provider – you should consider carrying out the following checks before you commence legal process outsourcing.

l Investigate the background of the lawyers, non-lawyers and service provider and conduct reference checks

l Interview the principal lawyers involved in your matters and assess their educational background

l Ascertain the LPO’s hiring practices and

educational and background checks mecha-nism to evaluate the quality and character of the employees likely to have access to client information.

l Investigate the security of the provider’s prem-ises and computer network and sign the model contractual clauses where relevant.

l Conduct a site visit.l Assess the country to which services are

being outsourced for its legal training, judicial system, legal landscape, disciplinary system and core ethical principles.

Just carrying out simple and practical checks will make a difference and ensure that you can feel con-fident in the relationship right from the start. Most successful offshore LPOs have client representatives with them on the ground for a considerable time to ensure the relationship is built on a stable and trusting foundation.

Looking to the futureAs the legal writer and consultant Jordan Furlong has observed: ‘LPOs are moving up the value chain steadily and with surprising speed, taking on the work of second-, third- and fourth-year lawyers – not just by using lower-cost labour, but by doing the work more systematically and efficiently.’

While corporate and other clients are looking for lower overheads, fewer conflicts of interest, more responsiveness, greater expertise and lower fees, LPO leaders are setting their sights on work which gives the highest profit margin, usually legal research and legal drafting. It is in these areas that offshore legal outsourcing is likely to make its greatest mark.

As the LPO market matures, we can expect to see a number of developments. For example, law firms are beginning to respond to the rise of LPO by setting up their own operations in low-cost locations, and this trend is set to continue.

Northern Ireland (specifically Belfast), in an attempt to help bring the country out of its eco-nomic depression, has agreed to be the recipient of two London law firms’ outsourcing operations. It remains to be seen how successful law firms will be in these ventures, but by setting up what are essen-tially captive LPOs, they are signalling their willing-ness to be in the game and to compete on a level playing field with the established providers.

Whatever the future landscape of the market, there is little question that legal process outsourcing is a model whose time has come. Carried out on a large scale, using both legal and non-legal staff, leveraging low-cost locations where appropriate and making use of all available technology, it can provide a very cost-effective and hugely efficient mechanism for undertaking commodity work – so it is no surprise that it is fast gaining in popularity with both law firms and in-house legal departments and really now provides the only credible alternative to mainstream legal service.

LPO works best when it is a real

partnership between the client

and provider,

with shared interests

and goals

8


IntRoDuCtIon: The marketplace

The most exhilarating aspect of all the trends is their velocity. As Steve Jobs once said: ‘You can’t connect the dots looking forward; you can only connect them looking backwards’. No firm has time to wait and see what’s going to happen. Every law firm and client organisation is being affected. It’s time truly to understand and act. The evidence presented demon-strates why many law firm leaders are not strategi-cally focused on the big picture and many in-house lawyers haven’t yet grasped the full implications. Opportunities and dangers lie in places of which most are not yet aware.

the playersThe main players in the legal services game are large, traditional law firms; newcomers – legal process out-sourcers and so-called new business model firms; clients; regulators; educators and professional asso-ciations. In this article we mainly address the impli-cations for corporate and government clients, but we also recognise that individual clients are being affected in many significant ways too. Also, we do

Law firms worldwide must come to terms with evolving business realities, suggest Dr George Beaton, executive chairman, and Eric Chin, senior analyst, at Beaton Research & Consulting

the rapidly changing landscape of legal services

Figure 1 Declining growth of the world’s law firm industry

Collaborative

-4

-2

0

2

4

6

8

10

12

2010200920082007200620052004200320022001

US$506bn

9



not directly refer to the implications for regulators, educators and professional associations, not because the impact of the changes is any less important for these stakeholders, rather because space does not permit inclusion.

Large law firmsThere is a growing tendency to refer to large law firms by the collective noun ‘BigLaw’. This is an apt way of describing firms that are at the larger end of the scale in their jurisdiction.They are structured as partnerships, inherently conservative and, by and large, still very profitable businesses for those who own them.

These firms have emerged in relatively recent times. Just over 20 years ago a seminal book, The Tournament of Lawyers (Galanter, M and Palay, T 1991, Chicago: University of Chicago Press), described the relatively recent phenomenon of the large law firm and presciently suggested the very causes of ‘the spiralling growth of the large law firm may lead to its undoing’.

When the book was published in 1991 it seems only academics and observers of the profession paid attention. Today Galanter and Palay’s ideas are reality – and too many leaders of large firms still appear oblivious and continue to worry about the wrong things.

Based on the research under pinning the Beaton450 league table of global professional ser-vices firms, there are well over 2,000 law firms in the world qualifying for BigLaw status. These firms each have annual revenues ranging from $100million to over $2billion. Our analysis indicates the great majority of the largest law firms in the world are American, Table 1.

Revenues in the USA are more than five times those in the UK, the country in second position. Hogan Lovells and DLA Piper are treated as com-bined US/UK firms and are excluded from this calculation.

Analysis of the global law firm industry points to a total size of half-a-trillion dollars. Since the year 2000 annual growth of the industry has been declining, Figure 1.

The sharp drop in growth that started during the height of the global financial crisis masks the fact that the signs of industry maturation existed long before, at least as far back as 2000. Industry matu-ration means that the demand for legal services is growing no faster than the economy. Demand in this sense is measured in the total available hours for which BigLaw firms compete (total available hours is used as a convenient, if imperfect, mea-sure of demand).

As work has moved in-house to LPOs and new business model firms and simply been withdrawn from the market, demand for law firms’ services and their realisation (the number of recovered hours) have steadily dropped… and dropped. Combine this with another phenomenon of a mature industry, falling prices, and the story gets worse for BigLaw.

Our reading of the economic trends affecting BigLaw paints a dismal picture for partners. To illus-trate this we modelled a firm starting with annual revenue of $100m and 2,500 equity points on issue.

In the model we assumed revenue decreases at 5 per cent each year, lawyer salaries increase annu-ally at 3 per cent for five years and then stabilise, other overhead costs increase at 1 per cent per year for five years and then also stabilise and, finally, this firm holds its equity points at 2,500 for each of the 10 years. The result? Profit per equity point halves in less than 10 years, Figure 2.

Some might want to argue no firm will remain inactive for this long. They will say this firm will cut staff, reduce office space and de-equitise. Partners accustomed to incomes of these levels are not going to be passive in the face of a decline of this mag-nitude. We agree rational business owners will do

table 1 Countries of origin of the largest law firms in the worldCountry number of big law firms total revenue (us$m)

usA 155 75,697

uK 22 13,810

usA/uK 2 3,626

Australia 7 2,702

Germany 4 1,667

spain 3 1,036

France 3 950

netherlands 4 906

Canada 1 444

south Korea 1 398

Italy 2 339

China 1 200

sweden 1 161

Figure 2 Profit per equity point halves in less than 10 years in this forecast

20

40

60

80

100

Y10Y9Y8Y7Y6Y5Y4Y3Y2Y1Y00

2000

4000

6000

8000

10000

12000

14000

16000

18000

% MarginOverhead CostsLawyer SalariesRevenue

PPEP

10



these things and the result, depending on your assump-tions of how rapidly and decisively the firm acts, will be less of a disaster than the chart suggests.

But will this fictitious firm really be quick off the mark and decisive? We know many firms that are already on this slippery slope. And these firms are not acting in any manner that could be described as strategic and decisive. The partnerships are stuck. Some partners deny the forecast. Others believe the good old days will return – provided they hold their nerve. And they believe there are sufficient associates in the ranks signal-ling an interest in becoming equity partners. Such graphs are the fiction of scaremongers they will say. Time will tell who is right.

One response of a mature industry is to re-struc-ture. Re-structuring results in the emergence of new strategic groups, with different types of firms oper-ating in each. Law is no different to other industries; we cite three examples of such strategic groups: global firms – which is already occurring; a small number of massive firms – which we predict will occur; and firms with a large external shareholding – which has started.

Global firmsLaw is the least globalised of the major professions. For the world’s largest 200 law firms the globalisa-tion ratio is 34 per cent compared to 84 per cent for the accountancy profession. The degree of globalisa-tion is measured as a ratio of the number of offshore offices to the total number of offices.

Industry watcher Ed Wesemann observes there have been several game-changing global mergers in the past few years. He cites the UK’s Norton Rose combining with large, strong firms in Europe, Canada, South Africa and Australia and suggests Norton Rose is ‘rapidly moving toward gigantic mergers in the USA and China’. Mallesons Stephen Jaques, arguably Australia’s leading firm, merged with China’s King & Wood in a three-way verein. Wesemann speculates this ‘new firm is likely to soon announce major American and British mergers’.

These are bellwether mergers that point to the rising stakes and nearing of the end-game in global mergers. Merging for the sake of size per se is flawed, as Warren Riddell has made clear in his paper enti-tled Bigger, Better or Both?

Our view is that the USA will continue to be the largest market for M&A activity, followed by the UK and Canada. Australia will see a few more link-ups before the most relevant assets are taken. The global élite will continue selective acquisitions to complete their footprints and some of the international firms will selectively add to their networks.

The next round to watch will be the mega-mergers involving the global élite and the inter-

national firms – driven by pressure on margins, finding a solution in combining back offices and meeting the chal-lenges of the new business model firms.

Massive firms An article in the Law Institute Journal of Victoria, Australia quoted one of the authors as musing whether there might

be ‘ten $10bn [global] law firms in 10 years from now?’. This proposition caused one BigLaw man-aging partner to suggest ‘somebody needs to have a cold shower’. The prospect of ‘ten legal juggernauts’ is scary for many of today’s BigLaw firms for good reason when one looks across at the evolution of the accountancy profession.

In 1989, only 23 years ago, the Big Eight existed. Then two mergers amongst them gave birth to Ernst & Young and Deloitte & Touche, resulting in the Big Six. In 1998 PricewaterhouseCoopers was born, leaving the Big Five, reduced to four by the implo-sion of Arthur Andersen three years later. Some of these firms date back in trans-Atlantic terms to the 1920s when, for example, Arthur Young Broads Pat-terson and Peat Marwick Mitchell served interna-tional clients from offices in the UK and the USA.

It’s not hard to substitute some BigLaw firms’ names and similar origins and re-run the same sce-nario. Analysis of the Beaton450 league table shows the modern Big Four accountancy firms range in size from $20bn to $27bn, each employing well over 100,000 people around the world. Each is larger than many of their clients. Each is a very successful firm. On a global basis few, if any, can challenge the Big Four. In the talent recruitment marketplace they are the first choice for most graduates in most countries. It’s daunting for any firm competing head-on with the Big Four.

Similar analysis of law firms in the Beaton450 shows the largest four ranging in size from $1.9bn to $2.3bn, which is approximately 10 per cent of the size of one of the Big Four. If law firm number one and two by size merged (for the sake only of the arithmetic) and the merged firm grew at 10 per cent per year, it would take nine years to reach $10bn (in today’s dollars). If annual growth was 5 per cent, to reach $10bn would take 17 years. And, as with accountancy, if two mega firms merge, others have to follow. The real question may well be: ‘Why won’t the global legal industry evolve in the same way as the accounting industry?’

Firms with external shareholding Since January 2012 the UK has allowed external investment in law firms through a new ownership arrangement called Alternative Business Structures (ABS). The UK did this to encourage innovation and increase competition into the legal profession, principally from a policy perspective to benefit the

Re-structuring results in the emergence of new strategic groups, with different types of firms operating in each

11



consumer or retail end of the market, which makes up around 30 per cent of the total legal sector. Our analysis suggests the result is likely to affect much more of the UK profession over time. The UK tells a dramatic story – the early trends are intriguing and eventually will have market-changing implications for the rest of the world.

High volume consumer legal services such as con-veyancing, wills and insurance claims are naturals to benefit from improved systems and economies from the consolidation of industry – just as we have seen insurance brokerages, tax advisers and other similar services business aggregated and systema-tised. In addition to consumer law firm aggregation other interesting developments in the UK signal opportunities elsewhere as market forces drive change. These include:

l British Telecom looking to spin out its motor claims division, commercialise it with an ABS licence and provide the services to other cor-porations that operate large vehicle fleets. Is this a harbinger of a trend that will see many in-house legal departments turned into profit centres?

l Kent County Council suggests the answer is ‘yes’ as it provides specialist legal services to other public sector agencies such as councils and the emergency services. This is in direct competition to mid-tier law firms.

l Riverview Law is also a product of the disrup-tion to the UK market from recent reforms. It is partly owned by international law major DLA Piper and is a new business law model of both a barristers chambers and a solicitors practice providing fixed-fee services to SMEs.

The opportunity to apply new commercial business models to consumer law in the UK is attracting private investment and non-lawyer ownership. As Riverview Law is already demonstrating, this trend will inevitably create competition for many parts of the practices of BigLaw firms. The impact of these developments on mid-sized law firms in the UK is starting to be felt. Areas of specialisation such as property, insurance and banking services that provide a steady income for commercial law firms from com-moditised work is at risk from lower cost alternative suppliers where black letter law is not as critical as cost and speed.

In Australia the Incorporated Legal Prac-tices legislation was passed in 2001 and, while many partnerships have incorporated, there have been no ground-breaking changes to the sector except for the listings of Slater & Gordon and Integrated Legal Hold-ings. The Australian retail legal market is estimated at around $4bn or 21 per cent of the total market, so there appears room for new and innovative models.

Legal process outsourcers Legal process outsourcers (LPOs) first emerged about 10 years ago and today they constitute at least a $1bn, perhaps even $2bn, industry that is growing at more than 30 per cent per year – very much faster than, and taking market share from, BigLaw. Some law firms are now setting up their own LPOs, having ventured into captive business process outsourcing well over a decade ago. Most of this will be at the expense of BigLaw. Add the trend to move more work in-house and little wonder we are witnessing the demand for legal services among traditional law firms in steady decline.

Lest the reader think LPO is an ephemeral fad, Figure 3 shows the evolution of outsourcing generally. LPO is a specialised form of knowl-edge process outsourcing and, as such, nothing particularly new; it is part of bigger trend that will inexorably continue to grow.

What will create the burning platform for BigLaw business re-invention? Either a huge opportunity or a huge threat is the likely answer. A recent insightful article by Larry Bridgesmith suggests it is going to be the threat of the LPOs: ‘LPOs have illustrated far more than cost-saving capacities. Now LPOs are used by law firms and corporate legal departments for unique expertise, staffing management, regulatory compliance and end-to-end legal solutions. LPOs are becoming less of a business solution than a major player in the legal services

industry. As such, the influence of LPOs is radically reshaping the model of the business of law.’

new business model firmsAxiom Law is the pioneer of firms of this type. Less than 10 years old, Axiom would now rank 172nd in the AmLaw revenue league tables – if only the

Figure 3 evolution of outsourcing showing LPo, a specialised form of KPo, is part of a bigger trend

1980s 1990s 2000s 2010s 2020s

Information Technology Outsourcing (ITO)

Business Process Outsourcing (BPO)

Legal Process Outsourcing (LPO)

Crowd sourcing

What’snext?

LPOs have illustrated far

more than cost-saving capacities

12


publisher would recognise firms from that part of the pie chart to which Tom Peters referred as ‘Other’. Peters famously – and in the case of law correctly – explained that these ‘Other’ firms usu-ally constitute the largest threats to the establish-ment in all industries. Others have copied Axiom in a range of ways, including Conduit Law in Canada, AdventBalance in Australia, Clearspire in the USA, and there are law firm-owned variants such as Eversheds Agile in the UK.

The estimated market share held by these new business model firms is currently less than one per cent. The current high growth rates of the LPOs and new business model firms and the low to zero growth of BigLaw mean the market share of the newcomers will continue to grow to a much more substantial level, as will the attendant scale econo-mies that accompany increased share.

Axiom and other new business models that provide legal services in combination with the provision of legal processes form part of a more complex and richer choice of service provider for clients. Figure 4 is adapted from Riverview Law’s recent publication describing the changing nature of the in-house legal function and the multi-tiered array of external providers now available to corpo-rate clients.

Law firms increasingly face a range of competitors whose value propositions offer ‘more for less’. This trend epitomises the Innovator’s Dilemma described by Clayton Christensen of Harvard. Lawyers and their firms have big problems dealing with disrup-tive technologies because these innovations almost certainly ‘result in worse product performance… at least in the near term’. This very feature of disrup-tive technology means an intrinsically conservative, risk-averse, partnership-based profes-sion focused on today’s needs of its clients and duty to courts does not even contemplate disruptive technology. In fact, it seems to fight and obstruct, which is a dangerously naïve view of how to compete in the future.

ClientsIn-house legal departments too are undergoing massive change. Their headcounts are growing faster than law firms’ and this is at the expense of law firms. It is predicted that many new types of jobs for lawyers will evolve – many in-house and very few in traditional firms – and these will replace tradi-tional lawyers.

Armed with growing in-house legal teams and mandates to increase cost-effectiveness, general counsel are flexing their buying power to wring changes in the legal services market. Increasingly, in-house teams are staffed with lawyers with law firm pedigrees, helping skim ‘premium’ work tra-ditionally provided by law firms. As in-house legal teams grow, so does confidence in them, elevating corporate counsel to be the first point of contact

for senior management with legal requirements.Technology, such as Legal OnRamp, will play an ever-greater role in making in-house lawyers more efficient and effective – and less dependent on external law firms.

the next 10 yearsIn conclusion, we make some predictions about the demand and supply sides of the legal services industry.

Clients will continue to become more sophisti-cated and discerning in how they meet their legal needs. In-house departments will grow further, more will adopt tech-nology, and some will become profit centres competing with the law firms and LPOs that supply them.

In response, the range of external suppliers that serve these clients will grow in number and diversity. The share of the profits on the supply side of the equation will shrink and be divided among more competitors.

Traditional BigLaw firms that adapt too slowly or not at all will wither and some will die. Others will re-invent their business models keeping the best of the old and finding new ways to serve cli-ents and compete. These new ways will include more heterogeneous business models and a wider range of services.

Dr George Beaton is executive chairman, Beaton Research & Consulting, a partner at Beaton Capital and associate professor at The University of Melbourne. [email protected]

Eric Chin is senior analyst at,Beaton Research & Consulting and Beaton Capital.


Figure 4 Depiction of the multi-tiered array of external providers available to clients

General Counsel/Head of Legal

Preferred Law Firms

In-House Legal Teams

Smaller In-House Team

Legal Process Outsourcing Partner/s

Reduced Recourse to Legal Panels

Legal Advisory Outsourcing Partner/s

General Counsel

Collaborative

Tactical StrategicFocus of in-house legal function

Rela

tions

hips

Pric

ing

mod

els

In-h

ouse

Hou

rly

billi

ng

Fixed pricing

Law Firm Panel/s

General Counsel

Many new types of jobs for lawyers will evolve – many

in-house and very few in traditional firms

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2013

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14


IntRoDuCtIon: Public sector

The Government Legal Service (GLS) is the collec-tive name for the legal teams of approximately 30 UK central government departments, agencies and public bodies which, all together, employ about 2,000 lawyers. It provides a range of legal services to the government of the day – including the provision of advice to government and policy administrators on proposed changes to laws, drafting legislation, criminal and civil litigation (including judicial review work) and advising on the implications of the ever-increasing volume of European Union law on domestic UK policy and laws.

UK local authorities and organisations such as the National Health Service are also significant employers of lawyers.

Procurement in the public sector‘Radical restructuring’ of public procurement could save £15 billion and more use of shared ser-vices and outsourcing could save £10bn, the UK Institute of Directors claimed in its 2010 Report on public sector procurement. At that time, it assessed the UK’s annual public procurement spend to be £220bn (about one third of UK govern-ment spending).

The report concluded that at least £25bn a year was being ‘squandered’ through badly organised procurement and outsourcing; that most purchasing was organised in small scale silos (with most local authorities, NHS Trusts and small central govern-ment departments ‘doing their own thing’); and that the resultant ‘massive duplication’ could be avoided if legal services, IT, human resources and other ser-vices were sourced centrally.

The solution, the report concluded, was integrated public sector procurement and outsourcing. The report proposed the creation of centralised buying organisations to handle all key supplier relationships and all national and major contracts on behalf of the whole public sector. Local needs would be met by regional procurement hubs.

Since 2010, there have been some efficiency improvements – but the radical step-change proposed by the report seems, politically, to be a step too far.

David Cameron’s political broadsideIn a speech early in 2011, UK Prime Minister David Cameron fired a broadside at public procurement staff – badging them ‘enemies of enterprise’. He made forceful, often critical, statements about the role and effectiveness of public sector procurement.

He announced that the UK government is encouraging 25 per cent of public spend to go to SMEs – and now, as the UK languishes in a double-dip recession, its central government continues to believe that encouragement of growth of SMEs should be a material part of the plan to restore the fortunes of the UK’s economy. So what is changing?

small steps – shared service centresBoth central government and local authorities face ongoing pressure to reduce their costs. In the past few years, several groups of local authorities have con-joined their legal teams to form shared service centres.

In 2011, when Susanne Nelson-Wehrmeyer was appointed interim team leader of the conjoined legal teams of Wokingham Borough Council and the Royal Borough of Windsor and Maidenhead (with Reading Borough Council’s legal team scheduled to join that grouping shortly thereafter), she was quoted as saying: ‘This is an exciting development for us, which will ensure better value for money for legal services for the participating authorities, will improve service resilience and create better career opportunities and support for those within the service.’

She added: ‘Shared services for back office func-tions will become more common as budgets become more constrained, especially for smaller authorities. We have taken the opportunity also to transform the way we work while undertaking this project, so we will also be moving to more flexible working pat-terns at the same time.’

There are many other examples of UK local authority legal teams combining resources to form shared services centres – not all for legal services. Some have private funding: for example, in the UK National Health Service, NHS Shared Business Ser-vices in Salford is jointly owned by the Department of Health and by Steria. A former NHS regional hub in the West Midlands of England is now run by an American company and is called Health Trust Europe.

Perhaps these types of organisation will expand their operations into the local government sector?

If the best of private sector operations can provide top-class services and value to the public sector – at competitive prices – why is more of that not now happening, particularly in relation to LPO services?

outsourcingThe topics of shared services and outsourcing are closely linked. Surely the next step for both central government and for local authorities should be to include within GLS and local authority shared ser-vices centres for legal services elements of LPO

Could LPo be the missing link for the uK public sector?By Robert Glennie, CEO, NewGalexy Partners

In the past few years,

several groups of local

authorities have

conjoined their legal

teams

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16


Leading the way in innovative legal support services

NewGalexy delivers innovative managed LPO service solutions to large international corporations and law firms.

Our practice is deliberately focussed on matters which many in-house counsel and law firms find hard to complete efficiently and cost-effectively.

With delivery centres in the UK and India, our team of highly trained and specialised lawyers can assist your business with both onshore and offshore LPO services.

So if you are looking for more efficient delivery of your legal services OR to manage your legal budget more effectively then we, at NewGalexy, offer you a one stop solution for all your LPO requirements.

To discuss how we could help your business, please give us a call on +44.203.432.7224

www.newgalexy.com

outsourcing – to maximise potential cost savings and efficiencies.

The private sector is increasingly embracing legal process outsourcing – with large corporates, as they refresh their legal panels, often requiring law firms which want to win a place on the refreshed legal panel to include in their offering ‘an LPO option’.

The compelling commercial and economic rea-sons why these large corporates choose to work with LPOs, or require their panel law firms and in-house lawyers to work with LPOs, make as much opera-tional and financial sense for public authority legal departments as they do for private sector businesses.

More for lessWith local authorities facing budget cuts of up to 40 per cent, doing ‘more for less’ will often not be enough. Politicians tend to want to safeguard front-line services: back office services can be slotted into shared services centres – but, in truth, more radical solutions are needed.

Some new ideas are being tested. The legal team at Kent County Council is working with the law firm Geldards under the ‘Law: Public’ brand to, in the words of Geoff Wild, director of governance and law at Kent County Council, ‘provide a cost-effective service and a viable alternative to the panel system’.

That development is an interesting alternative to the traditional law firm panel system. But could that model and the various shared services models that are emerging be improved and developed further by the addition of LPOs into the mix? It most certainly could.

Central government and local authorities have now been outsourcing services such as IT, finance and payroll for quite some time. Some of these out-sourcings have been more successful than others – but, hopefully, public authorities have learned from their experiences. If the private sector can use LPOs, successfully, why not the public sector?

Ingredients for innovationThe legal profession in the UK is in the midst of a period of rapid change. Today, it is radically different to what it was 25 years ago. Mergers proliferate among private sector law firms and many high street law firms struggle to survive.

The arrival of ABSs will undoubtedly accelerate further change. New providers of legal services and legal support services are emerging – where will businesses such as the Co-op and the AA sit in these service sectors in five years’ time?

In the private sector, some LPOs – such as New-Galexy, the business of which I am executive chairman – now complement their established off-shore legal process outsourcing capabilities (New-Galexy’s offshore LPO delivery centre is in India) with an onshore delivery centre within the UK. So worries – whether real or not – about sensitive contracts, data or information leaving the UK can now be totally avoided.

Specialist consultancy firms – and LPOs such as NewGalexy – spend time with their new clients de-constructing the legal tasks and transactions which these new clients regularly undertake. The main purpose of that exercise is to identify which elements of each task or transaction could more efficiently, effectively and cost effectively be under-taken in better, more efficient, ways and by lower cost resources.

In truth, there are elements of many legal tasks and transactions that are repetitive or very similar and which, if operated and managed as a process, can be completed with much less risk of error, at lower cost and by lawyers or paralegals with spe-cialist skills and training in that type of work.

The outcome of these de-construction exercises is that high-cost, specialist lawyers (whether in law firms, in-house legal teams or public authorities’ legal teams) can focus on the parts of legal tasks or transac-tions to which they can truly add real value, leaving the other elements of these overall tasks and transac-tions to be handled by an LPO. Of course, it is vital to ensure that appropriate protocols are discussed care-fully and put in place at the outset – so that each legal task or transaction flows and is managed smoothly and effectively: and we, at NewGalexy, find that our most successful and enjoyable legal outsourcing work is with those clients who communicate most effec-tively and proactively with us.

Similar types of arrangement could readily be put in place with central government and with local authorities. Hopefully, that organisational change will now begin to happen.

true added valueMany of the legal support services provided by LPOs to their private sector clients should be helpful to public sector organisations. Whether it would be contract management work (for example, contract abstraction, contract review, contract drafting or cre-ating and managing databases of contracts); docu-ment review (for the purposes of litigation support, for example); or procurement assistance – the de-construction and analysis exercises described earlier in this article should be equally relevant to public authorities, and would assist them to maximise efficiencies and cost-savings at a time when they are all under severe pressure to reduce costs while increasing output.

Law firms are beginning to talk to LPOs about ‘managed legal services’ and ‘managed legal sup-port services’. As a softer option than the radical changes proposed by the Institute of Directors in its 2010 Report, the first public authority to investigate and embrace these changes should win widespread praise and plaudits.

Robert Glennie is CEO of NewGalexy Partners Ltd (an offshore LPO services provider) and executive chairman of NewGalexy Services Ltd (an onshore LPO services provider).

IntRoDuCtIon: Public sector

New providers

of legal services

and legal support

services are emerging – where will businesses such as the Co-op and the AA sit in these service

sectors in five years’

time?

Leading the way in innovative legal support services

NewGalexy delivers innovative managed LPO service solutions to large international corporations and law firms.

Our practice is deliberately focussed on matters which many in-house counsel and law firms find hard to complete efficiently and cost-effectively.

With delivery centres in the UK and India, our team of highly trained and specialised lawyers can assist your business with both onshore and offshore LPO services.

So if you are looking for more efficient delivery of your legal services OR to manage your legal budget more effectively then we, at NewGalexy, offer you a one stop solution for all your LPO requirements.

To discuss how we could help your business, please give us a call on +44.203.432.7224

www.newgalexy.com

18


IntRoDuCtIon: In perspective

ment consultants and investment bankers might be early adopters of this new way of doing business, while I didn’t think that lawyers would, so I decided Integreon would focus on performing knowledge process outsourcing (KPO, similar to LPO) for man-agement consultants and investment bankers. There was another company called Office Tiger which started about the same time, doing the same thing, and which was also very successful, so we somewhat had competitors co-create the market.

I almost completely missed LPO, which is the part of the Integreon story people don’t really know and are often surprised to learn. When Pangea3 launched, made up of ex-Office Tiger employees who decided to build an LPO business and move legal work to India, I met their founders. I walked out of the meeting thinking the concept wouldn’t get off the ground and that they would struggle to get lawyers to trust an outsourcing provider working on their legal matters 10,000 miles away. I didn’t think anything of it. Boy was I wrong! You’d have thought, given the similar knowledge work I was doing for consultants and banks, that I would have been more open than most to outsourcing knowl-edge work for lawyers, but I actually thought it was never going to work.

About six months later two things happened (this was in about 2006): some of my investment banking clients said: ‘You’re doing all this other research work for us, why can’t you help our legal department? It’s

In perspective: Liam Brown, elevate services

In October, the Legal Practice Section of the Law Council of Australia will be hosting a World Masters of Law Firm Management event entitled: Legal process outsourcing – the real story. It will include a keynote address from Liam Brown, who was the founder and former CEO of the world’s largest LPO, Integreon, and is now founder and chairman of Elevate Services – an organisation he describes as ‘LPO 2.0’. The Law Council Review spoke to him about the current state of the LPO industry, the concerns surrounding it and its future in the legal profession

Where did you get the idea to start a business like Integreon?

In the 1990s I worked at a financial document com-pany that produced IPO prospectuses. They had a business practice where they moved the work from their offices around the world (‘spokes’) to a cen-tralised, low-cost location (‘hub’), instead of staffing all the offices, or moving the people around to whichever office was busiest (which was common practice among our peers). That was an insight for me: you could move knowledge work to lower-cost locations. Then, in 1998, I built my first business: a dotcom virtual dataroom company for M&A, where I saw lawyers and bankers unbundle work, use the internet to work together remotely, and then rein-tegrate their work product. That was my second insight: professionals could unbundle complex knowledge work.

My original Integreon business plan in 2001 was about unbundling and moving non-value-added knowledge work for professionals to lower-cost loca-tions offshore and onshore. I thought that manage-

19



different, but it’s the same – it’s still knowledge work’; the second thing that happened was that I fought a legal battle with a medical outsourcing company that changed their name to ‘Integreo’. I ended up fighting them in a trademark litigation, which I won, but spent something near $500,000 on the case. I was very happy with winning, but not so happy with spending so much money.

Of that $500,000, half of it was spent on people reading my emails – essentially during discovery. And that’s when I had that light bulb moment: ‘I’m missing this big opportunity because I have people who can do this work for a lot less than paying $250 an hour to a junior US lawyer.’

After this I felt I really had to catch up to where the industry already was and so I slowly, but surely, put together a strategy for how Integreon would build an LPO business that was focused on providing an end-to-end solution for litigation. Other providers were doing things like contracts and IP but it was early Integreon’s focus on litiga-tion that helped it grow so quickly.

What’s your take on the current state of the LPo industry?

There are a couple of notable trends. The first is that a lot of venture and private equity capital went into the industry in 2006 and now those investors are looking to monetise their returns. That causes LPOs to operate differently to how they did in the first five years of the industry’s existence. They’re now less inclined to invest in the long-term because their investors are focusing on near-term returns and liquidity.

This creates a challenge to their clients and employees – I believe it is a mistake to focus on near-term returns and liquidity in serving the legal market, where relationships between a company, its law firms and its LPOs are not just a series of mutually exclusive transactions, but rather more an eco-system where all parties are looking for mutual gain over the long term. There has been a significant shift in strategy and direction at many of the leading first-generation LPOs because the growth of those LPOs was fuelled by outside capital. Those investors helped the LPO entrepreneurs build capabilities and educate the marketplace and now they’re looking to monetise their investments.

The second trend relates to the LPO providers being somewhat stuck in their startup paradigm of: ‘We need to look like our clients so they trust us, but do the work at lower cost.’ They’ve been hiring lawyers in low-cost offshore and onshore loca-tions, but doing the work in a similar way to how their clients’ lawyers have done in the past – or how their clients have told them to do it. In my view, LPO 1.0 has been about labour arbitrage rather than process

re-engineering and systemisation of the work. I think LPO 2.0 will be the evolution of LPO to true consulting, process re-engineering, that is disaggre-gation of steps in the legal system and its frictionless reintegration and technology that’s going to deliver defensible, repeatable, sustainable, measurable and improvable outcomes. I believe many current LPOs are struggling with this as they grow, which is another driver for investors to cash out.

Do you believe trained lawyers aren’t necessarily required as part of any legal process outsourcing operation? If you time-and-motion study a legal matter, it’s startling what percentage of hours of work does not require a trained lawyer. The first phase is clearly legal advisory and legal strategy, requiring experienced legal minds. The oft-overlooked project management is not a legal discipline. The assembly of a legal docu-ment or first pass review does not generally need to be performed by lawyers, though of course the output requires review by experienced lawyers.

You keep going through the process and there are many non-value-added elements that don’t need to be performed by a lawyer. A substantial percentage of the work of the multi-billion dollar legal market actually has nothing to do with being a lawyer. It has simply been historically performed by lawyers because it’s been swept up among all the things that need to get done during a legal matter.

Are legal process tasks such as discovery, IP and documents just the tip of the iceberg for the LPo industry: is there potential for LPos to expand into other areas of legal work?That’s a really big question. I think the smart LPOs aren’t going to do anything that would be truly per-ceived as competition on the home turf of law firms. However, I do believe that alternative legal service providers such as Axiom, are competing directly with law firms and will try to do so more and more.

In my view LPO should restrict itself to ‘legal efficiency’ work such as document review, contract management and patent management. Some LPOs have said things like: ‘We’ll start low on the legal value curve and then move higher.’ Leah Cooper,

former general counsel of Rio Tinto, often discussed publicly how her com-pany rightly identified legal work that didn’t need to be performed by a lawyer, but then a number of LPOs misinter-preted that to mean: ‘Let’s go and hire a lot of lawyers and start with that work –let’s lift it, move it to a low-cost location and then we’ll move up the value chain and have our lawyers do more com-

‘I think smart LPOs aren’t going to do anything that would be truly perceived

as competition on the home turf of law firms’

20



billion dollars of revenue? And they are now asking themselves whether they would rather spend $3 million on outside legal counsel to review email in a discovery process or spend only $1m by using an LPO, and invest some of that $2m saving into helping their business through a compliance centre of excellence or technology for contract management to help the business better manage their obligations?

At law firms, the best practice use of LPO is not only doing the work more efficiently for their cli-ents, but also doing the work more profitably for the firm. I have seen numerous examples of law firms retaining or winning business because they have agreed to ‘work differently’ with LPO and I am afraid I have seen just as many examples of firms losing business because they have refused to do so.

Those that refuse to do so typically think of LPO in one dimension: simply a reduction in their revenue. Commercially savvy firms acknowledge it is as a reduction in their revenue, but also see it as an opportunity to improve their profitability through even greater reduction in their cost. And the smartest firms are using LPO as an alternative resourcing lever, alongside other tools such as legal project management, to allow them to experi-ment with billing their clients on an alternative fee arrangement (AFA) or value-basis, thereby decou-pling their revenue from their costs and making a step-change improvement in their profitability.

LPO is just one tool that will allow the whole legal ecosystem of law firms and corporate legal depart-ments actually to shift costs from non-value-added functions to invest in the value-added functions they really care about: risk avoidance, risk litigation, compliance training, contract management, better management of their commercial obligations.

When that happens, people will stop thinking of LPO as ‘the nanobots that are devouring legal’ and will start thinking of it as a positive enabler that allows legal professionals to focus on being lawyers and that also has a meaningful impact on the firm’s and their clients’ business.

LPO is a hot topic now partly because it is viewed as a valuable tool to meet the ‘same or more for less’ challenge facing GCs, and there are a number of successful case studies, but the truth is there are not many people with the ‘general contractor’ expertise successfully to implement and manage. Corporate legal departments want to find the holy grail of: ‘Can we stop spending money on non-value-added things and start spending on value adding – trouble is, I just know how to run a legal department; I don’t know how to operationalise this disaggregation, LPO, and reintegration stuff among all my law firms.’

They increasingly look to their law firms in hope that they can fill the general contractor role. But law firms generally don’t have legal project managers to manage disaggregation, LPO and reintegration of work. Let’s face it, law firms are struggling with their own internal project management, for example for alternate fee arrangements – sometimes they make

plex legal work in the future.’ They incorrectly positioned themselves, quite unfortunately for the whole legal system in my view, as a com-peting alternative to law firms. And then when they struggled to deliver

consistent quality at the higher-value level (because they relied on a few key people and hadn’t systema-tised the work), we started to hear about the dissatis-faction with LPO from some clients.

I think the right thing to do is look at the overall legal system of work and disaggregate it into its components: separating advisory work from non-advisory or process-driven work. The non-advisory work should then be produced by non-lawyers and it needs to be as systematised and automated as pos-sible. And then the work that is advisory, project management or client relationship management needs to be the core of law firms and corporate legal departments. If you look back 20 years, that’s actu-ally what used to happen: law firms used to perform those core functions. What has happened over the past 20 years is a kind of leverage where, basically, many junior lawyers are doing work they shouldn’t be doing – more often process or system oriented.

What are the benefits to law firms in using LPos? Is it purely about cutting costs or are there other benefits?

It’s been fashionable to suggest a zero sum game is being played out between corporate legal depart-ments on one side of the table and law firms on the other, for example GCs force their law firms to use LPOs to reduce costs, while law firm partners resist the LPO-driven reduction in their billing.

I don’t believe there’s such a systemic divide, but rather the legal sector is an ecosystem, with players who intend to do the right thing; but for a moment in time, law firms are anchored by their old oper-ating and economic models, while the financial pressures on the legal department demands that GCs immediately find ways to do the same or more, with less. Until the new ways of working settle in, this will be a painful mismatch between them. I believe law firms have no option, but to embrace the reality that their clients’ economic pressures aren’t going away, and they must work differently to help them afford to meet their increasing legal workload – and that includes embracing LPO.

In corporate legal departments, GCs are focusing on the value balance between risk and cost. Along-side managing risk, they’re now really starting to think about the total cost of ownership of legal. They are starting to measure and benchmark a bal-anced scorecard of metrics against their industry peers, such as what is their total legal spend per

‘GCs are now really starting to think about the total cost

of ownership of legal’

21



money, sometimes they don’t, and they often don’t know until it is too late. And so there’s this kind of friction where legal departments are looking to their law firms to manage LPO, but the law firms don’t have the requisite expertise, and hide their lack of expertise under the guise of all sorts of reasons for why LPO won’t work ‘in my practice’.

So the GCs have grudgingly taken it on them-selves, but they can only take the journey so far. And the LPOs, frankly, we didn’t help ourselves because, in my view, we didn’t engage with and train law firms adequately, and secure their support. I really think we didn’t do ourselves any good, as an industry, by shouting out to GCs: ‘We can save you loads of money by not using your law firm.’

What we should have done was become trusted partners of the law firms who then, over time, came to see LPO as a value-add to the economics of their business. That, in turn, could improve firm profit-ability but, more to the point, it could save their clients more money, which savings GCs could real-locate into other areas of legal spend to help their business. Hence my conviction that at heart there is great alignment between legal departments, firms and LPOs.

Is this the next evolution in LPo: the outsourcing of business practices within law firms?I started Elevate Services specifically with the goal of helping law firms become more efficient to help them meet the ‘new normal’ needs of legal departments. That means helping them with project management, budget management, AFAs, and disaggregating the process work from the value added advisory work, LPO, and then re-integrating the work.

I think law firms need help with all of this – 90 per cent of the law firms I work with tell me they know alternate fee arrangements are not going away, but they struggle to develop project plans and budgets, and they just don’t know how to manage their resources to meet the budgets they’ve told their clients.

Those firms that have embraced LPO intelligently have managed their own pace of transition from inefficient, highly leveraged pyramids to much leaner, sleeker, more advisory law firms. In those cases, LPO is most certainly not ‘moving up the value chain’. That is what the experienced lawyers at those firms are doing. Rather, LPO as those firms is focused on the systematisation and efficiency of the non-value-added work.

In that regard, is LPo best suited to large law firms? Which segments of the profession does it benefit most?I don’t think it’s a question of size for firms – it’s a question of the nature of their legal work. Some

small firms are great users of LPO services because they’re using them for the right type of work. There are some large firms that aren’t using LPO at all and you wonder why they aren’t. It goes back to the earlier question of will LPO move up the value chain: it’s not about moving up the value chain or what size the business is; it’s about horses for courses—the right people doing the right work.

Some of my earliest clients at Integreon were innovative small law firms. A lot of them knew they couldn’t compete with the opposing council in terms of muscle or resources, so they had to out-think them. They did this by thinking differently about how they went about their work.

Conversely, I remember a partner from one of our big clients in Australia telling me they were going to lose important corporate work to a smaller, nimbler law firm unless they were able to do the work differ-ently. The way they addressed this issue was to craft an AFA with the client, which they could afford to experiment with because they decided to use LPO to radically reduce cost of non-value added work.

The common feature of both these examples was the business or client driver that made them think differently about the way they delivered their legal service – not their core legal service, but the support of their core legal service.

Is it almost a process of injecting some additional business savvy into the legal profession?I don’t mind reflecting on this question: I’m not a lawyer so how was I fortunate enough to build the biggest LPO provider in the world? I did it by basi-cally listening to clients and doing the common sense thing.

Perhaps unfashionably, I think legal is one of the most entrepreneurial professions in the world. While the institution of a law firm is hard to change, when you speak to individual lawyers, they’re very innova-tive and business savvy. It’s not an issue of them not knowing what to do or them not being innovative, but often they don’t know how to ‘get there from here’. This is something law firms and corporate legal department are starting to change: they’re facing the reality of the new normal, deciding to work differ-ently: hiring legal project managers using LPO.

What do you say to those who have ethical concerns in regards to not having a lawyer do work that was traditionally done by lawyers? Are the ethical concerns surrounding LPos valid?

‘I think legal is one of the most entrepreneurial

professions in the world’

22



ments. It’s imperative for firms to perform adequate supervision – do not do what I hear some firms and corporate legal departments have done in the past and just throw the work over the wall to an LPO and hope for the best. You can’t do that; you have to have a system in place to manage and oversee the work. If you don’t have a system that gives you reason-able confidence, whether or not it’s internal or with your LPO, then you’re not ethically meeting your

supervisory obligation. It’s simply the right thing to do – you’ve got a commit-ment to your client to deliver a quality service.

This is not just about the firm, of course. The LPO has a responsibility. Does the LPO have adequate subject matter and supervisory expertise, the right management systems and infor-

mation security systems in place? Does the LPO pro-vider have the appropriate insurance coverage at the appropriate level in place?

there have been suggestions LPos need to be regulated beyond the level of individual law firms. What are your opinions on regulation of the LPo industry? As a member of the legal ecosystem, I personally don’t care so much about whether or not the LPO industry is regulated. But I do care about good, clear guidelines; and I care that not following those guidelines should suffer ensuing consequences. In general, I think that frameworks for best practice, whether or not they’re industry or regulatory, are the best way to operate. Interestingly, the LPO com-munity in general looks at guidelines as healthy because it would remove ambiguity.

Where do you see the future of LPo in the legal profession?

I don’t think LPO will be a term in 10 years’ time. It’s an acronym that we use today to distinguish between the delivery of advisory legal services and the firm delivery of non-advisory, process or legal support services. In the future I think you will see lawyers much more focused on a professional advi-sory role – really adding value. There will be a lot greater transparency between the legal department and the law firms regarding how much value they added. LPO will be the non-advisory, process or legal support work that will be variously performed by the corporate legal department, sometimes by the law firms, and sometimes by third party companies.

We would like to thank The Law Council Review for their permission to use this article which appeared in the publication’s September issue.

Lawyers cannot brush aside or try to find a way to work around the ethical obligations associated with LPO. If the ethical obligation of the lawyer is to put the client’s interest first, is it really in the client’s best interest to have a law firm resource a document review on Friday evening by asking which five asso-ciates are free because they need to review a due dil-igence file by Monday, rather than staffing with the three associates that have the expertise and experi-ence to do the work most efficiently?

It’s an extreme example that we all know sometimes happens, but it’s no more extreme than the stories you hear about LPOs in India staffing a docu-ment review with people who have never done legal work before, which we have all heard about.

My point is, I think it is wrong for LPOs and law firms to make extreme arguments about the other. What I found successful time and time again at a reputable LPO was to have the law firms very involved in the sampling and oversight of the LPO work in a systematic manner – simply fulfilling their ethical obligations. The ethical argu-ments against LPO are a smokescreen. They are made by those who don’t want to think behind what’s the best way to do the work. The best way to do the work considers the ethical obligations, the economics, the business outcomes and the quality of the work.

The quality of legal services can be measured. There are numerous examples of measuring and managing knowledge work that have been imple-mented in many professions and, as soon as you start to do that, you start to see there are areas for improvement. It’s easy to hide behind ‘you can’t measure the quality of legal services’ or ‘we’ve got an ethical obligation that doesn’t allow us to use LPO’.

I can name numerous law firms that have funda-mentally reduced their costs; they are paid higher rates per hour by their clients; they involve their lawyers in oversight of LPO and they get a higher quality, repeatable outcome by using LPO.

Think about that: the client’s overall fees have gone down; they spend less on the law firm bill, but the law firm actually generates more profit than it did before; their lawyers are no longer doing the heavy lifting, but they have a systematic way of overseeing quality and consistency of the work. Everyone wins.

Does this smokescreen then also apply to other criticisms the industry has drawn; such as supervision of work, privacy concerns and professional indemnity insurance? If you are not supervising the work that is done either inside your firm or with an LPO, you are running the risk of ethical breach or a quality problem and many of these problems will end up in insurance settle-

‘The ethical arguments against LPO are a smokescreen’

23


How to

24 Harnessing technology By Simon Thompson, Venturis

28 offshore or onshoreBy Sarvarth Misra, NewGalexy

30 Managed legal servicesBy Andrew Loach, Berwin Leighton Paisner

32 CollaborationBy Mark Ross, Integreon and Carla Goldstein, Seyfarth Shaw

36 Contract intelligenceBy Gururaj Potnis, Mangala Hunnargikar and Sushmita Das, Manthan Legal

43 Document reviewBy Andrew Goodman, Michel Sahyoun & Philip Algieri, Quislex

24


HoW to: Harnessing technology

Legal Process Outsourcing (LPO) is no longer a choice for today’s lawyers. The question is not whether law firms or in-house counsel should outsource, but rather when and how best to do it.

Said to be worth a total of $2.4 billion, the market is being driven primarily by US and UK lawyers with in house legal departments being the largest drivers of growth, closely followed by UK-based law firms.

India is by far the leading LPO destination, while other locations such as the Philippines, Kenya, South Africa and Mauritius are starting to gain more trac-tion. Continued downward pressure on costs and the trend towards globalisation of legal services provide a perfect environment for LPO. Leaders are taking a strategic decision that LPO can create value, deliv-ering a variable cost base and a flexible talent pool. The next step is to look at the mechanics of doing it with technology playing a key role.

While LPO has traditionally been utilised for the more commoditised/mundane activities associ-ated with legal practice, for example document review, e-discovery, and contract management, LPO providers are now moving up the value-chain into areas such as contract drafting, legal research and more complex IP-related work.

This article will focus on the issues associated with a law firm outsourcing to a legal services pro-vider as part of the delivery of its service to a client. In this model, a law firm or in-house legal depart-ment for a company will hire a third party provider – an LPO company – with trained lawyers and non-lawyers to complete a task. Examples of the top LPO businesses include CPA Global, Integreon, Mindcrest and Pangea3.

LPo confusionIt is important also to dispel some common confu-sion in relation to LPO – in particular the different options available.

outsource and offshoringOffshoring refers to the situation in which the outsourced entity is based in another country. As such, and contrary to some commentary, LPO and offshoring are not synonymous. LPO does not, by definition, refer to the execution of legal work in an ‘offshore’ location. In fact, a key trend in the past couple of years has been the creation by LPO providers of capacity in onshore low-cost regions of the UK and US. While this is being driven by a number of factors, including reputation risk and political considerations, it is also a major factor in determining the complexity and difficulties in managing the relationship between law firm and LPO. Offshoring adds complexity to the out-sourcing relationship and the technology issues associated with it.

Captive and outsourcingA captive is the model formed when a corpora-tion or law firm starts its own centre in a foreign

the outsourcingchecklist for getting on the bandwagonBy Simon Thompson, partner, Venturis Consulting

25



country responsible for its legal and business pro-cessing issues.

In this model, responsibility falls on the company or firm that recruits and employs the foreign law-yers, and the lawyers responsible for supervising their work.

Sometimes these captive centres are established through a joint-venture with a LPO firm. An example of this was Clifford Chance building its India-based captive in Delhi in partnership with Integreon Managed Solutions.

However, irrespective of how the captive was built, the responsibility still falls on the law firm to super-vise and maintain the security of all information shared. As such a captive is not outsourcing, it is the extension of the capabilities of an organisation in to a new jurisdiction. To a very large extent it comes with all the same issues associated with a firm opening a new office. Engaging with an outsourcing third party offers a very different set of issues.

LPo and It IntegrationWhile there are a huge number of factors that influ-ence and ultimately dictate the success of any out-sourcing relationship, including cultural alignment, business process design, training and knowledge transfer, security, quality control, regulatory compli-ance, financial structure and reporting, information technology will always plays a hugely significant role.

Not addressing the relevant IT issues and poor-quality technology integration can lead to missed services levels between outsourcer and outsource company, inaccurate work, client dissatisfaction and ultimately heightened risk.

An absolutely key lesson is to ensure that for any LPO negotiation and decision-making IT is fully engaged at the very start of the process. Very often IT and technology integration are after-thoughts, after other issues such as quality of legal services and contract commercials have been discussed and agreed. This is too late and can result in later issues.

Proprietary LPo solution Commercial off-the-shelf solution

Benefits

Faster implementation time. Reduces the need for:

l integration and development work

l staff training

Reduced capital or initial investment required. LPo provider may already be geared up to offering end-to-end solution on a per-user per-month cost.

Clear lines of accountability. the LPo provider is providing a full end-to-end service; as such it becomes much clearer as to where accountability for It lies.

Greater flexibility, reduced lock-in. Ability to:

l change the technology solution without changing LPo provider

l change LPo provider without changing technology solution

Increased negotiating power from having separate software and service vendors.

enhanced functionality and richer feature set as the solution develops to address require-ments of a broader client base within and out-side of legal and LPo.

Risks

Lock-in to LPo vendor. the cost to change soft-ware or service providers can be very high.

Commercial risk. All aspects of the solution are directly linked to the LPo provider.

Reduced feature set. Lack of access to function-ality delivered as commercial software develops.

Potential integration issues with law firm’s It systems (or any of the law firm’s other service providers).

Increased integration, training and imple-mentation costs for both LPo and law firm. this very much depends on if the solution is already in use at either party.

Does the LPo real expertise in the proposed technology and critical mass in terms of sup-port and development resource.

Increased commercial complexity associated with negotiating with multiple vendors.

Potential for lines of responsibility and accountability to become blurred.

26



Different It models for LPo

Interoperability and integrationInteroperability of software, data and networks will always be a consideration within any outsourcing scenario. However, given the nature of legal work, these issues are often less complex within LPO than they are within other forms of business process outsourcing (BPO).

This is because legal services being outsourced are often transactional in nature and are less process-heavy than other business activities, such as finan-cial management and control. However, they remain issues and should not be over-looked. The type and extent of these issues are largely driven by the IT model adopted within the LPO relationship.

In the attempt to drive efficiency, LPO providers and their customers have to manage the overlap-ping factors of people, process, and technology effectively. While LPO providers have clearly focused on providing well-trained resource from low-cost jurisdictions and the development of robust, well documented business processes, the approaches they have adopted to technology are among their most significant differences from each other. With each of these models come dif-ferent challenges and issues.

Some LPO providers have invested in the development of industry- and process-specific IT solutions that allow them tightly to integrate their people, processes, and technologies. Some providers, for example United Lex and InfoSys, have built fully functional contract management solutions to deliver their contract management services.

These LPO vendors are attempting to differentiate through technology and argue that by providing a tightly integrated technology solution they are offering a full, end-to-end service and not just bodies on seats.

Other providers handle technology on a case-by-case basis. In some scenarios the law firm may already own a technology solution, such as an e-dis-covery platform, that they want to continue to use within the outsourcing deal. In others, the firm may want to use, or the LPO providers recommend, a new, commercial, off-the-shelf solution such as SAP.

This solution may already be understood by the outsource provider and/or law firm, or in some instances be totally new to both. In reality most LPOs will offer a combina-tion of these approaches. However, there are different benefits and risks associated with each of these and law firms should fully consider them when selecting the direction to take. Some of the key factors to consider are outlined in the table on the previous page.

While the different LPO IT models offer different potential benefits and risks, they both provide the opportunity to

create transformational technology change at lower risk and cost.

Outsourcing provides the opportunity to re-think a process totally and offers access to technology that previously would have been subject to a host of internal approvals and change management issues. Change is always disruptive and, during an outsourcing project, it is not only necessary, but expected. Why not take advantage of the disrup-tion, exploit the new technology platform on offer and make other planned or necessary changes?

In reality, the most common approach to tech-nology among LPO vendors is to offer choice, but as can be seen there are significant trade-offs between the different approaches to technology adop-tion. Different models are appropriate to different scenarios. If the entire process being outsourced can be ring-fenced and is isolated from other processes within the firm then the proprietary tightly coupled technology solution may be more appropriate. If the legal work being outsourced is an integral part of a wider business process then it may make much more sense to use an existing technology platform. Whatever the case a separate and comprehensive analysis for each instance of LPO outsourcing should be undertaken.

It integration issues and concerns

GovernanceDesigning, developing and implementing an effec-tive technology solution to support the outsourcing of a legal process is like any other IT related project.

While there will be some form of hardware, soft-ware and network infrastructure to implement, and a number of technical issues to resolve, the key to success is actually rooted in non-technology related factors. When outsourcing goes wrong it is usually due to issues of governance, confusion over scope, lack of management control and ineffective com-munication. LPO is no different. In reality it is not that two databases can’t exchange data, or that two networks can’t communicate, it is more likely that there is confusion over the scope of work, who is accountable for what and who is responsible for making decisions.

As the activity that is outsourced becomes more process orientated and complex, points of integra-tion and decision-making increase and opportuni-

ties for confusion increase. Does the process span both entities or is it fully housed within the LPO provider? In many instances it will span both entities, with the LPO providing work product that forms part of a wider legal process such as first level docu-ment review within the context of a broader e-discovery or due dili-gence process, legal research within a broader litigation portfolio. All too often blame passes from firm to

Legal services being outsourced are often

transactional in nature and are less process-heavy than

other business activities

27



outsourcer and vice versa, as a result issues do not get rectified and the rela-tionship fails.

As such, it is absolutely critical that an appropriate governance and decision-making structure for IT is established. This must be established within the context of a well-defined scope of work and clear service-level agreements. In simple terms it must be clearly understood and documented as to who is responsible and account-able for what. This can be as simple as ensuring one point of contact for lawyers when they need assistance, through to who is accountable if the entire technology platform fails.

security, confidentiality and disaster recoveryIT security and information confidentiality are among the top concerns for law firms considering LPO.

LPO providers typically derive their economies of scale by providing similar services from shared facilities to multiple customers, thereby creating concern about whether valuable and sensitive client information is being adequately protected.

In addition network connectivity between LPO service delivery centres and law firm systems can create potential vulnerabilities for unauthorised access, viruses, and intrusions. Law firms must care-fully assess whether the relevant LPO vendor has sufficiently robust security and, in doing so, consider the following:

l Are LPO staff trained about the confidentiality of client matters? The LPO provider should also have clear and robust policies in place on the storage, transmission, and use of information, in both electronic and physical form.

l Does the LPO provide for and how does it manage:

l dedicated serversl firewallsl anti-virus applicationsl data encryptionl password controls l intrusion detection and prevention

l The law firm should also ensure that any security and information confidentiality poli-cies and practices are consistent with internal policies, customer expectations and applicable laws. The ability to audit and check compli-ance must also be in place.

l Does the LPO provider have an adequate IT disaster recovery solution in place? Is elec-tronic data fully protected in the event of a disaster and what level of business interrup-tion will occur?

l The location of the LPO service centre and the nature of the legal process being outsourced

also present specific challenges in rela-tion to confidentiality and information security. For some more commoditised activities, such as document review, in which the outsourced lawyers only need limited information and do not need to know the larger context of the matter, it is possible to employ relatively simple approaches to information exchange.

For example, firms can upload docu-ments onto secure extranet sites or deal rooms and have the outsourced law-yers work on them before ultimately

returning them to the client. But, with the trend towards the outsourcing of more complex work such as patent drafting and legal research, it is necessary for the outsourced lawyer to access more information.

This results in the need to implement more com-plex and costly technology solutions to ring-fence information and ensure confidentiality. In some jurisdictions where client confidentiality laws are more stringent it may not be possible to outsource at all. Security concerns will continue to be a limiting factor to the complexity of work that is outsourced.

l LicensingAn important but sometimes overlooked issue which should be addressed at the begin-ning of any LPO negotiation is whether any technology licensed by the law firm will need to be transferred to the LPO provider and, if so, whether the licenses already permit such transfer or will require third-party consents to permit it, which can add additional complexity and costs to the transaction.

Conclusions

Current economic conditions, globalisation and fur-ther commoditisation of legal services create the per-fect environment for LPO, while technology is a key enabler breaking down many of the traditional bar-riers to change such as geography, security and cost.

As a result technology will grow in importance in relation to LPO and LPO providers will increasingly use technology as a key differentiator. Providers will use technology platforms to offer new and different services and as a means to further embed them-selves in client organisations.

It is critical that when a law firm is considering or negotiating an LPO solution that it evaluates the various IT models on offer and fully considers all the IT implications of any proposal at the outset of their discussions. In most cases the IT issues that they need to address are not related to technology itself but to the commercial, organisational, governance and process issues associated with a particular tech-nology approach.

Simon Thompson is a partner with Venturis Consulting Group LLP.

Current economic conditions, globalisation

and the further commoditisation of legal services create the perfect

environment for LPO

28


HoW to: Blended LPOs

The Legal Process Outsourcing (LPO) industry has gone through a paradigm shift since its inception in the late 1990s. From a humble beginning in the late 1990s that saw back office functions of the Dallas-based litigation law firm Bickel and Brewer and one off legal support projects by GE being outsourced to India, the LPO sector has seen an exponential growth pattern following the 2008 global economic melt-down. It is now the fastest growing sector within the Knowledge Process Outsourcing (KPO) industry.

The 2008 global financial crisis and the economic downturn which followed intensified the debate on how in-house general counsel of international corporations and managing partners of international law firms could ‘do more for less’ and find unique and innovative ways of delivering cost-effective and efficient legal services. Using LPO services – either via their own captives or by using third-party sup-pliers – emerged as a popular strategy for corpora-tions and law firms.

LPO services were traditionally delivered out of offshore, low-cost locations such as India, the Philip-pines and South Africa. But an increase in demand for such services by stakeholders has resulted in use of more sophisticated service delivery models – including the use of onshore and/or near-shore locations to deliver LPO services.

This trend emerged in North America, where certain low-cost locations in the Midwest region of

the US are now being used as centres for delivering onshore LPO services and serving the North Amer-ican market.

The market for onshore LPO services in Europe is far less developed, although a few large UK and European law firms have begun to open their own captive units in onshore locations in the UK.

As European corporations and law firms start embracing LPO, one of the inevitable decisions they will need to make is whether to use the onshore ser-vices delivery model or the offshore service delivery model, or a combination of both.

By using one service delivery model in preference to the other, I believe European corporations and law firms miss out on the advantages that a com-posite onshore/offshore model has to offer. As the market for LPO services matures in Europe, I believe that the way forward for European corporations and law firms is to optimise the use of a blend of both onshore and offshore LPO services.

the onshore delivery model Under the conventional LPO delivery model which developed in the late 1990s and the 2000s, onshore LPO staff were largely business development, finance and sales professionals with the LPO work mostly being carried out at an offshore location, pri-marily India.

India emerged as the leading destination for the LPO industry. With increase in the demand for LPO services, there has been a change of guard in this conventional LPO service delivery model – espe-cially in the US where the concept of onshore and/or near-shore LPO services is now developing.

Although a small number of UK law firms, such as Herbert Smith and Allen and Overy, have opened their own onshore captive units in low-cost loca-tions such as Belfast, Northern Ireland, there are still significant market opportunities for development and operation of onshore LPO services in Europe.

With a maturing market for LPO services, the debate about using them is no longer restricted to cost-savings benefits – as more and more clients accept the use of LPO brings efficiencies, value addi-tion and quicker delivery of high-quality services.

With a more open approach towards LPO, the onshore model in Europe could flourish for certain types of services. There is a clear indication that many European corporations and law firms would prefer certain types of LPO services to be provided onshore, rather than offshore. Factors such as rising

by Sarvarth Misra, director, NewGalexy

The onshore model in Europe could

flourish

An onshore-offshore LPo delivery model for europe

29


HoW to: Blended LPOs

operational cost inflation in countries such as India and South Africa, changing European Union (EU) data protection laws which may well increasingly limit the types of LPO service which can be off-shored outside the EU and better talent availability in case of certain industry-focused LPO services all make a compelling case for the development of onshore LPO services in Europe. There are also clients who are simply more comfortable with the onshore delivery model (even at slightly higher cost) as it offers them more accessibility.

There is no doubt certain types of services are better served with an onshore delivery model in relatively low-cost locations and with the right talent pool of legal professionals. UK public procurement and government-related procurement work is a classic example where an onshore delivery model would better suit the customer. Factors such as the political sensitivities of offshoring jobs overseas, changing Data Protection Laws and ready availability of trained EU procurement law professionals would make the onshore model more suited for that type of work.

Similarly, in the case of the banking and financial services sector in Europe, process-driven deriva-tive (ISDA) contract drafting and negotiations, FSA compliance work and other types of regulatory work would all perhaps be better delivered onshore, due to the availability of trained and experienced pro-fessionals in these areas. Similar sensitivities might drive the use of an onshore LPO supplier to provide high level contract drafting and negotiation services to European corporations and law firms.

the offshore delivery model But would a strategy of using the onshore model alone for delivering LPO services necessarily best meet the full requirements of all European cus-tomers? Can all LPO services be cost-effectively delivered through an onshore model?

I think there is consensus in the industry that simpler and more routine services can be delivered more cost-effectively and efficiently in offshore loca-tions such as India. A recent report entitled Compara-tive Location Survey for Legal Service Delivery by the UK consultancy OMC Partners, showed the pool of legal professionals in India is significantly higher than in potential onshore locations in Europe – and the salaries of legal professionals in India are lower than those of their counterparts in London and other onshore locations in Europe. India has a devel-oped outsourcing sector and with the use of tech-nology, a process-driven work approach and masses of resource availability, it offers a better solution for certain types of LPO services.

Using offshore locations such as India for rou-tine tasks such as contract and lease abstraction, technology driven e-discovery and ‘plain vanilla’ document review services seems a more pragmatic choice that using an onshore location. The cost sav-ings of using offshore locations for more routine, high volume LPO services simply cannot be ignored.

A blended service delivery model As the LPO market moves from providing one-off project solutions to ‘end to end’ service solutions, a blended onshore and offshore delivery model seems the most viable option for European cus-tomers. By using a blended onshore and offshore model, more bespoke, complex and sometimes industry-focused services can be delivered onshore – and less complex, high-volume routine tasks can be delivered offshore from locations such as India or the Philippines.

This blended model will allow European cus-tomers to optimise the use and the benefits of both the onshore and offshore model. The Deloitte report, The resurgence of corporate legal process outsourcing - leveraging a new and improved legal support business model, rightly points out that the blended delivery model also assists LPO providers to increase ‘their ability to provide seamless, around-the-clock ser-vice by coordinating their onshore and offshore resources’ work schedules’ and by using the blended model, LPOs can also offer clients ‘adaptive pricing models for such resources to fit specific legal depart-ment needs’.

Regulatory, economic and market changes in the legal services industry in the UK and Europe will drive increasing use of LPO services by UK and European law firms and in-house counsel. Public authorities should also consider taking advantage of the benefits being derived by private organisations from using LPO services. By using technology, processes, a broader pool of talent at both onshore and offshore locations and flexible pricing options, l believe that European customers would be best served with suppliers who are able to offer them the blended onshore and offshore delivery model.

To be able to deliver that innovative blend of onshore and offshore services and to meet and serve the growing demands of the European legal market, NewGalexy, the LPO of which I am a director, has opened a new onshore delivery centre in Glasgow, Scotland to complement its existing offshore delivery centre in India.

This new onshore centre will offer European cli-ents onshore LPO services – which will be higher up the value chain than work typically undertaken in India, South Africa or the Philippines, and will provide industry/sector-focused services. The new onshore centre will also complete work for cus-tomers who prefer not to outsource particular types of work abroad.

NewGalexy’s existing offshore delivery centre will continue to provide more routine and commodi-tised services to its international client base in North America, Europe and Australia.

Sarvarth Misra is a director of NewGalexy Partners, co-founder of NewGalexy Services. NewGalexy’s new onshore LPO company located in Glasgow, Scotland. The author is based in London, UK.

Using offshore locations

for certain routine

tasks seems a more

pragmatic choice that

using an onshore location

30


HoW to: Managed services

In a growing economy, when busi-ness confidence is high, law firms have prospered and enjoyed signif-icant increases in their overall fee rates and total revenues. Even after the latest series of global economic troubles, the UK legal market is projected to grow by 3 to 4 per cent over the next three years.

But managing partners are not complacent. It is tough competing in hard times against your tradi-tional competitors and it’s going to get even tougher when the likes of ourselves at Berwin Leighton Paisner’s Managed Legal Services (MLS), Axiom, Riverview and LPO providers are delivering innova-tive legal solutions and measurable savings that most law firms simply cannot match nor have any inten-tion of matching.

Client and service provider alignment While there is an overall increase in the adoption of alternative fee arrangements (AFAs), law firm dynamics and profitability levels are still largely predicated on charging by the hour, which, until recently, has negated the need to become more effi-cient, either in the way they provide legal advice or the way they run their firms.

The new breed of legal services provider brings a different mindset to the business of law. They do not charge by the hour and their focus is on delivering efficiencies and savings, aligning their services and charging approach to the business outcomes being demanded by their clients.

Also, some of the new legal services pro-viders are backed by Private Equity organi-sations who will take a four- or five-year view on their investments and are not under pres-sure to pay an annual dividend to partners. These outsourcing providers have a lower cost base and can operate at lower margins than law firms, who tend to have higher fixed costs.

During the good times, the alignment of interest

between law firms and their cli-ents is often overlooked or not considered as important. How-ever, during tough economic times where profitable growth is harder to find, corporations are having to constantly trim their cost base to maintain acceptable levels of profitability and returns for their shareholders.

All corporate support functions are being asked to deliver savings and while in the past the legal function has not had to contribute to such initiatives its increased cost base has now attracted the atten-tion of the chief financial officer (CFO), procurement functions and other business stakeholders who drive such efficiency and cost-saving programmes.

Many legal departments have negotiated better deals with their law firms and some have retained consultants, utilised new technologies and worked with LPO providers, which has helped. However, CFOs and procurement functions are still on the hunt to identify more savings and are applying more pressure than before.

outsourcing the legal function Outsourcing as a business practice has been

around for many years. However, it was the large IT outsourcing deals of the 1980s and 1990s that made the head-lines with other white collar functions following over time. These included finance and accounting, human resources and customer services.

Such growth was driven by both the pri-vate and public sector with significant blue collar contracts, such as cleaning, catering,

vehicle maintenance, facilities management also now routinely being let to organisations such as Serco and ISS.

Traditionally, outsourcing is the process of con-tracting out a business function or process which was previously performed internally and may

CFOs are still on the hunt to identify

more savings

What lessons can legal learn from other support functions? By Andrew Loach, business development director, Managed Legal Services (MLS), Berwin Leighton Paisner

31


HoW to: Managed services

involve transfer of the employees involved to the outsourcing provider. The boundaries of outsourcing become blurred when it comes to the legal function, in part because sending work out to external law firms can be construed as a form of outsourcing and the generic LPO tag now associated lower-cost legal resources in offshore locations.

Historically, one of the few internal functions that have yet to be outsourced in the traditional sense is the legal function. Previously when questioned the legal function has argued that it was highly reactive to the needs of the business and expenditure was dif-ficult to predict and therefore manage effectively due to many factors outside its control – such as mergers and acquisitions, litigation, labour disputes and other significant business events.

When we look back at the evolution of out-sourcing the IT, human resources and finance functions, loss of control and risk were the classic defences used to justify keeping them in house. However, business economics typically won through and outsourcing is now a $400 billion global industry that services almost all the other corporate support functions, except legal.

There were no credible legal outsourcing providers to choose from until recently, so general counsel who may have been open minded to new alternatives did not have a choice.

General counsel and their colleagues in finance and procurement now have a number of well-respected legal outsourcing providers, with proven track records and case studies, to assess the value that can be gained from such a relationship.

A low-risk option for the legal function Historically, general counsel have had to work out for themselves which law firms, consultants, LPO vendors and technology providers they should retain to shape a solution which delivers the desired results – in essence a DIY fix.

But for many legal functions such innovative solutions are perceived as daunting and risky, often carrying a large upfront cost. It can be challenging to build a hard business case for such initiatives.

Legal outsourcing providers have already made significant investments in process improvement, best practice and technology which can be leveraged for all of their clients. They will also take on the risk of delivering significant annual savings, something that the in-house legal team can’t guarantee, despite its best endeavours.

GCs and other business stakeholders now have a choice, they can try and implement a DIY fix or they can buy in a service from one of the new breed of providers that will help them transform their legal function and contractually underwrite the savings while guaranteeing service and quality levels.

These new providers have teams of experts who utilise tried and tested tools, technologies and

lessons learned from outsourcing other corporate functions, which, when coupled with their extensive experience in the legal sector, assumes the risk of delivering significant efficiencies and savings.

Summarising the above, outsourcing all or part of a legal function (including TUPE transfer of legal staff) is now a viable low-risk option for businesses who spend more than £5m pa in total on their legal function (including internal lawyer costs and external legal spend).

efficiency versus value When buying in an outsourced legal service, the initial focus is on the legal function and driving a change programme that delivers the guaranteed results and savings. But the process of outsourcing a legal function can also help the legal leadership team to think and act in a different way, positioning them as agents of change which, over time, will be recognised and valued by the business.

As the day-to-day operational running of the legal function is assumed by the out-sourcing provider this enables the legal lead-ership team to spend less time fire-fighting, reacting to the problems of the past and more time working through how to be more proac-tive and prevent the number and nature of legal issues occurring in the first place.

This is now a reality, as some of the new breed of outsourcing providers have

invested heavily in proprietary technology solu-tions and improving processes using Lean/Six Sigma techniques which provide a wealth of management information, metrics and KPIs on trends and key areas of risk for the business.

The legal leadership team, supported by its outsourcing provider, can now start to identify a range of other opportunities outside the legal function in other support and business areas to engage key stakeholders and proactively deliver business value.

There are a number of recent examples where millions of pounds have been saved through initia-tives driven by outsourcing providers in areas such as procurement, contract and claims management, all of which reflect well on the legal leadership team.

Such an outsourcing arrangement can also provide a robust framework and enables the legal leadership team to identify ways of improving the corporation’s overall approach to enterprise risk management which, in today’s business climate, is becoming more important to the CEO, the board of directors and shareholders.

There is huge untapped opportunity to unlock the business potential of legal services and corporations can now work with specialist legal outsourcing pro-viders who will help drive efficiencies, underwrite significant savings and, in parallel, add measurable value to other parts of the business.

[email protected]

There were no credible legal outsourcing

providers to choose from until recently

32


HoW to: Collaboration

Contract management – a new collaborative legal services delivery model

Mark Ross, Integreon’s vice president of LPO, and Carla Goldstein, chief strategic innovations officer at AmLaw 100 firm Seyfarth Shaw, provide an account of how an initial meeting between their organisations led to the birth of a collaborative law firm/LPO contract management legal services delivery model

33



A great first dateEarlier this year, on a blustery Chicago morning, an executive team from global legal process outsourcer Integreon arrived at the offices of AmLaw 100 firm Seyfarth Shaw. Integreon had recently made the strategic decision to sponsor the Financial Times Innovative Lawyers awards to show their support for those firms who listened to the issues and challenges of their clients and had decided to break the mould and change the way they work.

Seyfarth, long acknowledged as a poster child of law firm innovation for creating SeyfarthLean, an adaptation of Lean Six Sigma for the legal industry and embracing it across their practice groups, had been recognized by the FT as one of the top-10 most innovative law firms in the USA. The Integreon team had been eagerly anticipating this meeting in the hope that the FT’s endorsement rang true.

From both sides of the table there was an imme-diate meeting of minds around the notion that the legal profession was changing and would never return to the old status quo.

The LPO executives listened intently to Lisa Damon, national chair of Seyfarth’s 350-lawyer, Labour and Employment Practice Group and member of the firm’s executive committee, while

she described what the firm’s leadership defined as a perfect storm galvanising change in the legal profession.

‘Unrelenting cost pressure, disaggrega-tion, commoditisation, globalisation, and technological advances are forcing firms to re-evaluate their business models and implement innovative solutions in order to deliver cost-effective, high-quality legal

services to their clients. We believe that first-movers who embrace change will be better able to meet the demands of their clients, and gain a competitive advantage,’ she said.

the contracts problemAt the core of today’s business-to-business land-scape, contracts effectively define the rules of the road. The typical Fortune 500 or FTSE 100 Corpora-tion maintains tens of thousands of active contracts while operating under the domain of burgeoning regulatory compliance. Concurrently, in-house legal department budgets are under ever-increasing scru-tiny with the mandate to general counsel being to do more with less.

General counsels are hesitant to spend already con-

strained outside counsel budgets on the high volume, and what is perceived as lower risk, contracting pro-cess. The internal organisations demanding contracts support (sales, procurement, and supply chain) are less interested in the reliability of the outcome, in terms of compliance and risk tolerance, than the speed of getting a deal done.

However, despite the apparent disconnect between the legal department’s priority outcome of mini-mising risk and those of the internal business units, in today’s market outside counsel is typically only used on the largest, most valuable contracts. On the occa-sions when outside counsel is engaged to support high-volume contracts, the legal review process is far from efficient, with outside counsel allo-cating inappropriate resources, given the complexity of the task at hand.

The current staffing model for contract generation, negotia-tion and management for many corpora-tions is still predicated on a method that is both labour-intensive and cost prohibitive through utilisation of expensive, in-house legally trained resources.

In the past 20 years, internal departments have also started hiring their own lawyers and parale-gals to supplement the support or perceived lack thereof from the legal department. Whether sitting within a legal department team or in an internal department’s quasi-legal team, many lawyers are simply over-priced to be performing the review and ongoing management of the company’s high-volume, lower complexity contracts.

As far as workflow and technology are concerned, the situation is little better. The usual modus operandi involves a contract requester sending an email or perhaps completing a template and emailing it to those individuals he or she believes are appropriate to do the work.

Without a formalised process, relationships can come into play, with email requests for legal review sent to the individual whom the requester likes dealing with. Often these emails may be missing necessary information or may fail to contain rel-evant attachments.

In-house lawyers then red-line and negotiate the terms via email. These lawyers are responsible for handling the entire document workflow through email, with little or no capability to track the status of each transaction. Contracts are finally signed in hard copy, then scanned and attached to shared drives, although frequently the legal department has a lack of visibility into whether or not a contract

In the past 20 years, internal departments

have also started hiring their own

lawyers and paralegals

In-house legal department budgets are under ever-increasing

scrutiny. With general counsel

tasked to do more with less

34



has been formally executed and, if so, where it is stored.

Often there are no formalised processes, standard templates and accepted language or back-up provi-sions for routine contracts or guide-lines for turnaround times involving these contracts. Even companies with defined service-level agreements (SLAs) in place frequently don’t have the mechanisms to enforce them nor the incentives in place to make them work. Over-allocated in-house lawyers are unable to meet the expected SLAs, and this creates a conflict between the business client and the legal depart-ment. While the work product is up to the business client’s expectations, the client remains dissatisfied with the timeframe for delivery.

At best, this approach can be described as an antiquated model of resource allocation that leverages technology not designed for the task at hand. At worst, it reflects an inap-propriate allocation of resources and no formalised processes or management of the ongoing rights and obligations under the applicable contract. The outcome is a costly and inefficient use of internal resources, with the company’s risk toler-ances failing to be captured adequately in the final contractual documentation.

two heads are better than oneContracts generate overwhelming amounts of administrative burden on in-house lawyers and their support staff because of the processes presently in place within most in-house legal departments.

Law firms have not historically focused on effi-ciency, appropriate resource allocation and con-tinuous improvement, they are often not suited to handle the review and effective management of a large portfolio of the more standardised contracts with cost efficacy.

Fortunately, this is not the case with Seyfarth. The firm has long recognised that the disconnect between a legal department and the internal busi-ness units, coupled with inefficiencies in processes, left substantial ‘white space’ for innovative law firms. It was the SeyfarthLean way of thinking that facilitated the firm’s exploration of whether it could provide a corporate legal department with an end-to-end lifecycle of contract review and management services. Seyfarth’s approach and over-arching cul-ture demonstrated to Integreon that here was a law firm that not only talked the talk of innovation but also walked the walk.

However, the inescapable fact remained that a sig-nificant proportion of the work involved in contract lifecycle management still ranged from administra-tive to routine in nature. For a law firm to capture

some of this ‘white space’, its offering would need to be coupled with that of an appropriate legal provider partner. For routine contract administration, creation, review and negotiations, that perfect partner is an LPO. The law firm’s expertise, coupled with the LPO’s ‘engine room’ as a joint solution, becomes afford-able and desirable for contracts from the least complex and low risk to the most complex and high risk. Both Seyfarth and Integreon were convinced that a com-bined solution would empower GCs to outsource a greater volume of contracts, and this would facilitate in-house law-yers to be better able to focus their time on more value-added work.

Shortly after this first meeting, Inte-greon and Seyfarth began scoping out the broad parameters of the joint solu-tion. The major premise would be the deployment of law firm lawyers for high-level review and negotiations, teamed with LPO lawyers and parale-gals for mid- to lower-level negotiation, review and administration.

The combination of the legal expertise of a leading AmLaw 100 firm and a state-of-the-art contracts workflow tool, together with expertise in global legal services delivery, process-based development and transition from a leading LPO provider, would offer the corporate legal department a service that was far greater than the sum of its parts. Aspects of contract review, red-lining and negotiation that could be process-driven, would be, with the legal services pro-vided primarily by the LPO provider from either an offshore or onshore delivery centre. Quality control (over and above that provided by the LPO), custom-ised work, escalation and necessary strategic input would be delivered by the law firm.

By bringing together an LPO and a law firm there would also be a consensus in defining what is and is not suitable for either party. Seyfarth would triage the range of contracts flowing from an organisation in to match the appropriate level of legal resource to the required level of review. Seyfarth’s workflow portal would systematise the agreed upon disag-gregation and triage of the work either to Seyfarth or Integreon, depending on the complexity and risk. Work could range from ‘pure LPO,’ delivered solely by the LPO, to more complex situations where a por-tion of the work, the quality assurance, or in some situations all of the work, would be performed by the law firm.

Greater than the sum of its partsThe benefits and value proposition of a joint solu-tion were immediately apparent to Seyfarth and Integreon. By working together on a holistic contract lifecycle management offering, the partnership offered clients AmLaw 100 legal expertise coupled

The law firm’s expertise, coupled with the LPO’s ‘engine room’ as a joint

solution, becomes affordable and desirable

for contracts

35



with an extensive LPO global delivery platform. Corporate legal departments would benefit from the win-win of leveraging an LPO’s lower cost onshore and offshore resources with the added assurance of quality control, supervision and ownership of the work product by a leading domestic law firm.

Seyfarth and Integreon recognised that often a corporate client engages an LPO directly and, in doing so, makes a risk versus reward decision, con-sidering the potentially smaller pot from which any damages awarded following a successful claim could be drawn. Under a combined law firm and LPO offering, when working under the supervision of a law firm, it would be the law firm that retained overall responsibility for the work product. The law firm, not the LPO provider, would be engaging in the practice of law while the LPO would be providing support services. Under the joint solution model, the work product would require minimal to no review from the corporate client, who would also benefit from a much higher level of professional liability insurance coverage.

One of the main drivers in creating an LPO rela-tionship is to relieve the burden from in-house lawyers of the time demands of these high volume/low complex transactions. Although many corpo-rate legal departments start the outsourcing journey with the best of intentions, over time the internal legal department champions get pulled on to other pressing engagements and the level of involvement on the part of the client can and should wane. This diminishing degree of involvement, however, can prove detrimental to the longer-term success of the outsourcing relationship as the LPO will not be provided with a high level of touch and review by the corporate client. By working under the ongoing

supervision of a leading law firm, which has its own vested interest in the ongoing success of the engage-ment, the polar opposite scenario will occur.

Over time the LPO team will benefit from the added value of the law firm’s quality control and supervision so that they in turn are able to handle an increasing array of more complex tasks.

Changes in legal services deliveryAcross the spectrum of legal service providers there are a few genuine disruptive forces and agents of change driving the vision of a highly collaborative and streamlined approach to legal services delivery.

Contrary to early concerns that LPOs would com-pete directly with law firms, it has become clear to Seyfarth and Integreon that the most effective model is a symbiotic ecosystem in which law firms and LPO providers both play crucial roles. LPO providers do not ‘practice law’ and are not true alternatives to law firms. Within this global legal ecosystem, in addition to practicing law, law firms provide critical oversight, supervision and, only if and when needed, bespoke, premium legal advice.

Neither LPO providers nor law firms can individu-ally deliver the holistic, end-to-end services corporate clients require. While one could argue that those law firms with captive LPO units can do so, it is difficult for them to accomplish this as cost-effectively as required. Under a new collaborative model, however, law firms can work with LPO providers to expand their offerings and deliver an end-to-end approach, providing the appropriate level of legal services required. Although Seyfarth is ahead of the curve, there are a growing number of law firms that are taking solutions to cli-ents in partnership with LPOs.

Client Submitter

Seyfarth Shaw

Pipe 1

High Complexity and Risk -Vendor Paper/Strategic/Large

Spend/Extensive Revisions

Medium Complexity and Risk -Vendor Paper/Moderate Spend/

Extensive Revisions

Minor Complexity and Risk -Client or Vendor Paper/

Moderate to Extensive Revisions

Little Complexity and Risk -Client or Vendor Paper/

Minor Revisions

Seyfarth Shaw

Pipe 2

Integreon

Pipe 3

Integreon

Pipe 4

Seyfarth Transaction Solution Center

Pipe and Triage

Seyfarth Shaw

Quality Assurance

Client Submitter

Negotiation, Internal and External Execution, Put Away

Joint solution workflow

36


HoW to: Contract intelligence

Most legal technology products – be they litigation matter management systems or contract lifecycle management – have been pioneered by companies that are primarily based outside countries such as the USA and UK. Very few of them have the scale and scope to leverage the global talent pool, mainly because the segment itself is small as a market opportunity.

The largest chunks of legal technology spend are in the areas of:

l Matter/practice management l Document management l Knowledge/information management/

intranetsl Contract lifecycle managementl E-discovery platformsl Infrastructure management software

take-it-or-leave-it philosophy Since skilled labour costs in developed countries are high, the basic design philosophies of these legal

technology products have been to develop products that are high on automation and low on human intervention.

Most of the products offered in the above categories are marketed as off-the-shelf, one-size-fits-all, and take-it-or-leave-it philosophy.

The market reality forces companies to minimise customisation and limit the deployment time, while enabling users at client end to do most of the maintenance support and content population. Basi-cally, after deployment, it is a DIY product where the technology provider deploys the products and leaves the customer to fend for themselves. The main reason behind this design philosophy is the skilled labour cost.

Getting perspectiveA firm spends a substantial amount in legal tech-nology as a capital investment and ends up with a system which is sub-optimum. Ruling out cus-tomisations of the solution because of prohibitive costs, clients end up using a sub-optimal product for their needs. Dissatisfaction is the order of the day. Some firms end up overhauling their systems every three to four years, trying to make up for a sub-optimal decision.

Let’s say a contract management system is sold at $30, 000 as licence fees. Then there is the cost of staff, which inflates the total cost of the solution. The technology provider may charge as much as five times the licence fees for deployment, training, cus-tomisation and migration services.

A solution that may have a nominal license fee of $30,000 may cost closer to $200,000 by the time it goes live. On top of this substantial outlay, the cost of requesting additional support or assistance in migrating content and intelligence into the solution on an ongoing basis may be charged at rates often exceeding $200 per hour.

Changing the design conceptWhy is Manthan Legal, a legal process outsourcing company based in Bangalore, India, commenting on the adoption of legal technology?

The reason is that we are changing its design phi-losophy. The best legal technology centric solutions are people agnostic.

If the best solution requires technology to do 70 per cent of the job, and requires human effort to do 30 per cent, that is the right solution. But such an approach makes commercial sense only if the cost of skilled human effort is nominal. That is where an LPO comes in.

Manthan Legal has an inherent advantage. In our

Some firms end up overhauling their systems every three to four years

technology and the LPo model: the Manthan wayLPOs with cutting-edge technology at their disposal will set the standard for legal innovation, suggests Gururaj Potnis, CEO, Manthan Legal

Is your sales force waiting for the legal team to deliver a draft contract ?

Give them the power ofEntergence on iPad

Now they can tap pre-approved legal clauses, generate and e-sign a contract in three minutes, right on their iPad. You will never find

them tapping their fingers impatiently again.

www.manthanlegal.com/entergenceLos Angeles | Chicago | New York | Bangalore

Call for a demoUSA - +1.213.394.5527INDIA - +91-806 717 1701

38


opinion, Bangalore, the Silicon Valley of India, has the right talent milieu to architect world-class tech-nology solutions.

Manthan Legal has built two products for Con-tracts Intelligence:

l Entergence and l Encobi

Entergence is the precedent intelligence-driven authoring platform and Encobi is the contracts business intelligence portal.

While Entergence is a paradigm shift for pre-sig-nature contracts management, Encobi is an elegant solution for post-signature contracts management. But what makes it appealing is the fact that Man-than Legal backs customers who have deployed these technology solutions with continual services support from a team of 200 lawyers and 100 tech-nical staff.

So, when customers are using Manthan’s solu-tions, they have service support to

l draft contracts;l build knowledge trees;l author playbooks;l automate contracts;l customise workflows,l build specific features that are crucial for a

firm and l maintain and upgrade the contracts knowl-

edge base on an ongoing basis.

While we boast cutting-edge technology in the above solutions, it is the bundled offering of content building, maintenance and upgrading services sup-port that has made a huge difference in customer satisfaction.

successful business modelsLPOs with cutting-edge technology solutions will help set the standard for the ideal design of legal technology solutions.

Firms that can leverage global talent while opti-mising costs for both technology services as well as legal support services, clearly have the edge.

As a result, more models based on the same prin-ciples of Manthan will suc-ceed. Going forward, we believe the larger legal tech-nology firms will probably acquire LPO firms, while others may tie up with var-ious LPO firms to plug the missing gap. But the future belongs to those who can offer turnkey solutions com-bining the best of technology with the best of ongoing technical and domain sup-port. Customers want peace of mind. Manthan Legal shows how it is done.

Business intelligenceIn today’s world, information is the key power for businesses. The best source of information for any business to business (B2B) relationships for an organisation is its-well structured contracts reposi-tory. Customer trends, revenue leakages, compliance metrics locked in the contract files, can be made readily accessible with the help of the right ana-lytical and business intelligence tools.

The information embedded within contracts not only gives a user power to understand and interpret historical data, but also to contribute to future plan-ning and execution. Knowing this statistical business- related information gives an edge to companies.

The primary beneficiaries of contract analytics includes the sales team, procurement team, legal team, corporate planning team and the chief finan-cial officer (CFO).

Analytics as a scienceContracts bind the parties into a legal relationship and they have to value this document as long as they are doing business with each other. The contracts also record and evidence any changes in the position and relation of the parties with respect to each other. This dynamic document showcases how the parties are related and holds the key to all the rules of the busi-ness by which the parties have to abide.

Analysing all the key information within the con-tracts and putting it to use to make strategic decisions is the science of contract analytics. We call it a ‘sci-ence’ despite the fact that a lot of contractual terms are subjective. This is because a methodical way of interpreting contractual data gives objective insights leading to actionable intelligence. When we visualise and analyse this information not at the ‘tree level’ (from individual contract level) but at the ‘forest level’ (all contracts put together), then this information is a rich seam of business intelligence. The actionable insights gleaned lead to better decision making.

turnkey contract analytics solutionsContracts contain a mass of information. It is imper-ative to capture the right information matching our set objectives and avoid the risk of losing our focal point. Systematic culling of required


LPos drive contract analyticsBy Mangala Hunnargikar, VP legal solutions, Manthan Legal

Firms that can leverage global

talent while optimising costs

clearly have the edge

39


information spread across many contracts is needed. It is a human-effort-intensive activity. This also means you may need a large number of contracts specialists, in-house or otherwise, besides use of optimal automation and technology.

This is where an LPO firm can make this proposi-tion feasible. Several LPO firms have large teams of contract specialists trained in contract analysis. Manthan Legal, a technology-centric legal process outsourcing firm, offers turnkey solutions that includes a contract intelligence platform – Encobi, as well as a team of trained contract specialists. LPOs, by their inherent model of tapping global talent, have provided process rigour and pricing advantage. The idea of using contracts analytics as a means to empower decision makers throughout an organisa-tion is now feasible and readily available.

Actionable intelligenceOur contract analytics team is well trained in the science of contract analysis. It reviews contracts, extracts key information and metadata and popu-lates contracts intelligence platforms. Each piece of information synthesised is controlled by a quality assurance (QA) group. Below, is a demonstration of how Manthan’s contract analytics team breaks down each contract by its components with intent to answer several business-critical queries. Each step of the contract analysis below is guided towards a pos-sible course-correcting decision-making point.

All the information in the table can be made avail-able only if the firm has access to intelligence from contract analytics. Each contract term, when anal-ysed as a pattern across all contracts, gives a valuable insight into how business decisions have had an impact on the progress of the company.

The analysis helps not only from the customer side, but also from the vendors, employees, and sup-pliers’ side of the business. Retaining cost-effective vendors and suppliers is also an opportunity to add profits to the organisation.

Another significance of this analysis is that it gives vital inputs to legal departments while authoring agreements with key clients/vendors. It lets them know how they have treated a particular clause in the past and how business has been impacted by deciding to adopt a particular stance. Now they can consider slight deviations or alterations of that clause which will suit their business more.

While market research may help organisation identify market opportunities, contract analytics can only supplement that effort. Levers of mining addi-tional business from existing customers are a latent and patent opportunity to increase revenues. Con-tract analytics and contract intelligence platforms provide these levers.

Past experiences, if they can be analysed, can become the stepping stones to achieve future goals. A business is a summary of its contracts and the sci-ence of contract analytics will have a considerable bearing on the business.

Decision making to stakeholdersBusiness intelligence is all about actionable insights. By analysing contracts, several stakeholders of the organisation are empowered towards actionable insights. Let’s view the benefits of contract analytics reaching to various stakeholders.

Legal departmentThe legal team is responsible for regulatory compli-ance, risk management and contract amendments once the contracts are signed and also for facilitating, drafting and negotiation of new contracts. A robust contract analytics platform enables the legal team to:

l Track audit trails from signature to amend-ments, to expiry

l Track and amend contracts to comply with industry-specific regulations

l Track risks being accepted by organisation, along with mitigation planning

l Ensure that stakeholders are updated on changes in client business (company name change, M&A transactions, de-rostering of vendors)


Information from contracts

Questions Possible decision arrived at using contract analytics

Client details How many clients have become inactive?

Changes in marketing methodologies; approach old clients with new offerings

Where are clients located? Some regions yet to be explored using concentrated marketing efforts from an expansion point of view

Where are new clients located? Invest to sustain momentum. Review the regions with below-average sales conversions

Product and pricing What is the current discount structure?

Consider offering more discounts or limiting it only if an order is in bulk

Has change in pricing led to more contracts being signed?

Plan pricing elasticity based on actual revenues booked through new contracts

Which product is more popular? Consider upgrading it with more features and build on the demand

Have most favoured customers offset the privilege pricing with increased volumes?

Consider the price volume matrix to re-designate customer as most favoured or otherwise

Term and terminationHow many contracts expired in the last quarter?

Sales and marketing to approach them for renewals with fresh offers and try to retain the clients

What is the financial revenue impact of non-renewed contracts?

Plan a balance between recurring and non-recurring revenue models

How many contracts expire in the next quarter?

Consider amending and renewing the contracts

Renewals and auto-renewals

Can someone alert me on contract expiry dates well before they are due?

Proactive contract renewals and no redundant chasing if the contract has auto-renewal provisions

Business unit-wise new revenue break-up

Which division is delivering its revenue targets in terms of signed contracts?

Facilitating quicker turnaround on contracts for the divisions that are signing larger number of revenue opportunities

Product/service-wise sales analysis

What is selling? High margin offerings or lower margin ones?

Balance cumulative revenue growth with growth in profitability to decide sales push

40


l Leverage best practices from contracts/analyze and compare existing clauses to suit present scenario while drafting contracts

l Build scenario and context-based contracts intelligence for future authoring

l Receive alerts before contract expiry and renewal due dates

Commercial departmentThe commercial department seeks to enforce its pricing tables, models and benchmarks on all con-tracts that are signed by the organisation. Using a contract analytics platform, it can:

l Monitor business terms being accepted by the organisation in areas of pricing models, rates, rebates, shipping terms and payment terms

l Track application of penalties for performance deviation

l Track margins based on products/services transacted

l Receive alerts when change in pricing terms for any contract

Procurement departmentThe procurement department manages all vendor-side relationship and tries to maximise the payoff of trading between centralised purchasing and dispa-rate business units-based purchasing. Using the con-tracts analytics platform, the procurement team can:

l Have a single view of vendors across all pro-curement contracts. It also helps in better pricing negotiation

l Track and plug revenue leakage instances. This can happen by consolidating the number of vendors who deliver similar products/services, and increasing order size per vendor

l Optimise the distribution of what the central procurement team should obtain, and what should be left to the discretion of the business units

l Gain one view of the pricing range for each product and service procured

Corporate planning departmentThe corporate planning group tracks several busi-ness metrics, analyses past performance and models future performance based on internal and external dependencies. This group can benefit immensely using the contract analytics platform. It can:

l Generate operational reports and track current business performance

l Define and enable key performance indicators (KPIs) tracking for new contracts signed

l View non-compliance risks and model them for future financial impact

l Use base contractual data to model future ‘what if?’ scenarios

CFoKey result areas for any CFO will cover revenue growth, margin improvement, enhancement of con-trols and cashflow improvement. Using the contract analytics platform will enable a CFO to answer

several questions and build better visibility into these areas on click. A CFO can:

l Check whether the new business added is a high-margin offerings or lower margin

l Verify whether new revenues coming in are a result of new client addition or mining of existing clients

l Ensure whether margins per customer are improving or otherwise

l Verify whether buy-side spend is under controll Check which business unit is contributing

best to increase of revenues and margins, and which units are the laggards

single view of relationshipThe sales team often asks a simple question, ‘Have we done business with this firm?’ Most firms struggle to answer this authoritatively. A contract analytics platform gives you an ability to pull this answer in less than 10 seconds. You can generate a single view of customer report for your sales team. You can generate a single view of vendor relation-ship for your procurement team. This saves consid-erable time and feeds intelligence before you set out negotiating terms of engagement with any client or vendor, thus enhancing productivity.

Plug maverick spendAd-hoc buying of products and services from outside the list of an organisation’s preferred vendors can be easily exposed by contract analytics. For any given product or services, contract analytics can bring forth all not preferred vendors and the quantum of spend on such vendors. It can even highlight the rate def-erential between the best vendor price for that item and a rate applied under a given contract. Centralising purchasing of certain items, or putting in place an approval systems for those items, can be considered to plug non-standard purchases.

ConclusionThe point to highlight is not whether there is a crit-ical business necessity of contract analytics or who can benefit from the same. Those are patent. Con-tract analytics is inherently tied to producing better business results. What has changed in the past three years is that contract analytics is today available, as a ready solution from specialist LPOs like Manthan Legal, and is affordable. Leveraging technology and offshore contract analytics specialists, LPOs offering contract analytics solutions see their customers recover the ROI well within year one.

Firms see results almost immediately when they start plugging maverick spends and mining existing customers for new revenues. They cut down delays in contract renewals and optimise pricing strategies. They can track contractual risks better and provide best practice guidelines to legal teams for drafting future contracts. All this, once they embark on the journey of contract analytics.


41



the problemManthan Legal was asked to help a company needing a technology platform to manage a large number of client and vendor contracts every year. This company, a US headquartered global corpora-tion with a turnover of more than a billion dollars, offered solutions for the healthcare, pharmaceutical, financial services and telecoms industry. It had oper-ations in 20 offices and 10 countries spanning four continents, as well as a projected top-line growth of over 30 per cent year-on-year for the next four years. It wanted its legal department operations to be geared for the future.

Key challenges for the companyThe company was dealing with over 1,500 client and vendor contracts each year, which were pro-jected to exceed 3,000 a year in the next three years. These included master services agreements, license agreements, confidentiality agreements, vendor agreements and third-party agreements. The business projected that a range of other areas would also increase, including legal research, compliance and template management.

Expanding the legal team in the US was not feasible for a variety of reasons, with cost and flex-ibility at the top of the list. The current legal team was exceptionally talented, but it took almost three years before new members gained profi-ciency into the nuances of contracts management at the firm.

The client wanted to change the model where the capacity adapted rapidly to the increasing business volumes. Hence a pure US -centric team expansion was ruled out because of a lack of flex-ibility with this model. Futhermore, from a cost point of view, the client wanted to adopt futur-istic-oriented legal technology platforms as part of the change.

the quest To deliver these needs, the company looked for a reliable solutions partner to deliver contract manage-ment to implement a turnkey integrated mandate of technology platform as well as contracts, research and compliance services.

After evaluating leading LPO firms and legal tech-nology firms, the company chose Manthan Legal as its solutions partner. One of the key deciding factors was that Manthan was a well-established LPO ser-vices provider with its own best breed technology solutions for contract drafting and contracts intel-ligence management.

Implementation mandate The mandate given to Manthan Legal included: drafting and marking-up 1,500+ contracts annually to include the following: master services agreements and statement of works, confidentiality agreements, vendor agreements, product license agreements and third-party agreements.

It also wanted implementation of precedent intelligence-based drafting software, entergence and implementation of post signature contracts busi-ness intelligence portal – Encobi. Managing legal research, compliance, template management on a turnkey basis was also part of the brief.

the Manthan solution Manthan Legal provided its full Contract Intel-ligence Lifecycle Management (CILM) solution to the client. This included Entergence and Encobi as

By Sushmita Das, VP business development, Manthan Legal

Implementing a contracts intelligence lifecycle management (CILM) solution

42



technology platforms. It also comprised contract drafting, mark-up, legal research, compliance and template management as services. On top of the specified mandate, Manthan’s CILM implementa-tion also included the following to add value for the company.

l Building on playbooks for key contract types l Building of master knowledge trees for each

contract type l Automating form-based contracts l Integrating technology platforms with existing

Sharepoint and Workflow solutions

The contracts drafting and services support team had a dual-shore staffing comprising of US lawyers and India-based contract specialists working together to provide the best possible service.

end-to-end delivery solutions The implementation of Entergence, a precedent intelligence-based contracts authoring solution, was part of the offering. The implementation of Entergence was divided into a number of stages and included the following.

l Mapping precedent contracts for clause varia-tions and their context.

l Building of key contracts knowledge trees. l Review of metadata by client team. l Formalising Playbook for contracts negotiation

within Entergence. l Building and testing of wizards form. l Training resources for domain, process, client,

product, applications, etc. l Deliver test project to client.

When the project went live, the Manthan Legal team was available constantly to provide technical and training support as needed.

Contract intelligence portal – encobi When implementing Entergence, the team ensured that data models specific for each customer within the client were built.

The inside customers included the procurement team, the legal team, the compliance team and the CFO office. Each wanted different intelligence extracted from contracts.

The project also involved migrating all contracts to a secure, cloud-hosted location and extracting and uploading key metadata from existing con-tracts. Metadata had to be quality checked and metadata reviewed by the client team. The project also involved training customer principals, busi-ness users, sales and legal team on the full poten-tial of Encobi.

As with Entergence, we also had to provide ongoing technical and training support when the implementation went live.

strong project management office We provided key contact for onshore communication as well as offshore key contacts for the entire project.

Our implementation staff and the project manage-ment office (PMO) remained actively engaged after initial programme set-up and roll-out. At the end of the initial set-up the PMO was operational with the procedures for execution including communica-tion, reporting, Service Level Agreements (SLAs), training, billing, timesheet reporting etc.

As a result, this ensured a well-defined, structured and fully executed ongoing process. The client legal team had direct access to its legal services support team for 20 hours a day and access to the project management team 24 hours each day.

Manthan also provided a strong technology ser-vice center to address and resolve issues at different levels.

l Level 1- basic user supportl Level 2 – technical support l Level 3 – engineering support l Level 4 – strategic technology consulting

High-level quality assurance As part of our value proposition, we offered a two-step quality assurance process to the client at no extra cost. India-based quality assurance lawyers undertook the first-level quality assurance review with US-based professionals doing the second level review based on the contract type.

The portal designed and deployed for the client had an inbuilt mechanism to raise flags and receive responses to them. Consequently it had the ability to produce reporting on issue occurrence and resolutions.

All issues were tiered as normal while those des-ignated high priority had a pre-defined responding time. The time allocated was either in the 12 to 24 hours timeframe or four to six hours when desig-nated a priority.

the end result All in all, the project was successful and the client had a full CILM implementation backed by Enter-gence and Encobi that covered end-to-end aspects of contract intelligence lifecycle with platform and services.

The tangible outcomes were many. Firstly, produc-tivity rose, with the legal team delivering 30 per cent more contracts to business users.

Business users were able to obtain several answers on tap using Encobi, which previously had been directed to the legal team to answer. Entergence increased the capacity of the legal team, saving drafting time by well over 35 per cent.

The cumulative cost per contract reduced by 23 per cent in the first year, with a further reduction of 10 per cent projected in the second year.

All issues were tiered as normal

while those designated

high priority

had a pre-defined

responding time

43


HoW to: Litigation support

LPOs are absorbing increasingly sophisticated work streams, providing

value-added services developed from years

of experience

IntroductionCorporations and law firms (collectively, ‘clients’) have outsourced back office and other similar work for years as a way of controlling costs. More recently, they have started to engage legal process outsourcing providers (LPOs) for services that have traditionally been handled by in-house legal departments.

The initial value proposition for LPOs focused on performing basic, commoditised tasks at reduced labour costs. Now, LPOs are absorbing increasingly sophisticated work streams, providing value-added services developed from years of experience, and helping their clients put better processes around key functional areas.

A significant growth area for LPO has been docu-ment review for litigations, regulatory actions and internal investigations. This comes as no surprise; document review remains one of the most costly aspects of e-discovery/e-disclosure, and the overall amount of data requiring review continues to grow,

despite efforts such as changes to the Federal Rules of Civil Procedure in the US, the introduc-tion of Practice Direc-tion 31B in the UK, and the work of the Sedona Conference, Lord Justice Jackson and others that focus on key issues such as cooperation and pro-portionality.

Even as document review technology has evolved from linear review to concept and analytics-based, the volume of elec-tronically stored information (ESI) requiring review

By Andrew Goodman, Michel Sahyoun and Philip Algieri 1

LPo and defensible document review

notes1 The authors are the executive director of Litiga-tion Services, chief technology officer and director of litigation services for QuisLex, a leading LPO recognized by Chambers and Partners as a Band 1 Provider in 2011 and 2012.

2 For a more detailed discussion of the ethical considerations involved in sending work offshore, please see the following opinions: Los Angeles County Bar Association, Opinion 518 (2006); The Association of the Bar of the City of New York Com-mission on Professional & Judicial Ethics, Formal Opinion 2006-3 (2006); San Diego County Bar Asso-ciation, Legal Ethics Opinion 2007-1 (2007); North Carolina State Bar, Formal Ethics Opinion 12 (2007); Florida Bar, Opinion 07-2 (2008); ABA Standing Committee on Ethics and Professional Responsi-bility, Formal Opinion 08-451, August 5, 2008; The Supreme Court of Ohio, Opinion 2009-6, August 14, 2009; and Solicitors Regulation Authority (UK) SRA Handbook, Draft SRA Code of Conduct (2011.)

44


QuisLex is proud to be selected as a Band 1 LPO by

Chambers & Partners in both 2011 and 2012. A premier,

pure-play, legal support services provider with offices in New York,

Chicago and Hyderabad (India), QuisLex was founded by attorneys

from Skadden Arps, Shearman & Sterling and Sidley Austin. Our

growth over the last eight years from three to over 550 permanent

employees has been fueled almost entirely by repeat work from

existing clients and client references.

“[QuisLex’s] attention to detail is unparalleled – they care about the end results.” Chambers Global 2012

Litigation Services

• Multi-issuerelevancyanalysis,

including for significance/ hot docs

• Privilegeanalysisandcreation

of privilege logs

• Redactionsforprivilege,

confidentiality and trade secrets

• EarlyCaseAssessmentand

intelligent document reduction

• Real-timedataanalyticstoassist

counsel with litigation strategy

For more information, please visit us at www.quislex.com or email us at [email protected].

Corporate Services

• Contractreviewandanalysis

• Creationandmanagement

of contract databases

• Contractnegotiationand

drafting assistance

• Pre-mergerduediligenceand

data room preparation

• Post-mergerintegrationanalysis

• Contractreviewsforregulatory

and internal investigations

QuisLex.AnythingLaw.

QuisLex is not a law firm and does not provide legal advice.

© QuisLex, Inc. | 757 Third Avenue, 21st Floor, NY, NY 10017

T: 212.376.5601 | F: 917.591.5167 | [email protected]

2012.08.13_Bckgnd_Tints.indd 1 8/13/12 4:46 AM

HoW to:Litigation support

continues to rise. LPOs, particularly those that have developed processes which incorporate sophisticated data analytics, are well suited to handling this ever-growing volume of ESI and other discovery-related tasks, whether it involves performing early data assessments, creating efficient review methodologies or providing post-review discovery and trial sup-port. This article will focus on how successful LPOs leverage people, process and technology to drive high-quality, defensible document review solutions while maintaining a secure work environment.

ethical considerations in outsourcingA number of regulatory bodies in the USA and the UK have issued ethical guidance for attorneys who outsource legal support services2. These opinions share a number of common elements: the LPO should (1) be competent; (2) preserve client confidences; (3) avoid conflicts of interest; (4) avoid aiding in the unau-thorised practice of law; and (5) aid the outsourcing attorney in super-vising its work.

While an LPO’s commitment to quality, transparent reporting and security should be goals unto themselves, they also serve another purpose – to give the outsourcing attorney confidence that the LPO it has selected helps the attorney satisfy his or her ethical obligations.

Since an LPO does not provide legal advice, it is essential the LPO involves and seeks guidance from the client at all stages of the review, and that it lets the client make or guide all substantive decisions. As part of best practices, most leading LPOs run a con-

flicts check procedure before accepting new engage-ments that is consistent with ethics principles.

Finally, a comprehensive security program serves to demonstrate that the LPO has taken effec-tive measures to preserve the client’s confidences and secrets.

the significance of processEven where a search or review methodology has been judicially accepted, its defensibility ultimately rests on the design and implementation of the pro-cess surrounding that methodology.

As Judge Grimm explained in Victor Stanley: ‘The implementation of the methodology selected should be tested for quality assurance; and the

party selecting the methodology must be prepared to explain the rationale for the method chosen to the court, demonstrate that it is appropriate for the task, and show that it was properly implemented.’3

Victor Stanley was the latest in a line of cases, including O’Keefe, Equity Ana-lytics and Seroquel, that drew similar conclusions. More recently, a series of high-profile cases relating to the effective use of technology and process – Da Silva Moore, Kleen Products and Global Aero-space – reaffirm that the reasonableness and defensibility of document review is

dependent on the process employed. As Judge Carter noted in Da Silva Moore: ‘There

simply is no review tool that guarantees perfec-tion.’4 As a result, it is critical that litigants follow Magistrate Judge Peck’s mandate that: ‘Counsel must design an appropriate process, including use of available technology, with appropriate quality con-trol testing, to review and produce relevant ESI.’5

The defensibility of a party’s approach to a well-managed document review will depend ultimately on the effective use of technology, overall substan-tive management of the review and, of course, quality control mechanisms that were employed.

In another context, Judge Grimm stated with regard to Federal Rule of Evidence 502 and potential waiver of privilege that: ‘Reviewing courts must remember that the bellwether test under Rule 502(b)(2) is reasonableness, not perfection.’6

What, then, is the key to a defensible document review? The answer is to follow best practices that leverage people, process and technology. Good LPOs often play a helpful role in designing and imple-menting these best practices.

Design a robust processA defensible review process begins with a reliable, tested and process-dependent quality assurance programme. Internationally-recognised third-party certifications such as the ISO certification are gener-ally accepted as good standards when evaluating the robustness of a process. Reputable LPOs have

notes3 Victor Stanley, Inc v Creative Pipe, Inc, 250 FRD 251, 262 (D Md 2008)

4 Da Silva Moore, et al v Publicis Group SA, et al, No.11 Civ 1279 (SDNY Apr 26, 2012) (No175), at 4 (Opinion & Order upholding Judge Peck’s ruling allowing predictive coding).

5 Da Silva Moore, No.11 Civ 1279 (SDNY Feb 24, 2012) (No.96), at 25-26 (Opinion & Order approving the use of predictive coding).

6 Paul W Grimm, Lisa Yurwit Bergstrom &Matthew P Kraeuter, Federal Rule of Evidence 502: Has It Lived Up to Its Potential?, XVII RICH JL & TECH 8 (2011), http://jolt.richmond.edu/v17i3/article8.pdf, at 45.

7 See Pension Comm of Univ of Montreal Pension Plan v Banc of Am Sec, 685 F Supp 2d 456, 465 (SDNY 2010) (citing Victor Stanley, Inc v Creative Pipe, Inc, 250 FRD 251, 259-62 (D Md2008)).

Since an LPO does not provide legal advice, it is

essential the LPO involves and seeks guidance from

the client at all stages of the review

QuisLex is proud to be selected as a Band 1 LPO by

Chambers & Partners in both 2011 and 2012. A premier,

pure-play, legal support services provider with offices in New York,

Chicago and Hyderabad (India), QuisLex was founded by attorneys

from Skadden Arps, Shearman & Sterling and Sidley Austin. Our

growth over the last eight years from three to over 550 permanent

employees has been fueled almost entirely by repeat work from

existing clients and client references.

“[QuisLex’s] attention to detail is unparalleled – they care about the end results.” Chambers Global 2012

Litigation Services

• Multi-issuerelevancyanalysis,

including for significance/ hot docs

• Privilegeanalysisandcreation

of privilege logs

• Redactionsforprivilege,

confidentiality and trade secrets

• EarlyCaseAssessmentand

intelligent document reduction

• Real-timedataanalyticstoassist

counsel with litigation strategy

For more information, please visit us at www.quislex.com or email us at [email protected].

Corporate Services

• Contractreviewandanalysis

• Creationandmanagement

of contract databases

• Contractnegotiationand

drafting assistance

• Pre-mergerduediligenceand

data room preparation

• Post-mergerintegrationanalysis

• Contractreviewsforregulatory

and internal investigations

QuisLex.AnythingLaw.

QuisLex is not a law firm and does not provide legal advice.

© QuisLex, Inc. | 757 Third Avenue, 21st Floor, NY, NY 10017

T: 212.376.5601 | F: 917.591.5167 | [email protected]

2012.08.13_Bckgnd_Tints.indd 1 8/13/12 4:46 AM

46



typically received the ISO 9001 certi-fication or other comparable certifica-tions for their Quality Management System for document reviews.

Such certifications demonstrate that a review process has been vetted by a reputable, independent third party and serve as an important indicator of quality to clients, courts, and opposing parties. Another key element of a robust process is the effective use of data-driven quality-improvement sys-tems like Six Sigma.

Manufacturers have successfully utilised Six Sigma for decades, and successful LPOs have been innovators in applying its underlying principles to create methodologies to track and improve quality on large scale document reviews. Most importantly, it is not enough just to have processes; it is impera-tive that entities adhere to such processes, document this adherence and are prepared to testify if required.

Demonstrate quality and defensibilityUse of advanced statistical concepts and data-based intelligent search methodologies also helps in estab-lishing defensibility of certain macro decisions made during the course of the review, such as culling selected review sets or not reviewing portions of the data set.

By integrating these concepts into their robust processes and taking a quantitative approach to document review, LPOs help their clients make defensible decisions regarding early data assessment, intelligent document reduction and the use of a technology-assisted review solution.

They establish appropriate quality control pro-tocols for every stage of the review, use advanced statistical concepts to select sample sets, measure accuracy and gauge performance, and then test and validate searches and search results.

This last step is vital because, as Judge Grimm noted in Victor Stanley, and Judge Scheindlin cited approvingly in Pension Committee, the failure ‘to assess the accuracy and validity of selected search terms’ can constitute negligence.7

As part of their standard practices, most LPOs create an effective and defensible search process when they refine searches to accepted levels of recall and precision, use sampling methodologies backed by advanced statistical concepts to test results, and create efficient iterative feedback loops. In addition, they subject the review process itself to the same rig-orous processes.

Finally, this overall emphasis on a quantitative approach to quality creates essential audit trails that are usually helpful should the need arise subse-quently to review process steps imple-mented in a review.

People matterA process is only as strong as its weakest link, and even the most sophisticated process will fail without adequate human capital. A document review process that relies on the exclusive use of permanent employees at all level is inherently more robust and repeat-able than one that only uses full-time employees at key positions or above a certain level of responsibility.

Top-tier LPOs only staff document reviews with teams of permanent employees, which allows them to invest time and resources in training these employees in all aspects of their business. As a result, an LPO’s reviewers become immersed in its processes and develop institutional knowledge of its clients’ matters, industries, documents and prefer-ences for handling document reviews, all of which makes them more effective than teams that do not have the benefit of such knowledge gained by his-torical experience.

This applies beyond the ‘core’ review team as well. As fully supported businesses, top-tier LPOs have full-time experts, such as search specialists, statisticians and linguists, whose primarily role is to help build and sustain robust practices that assist in improving review quality and efficiency.

For example, an LPO might have a separate quality group that serves as an independent check on all projects, enhances the review team’s perfor-mance on any given matter, and then takes valuable insights learned across matters and industries and applies them to enhance the quality and process sta-bility of all the LPO’s reviews.

Incorporating technologyIt is important as well to use technology effectively, be it in quality-control processes, constructing and implementing the best search assays or in designing the review workflow.

Typically, top-tier LPOs, given their exposure to various review tools, are adept with use of tech-nology and can use their familiarity with the rel-evant tool or comparable technology to help clients devise the best-suited workflows for a given project.

An LPO’s ability and freedom to work with any review tool also allows it to gather the data necessary to measure and drive quality, and their data-driven processes are uniquely suited to help identify and fill in the gaps where technology leaves off and enhance a review tool’s strengths. In working with numerous different review tools, for example it is also important for entities to under-stand the difference in the search algo-rithms a particular tool employs and the implications these differences have on their processes.

Another key element of a robust process is the

effective use of data-driven quality-improvement systems like Six Sigma

Typically, top-tier LPOs, given their exposure to

various review tools, are adept with use of technology

47



Involve counsel at all timesAn LPO’s processes should not be a ‘black box’. At the end of the day, the client is responsible for the review and must stand behind the quality of the LPO’s work product.

Among other best practices, top-tier LPOs typically work with clients to: (1) initiate project kick-off calls and project-specific training; (2) assist in early data assessments and search term validations better to understand the documents and reduce risk (and cost); (3) tailor its workflow to account for the client’s preferences and the project’s requirements, and integrate them into its processes; (4) customize its quality processes and create an issue escala-tion mechanism; (5) create a reporting schedule that allows transparency into the review; and (6) per-form calibration exercises as needed to ensure teams are generally consistent in their interpretations of review guidelines.

LPOs also stay in constant communication with the client throughout the review and continuously obtain and apply their feedback. By following these practices, successful LPOs ensure their clients have complete insight into the review, can make timely changes or improvements to the process and can appropriately monitor the review team’s perfor-mance and provide feedback, all of which allow the client effectively to supervise the outsourced work.

A secure work environmentA robust process that yields a high-quality work product is meaningless if clients’ data is not secure and an LPO cannot maintain confidentiality. LPOs that take security seriously use a triad of measures to safeguard their clients’ data: (1) personnel security, which consists first and foremost of building a cul-ture of confidentiality by educating the workforce on the importance of maintaining data security and confidentiality. Other best practices consist of con-ducting employee screening and having employees sign stringent and enforceable confidentiality agreements; (2) physical security, which consists of myriad measures that ensure that no person or device is able to penetrate the company’s infrastruc-ture on the one hand, and that no unauthorized data leaves the company’s premises on the other; and (3) IT security, which involves the use of technology to protect clients’ data assets through the use of con-tinuous monitoring and electronic countermeasures to block any intrusion, extrusion or interception attempts. Such measures include firewalls, anti-virus software, extrusion prevention software, bio-metric access control, and encryption algorithms.

In order for security measures to be effective, an LPO needs to integrate them within a cohesive framework and have a concrete chain of account-ability. One of the most credible security frameworks

is the ISO 27001 international standard, which defines a thorough information security manage-ment system (ISMS). The standard consists of 133 high-level security controls, each subdivided into multiple sub-controls. In terms of accountability,

ISO 27001 mandates the creation of an information security office headed by a chief information security officer, or CISO.

In addition to the ISO 27001 standard, receiving an auditor’s report with an unqualified opinion after an AICPA SAS 70 Type II examination differentiates an LPO from its peers in demonstrating the establishment of effectively designed security controls. This stringent exami-nation not only includes the LPOs description of controls related to its

information technology and security processes, but also includes detailed testing of these controls. By passing a meticulous SAS 70 audit, preferably by a Big 4 accounting firm, an LPO can further assure its clients that their critical data is safe and secure. 8

Finally, LPOs can evidence a commitment to pro-tecting personally identifiable information (PII) it may encounter. In addition to the above measures, the LPO can (1) self-certify as an EU Safe Harbour; and (2) specifically with respect to personal health information (PHI), demonstrate HIPAA compliance as certified by a reputable third-party agency.

ConclusionProcess is the key to a defensible document review, whether with regard to technology-assisted review, validation of search terms, inadvertent production or any other aspect of document review that can be called into question as part of an adversarial process.

By employing the best practices discussed above, you attain a higher level of quality, adopt a defen-sible approach to document review and logically minimise any concerns as to whether your processes are appropriate and reasonable.

Due to their strong process orientation, focus on quality, exclusive use of permanent employees, skill in leveraging technology and emphasis on data security and confidentiality, successful LPOs are well situated to implement these best practices.

notes8 Companies previously audited under the SAS 70 regime are now being audited under SSAE 16 standards.

Successful LPOs ensure their clients have complete insight into the review and can make timely changes

or improvements to the process


49

LPo Hotspots

50 the case for scotlandBy Robert Glennie, NewGalexy Partners

52 scotland: the LPo future54 India54 the Philippines56 Australia/new Zealand57 Brazil57 eastern europe58 China59 Republic of Ireland59 northern Ireland60 south Africa

50


HotsPots: Scotland

A scottish historyThe legal sector in Scotland has a long and proud history. The first professorships in law were created in the University of Edinburgh and the University of Glasgow in the early 1700s. Between 1750 and 1850, the UK went through enormous change as the Industrial Revolution took place. New law firms were launched in Scotland’s largest commercial cen-tres and the legal profession began a phase of strong growth. Scots lawyers practising commercial law became known as ‘men of business’ – and that tradi-tion of combining academic knowledge of the law with practical advice and insight into commercial matters continues today.

For historic reasons Scotland’s legal system is, in some respects, distinct from the legal system of Eng-land and Wales – most notably in areas of criminal justice. One consequence of that fact is that many Scottish universities began to add into their law degree courses options for students to study aspects of English law: Dundee University has gone furthest with this development and for quite some time has offered its students the option to qualify in both Scots and English law.

Many Scottish law firms practice in both Scotland and England. Some English law firms have also opened offices in Scotland. Scots lawyers often move out of Scotland during their careers, sometimes returning as their families approach school age. Many Scots lawyers are qualified to practice in both Scotland and England.

The central belt of Scotland – with its strong travel links, excellent schools and universities and ready access to a wide range of leisure facilities and pur-suits – is where most of Scotland’s population lives and where most of its large businesses are located.

Golfers have more than 500 golf courses from which to choose: and there are plentiful opportu-nities to watch or participate in other traditional sports – such as football, rugby, mountaineering and sailing. The annual Edinburgh Festival is only one of a range of cultural options which can be enjoyed. And the countryside of Scotland encompasses a wide range of types of scenery and vacation options. Work-life balance is more easily achieved in Scot-land than in many other places.

established outsourcingScotland is a well-established and internationally recognised business process outsourcing (BPO) loca-tion. Scottish Development International’s statistics show that the country presently has more than 400 BPO contact centres, employing over 90,000 people. These BPOs operate in business sectors including finance & business services – and some of them operate on a pan-European basis and employ multi-lingual staff.

Scotland’s workforce is flexible, stable and com-mitted. The BPO sector is now a mature business sector in Scotland and just as other countries, such

the case for scotlandBy Robert Glennie, founder and CEO of NewGalexy Partners

51


HotsPots: Scotland

as India, built legal process out-sourcing (LPO) businesses out of BPO businesses, Scottish Development International has now launched a drive to attract new LPO businesses into Scotland.

By background, I am a qualified Scots lawyer. I was a partner in a leading Scottish law firm for over 25 years, relocated from Scotland to London to open that firm’s London office many years ago and then went on to lead the KLegal International grouping of law firms, when it sat alongside KPMG. So I have long-standing first-hand knowledge of Scotland, its legal talent and its legal market.

the talent poolThere are more qualified lawyers in Scotland than in Wales and Northern Ireland combined. Scottish universities provide many high-calibre law gradu-ates each year.

In the present economic climate many of these graduates are unable to find training contracts with law firms and are eager to explore alterna-tive career opportunities which will enable them to use and build upon the skills and knowledge which they have developed during their univer-sity studies.

The quality of Scotland’s workforce is internation-ally recognised. The people of Scotland make up one of the best trained, most reliable and most cost-com-petitive workforces in the world. Staffing costs are very competitive. Scotland’s ratio of graduates per capita compares well with other European countries of similar size.

A changing legal professionThe legal profession in the UK is in the middle of a period of very significant change. That change is being driven in part by corporate purchasers of legal services (whose management is demanding ‘more for less’), departure from conventional hourly charge-out rates and de-construction of individual legal tasks and transactions into elements that will continue to require the expertise and experience of senior lawyers in law firms or in in-house legal teams – and other elements which can be completed more cost-effectively, and often more efficiently and with added-value to clients, by alterna-tive legal support services providers such as LPOs).

Legislative changes are also playing a part in driving changes within the legal profession. And law firms themselves are recognising that they need to adapt their traditional business model if they are to prosper and survive in an increas-ingly competitive national and interna-tional business environment.

Scotland is ideally placed to play its part in supporting the development of LPOs. The Law Society of Scotland is committed to supporting Scottish Development International’s initia-tive to attract new LPO businesses into Scotland.

Lorna Jack, chief executive of The Law Society of Scotland recently said: ‘The legal sector is a major employer in Scotland, providing around 20,000

jobs, including our 10,400 solicitor members, and contributing £1.2billion to the Scottish economy and I would hope that encouraging organisations to outsource their legal process work here will boost that further.’

Developing legal process outsourcingDavid Ellis of OMC Partners, the independent legal sector management consultancy, believes that Scot-land is an excellent LPO location. He commented: ‘When individual legal tasks and transactions are de-constructed it often becomes clear that elements of them could be completed much more cost-effec-tively if they were operated as a process and use dif-ferent delivery models – within LPO, in-house and law firms – to deal with these elements. The skills which have been developed within the LPO industry should be used to complement and drive efficiencies into legal tasks and transactions.’

Some types of legal work are unsuitable for out-sourcing to an LPO located outside the UK – for con-tractual or legislative or commercial reasons.

Increasing numbers of LPOs are beginning to offer both onshore and offshore delivery centre options to their clients. Several LPOs whose business focus is primarily the USA have launched onshore delivery centres in low-cost US cities, to complement the off-shore LPO offerings which they also offer.

There is great potential for Scotland to become the onshore and near-shore LPO delivery centre for legal support work from the UK and other EU countries.

Beginning operations shortlyWith support from Scottish Development Inter-national, NewGalexy – the business of which I am CEO – will open its onshore LPO delivery centre in Scotland in October 2012, to complement the range of services and facilities which NewGalexy’s

growing operations in India provide. Scotland is a great place in which to live and work. I am certain that other LPOs will find Scotland to be an attrac-tive new LPO location.

Robert Glennie is the founder and CEO of NewGalexy Partners Limited (an offshore LPO) and co-founder of New-Galexy Services Limited (NewGalexy’s new onshore LPO, based in Glasgow).

Scotland could become the onshore and near-shore

LPO delivery centre for legal support work from the UK

and other EU countries

The people of Scotland make up one of the best

trained, most reliable and most cost-competitive

workforces in the world

52


HotsPots: Scotland

We’ve risen to the challenges posed by the global slowdown with typical Scottish resilience. In fact, over the past few years, Scotland has attracted mil-lions of pounds of investment and created thou-sands and thousands of jobs. But you don’t stay ahead by standing still, so we’re always looking for forward-thinking companies to share in our success.

The prestigious publication Financial Times fDi (Foreign Direct Investment) has voted Scotland European Region of the Future – beating off compe-tition from 38 other regions. And it didn’t just do it once, it awarded us that prestigious accolade twice in the past four years.

Other recent fDi awards won by Scotland include UK Region of the Future, European region with the Best FDI Strategy and European Region with Best Human Resources. Edinburgh, Glasgow and Scot-land as a whole have also been identified as being among the top-10 Most Business Friendly cities or regions in Europe.

Which means Scotland is widely regarded as an excellent choice for business investment and eco-nomic growth, despite the downturn.

Helping companies survive and thriveWith continued global economic pressures, outsourcing enables companies to maximise operational efficiency and focus on core revenue generating activities.

Scotland is already one of the world’s leading international shared service centre and business process outsourcing (BPO) locations, and it’s a sector that’s built on very solid foundations. We’ve been adding to our wealth of experience and exper-tise since 1990. And constant investment in our advanced, cost-effective IT and telecoms infrastruc-ture and our highly competitive property market mean this sector has never been stronger.

This dynamic business environment is the ideal shared service centre location, benefitting from an innovative, highly educated, multilingual workforce with a wealth of experience in this field. We’ve been able to deliver continuous cost benefits throughout the global slowdown while increasing our service levels, allowing compa-nies to compete globally in terms of finance and quality.

These centres combine HR, marketing, IT, finan-cial and legal expertise to create nerve centres for organisations whose operations span not just the UK, but Europe and the world. These companies rely on – and profit from – our huge experience in the legal sector. They gain from our expertise in document review, summary preparation, M&A due diligence, corporate transaction completion and post completion, filings and registrations, portfolio management and legal research.

There are currently more than 460,000 people employed within finance and business services, with our world famous education system training more all the time. This ensures a steady supply of highly skilled staff ready to help with every aspect of the legal sector.

All of which explains why some of the largest companies in the world already trust us for our shared service and BPO expertise. These include Shell Finance Operations (Scotland) Ltd, Eaton, IBM, HEROtsc, First Data, Capgemini and Logica to name but a few.

the legal sector – a case for scotlandScotland has a distinctive tradition in the legal sector with a long and proud history, based on traditional values of integrity and fairness.

There are over 1,200 law firms in Scotland, employing over 12,600 qualified lawyers and each

scotland: the LPo future

53


HotsPots: Scotland

year around 3,000 people graduate from Scottish colleges and universities in law, full of enthusiasm and hungry for work – further boosting the sector.

With some of the UK’s prominent law firms based in Scotland, the range of skills and varying levels of experience come as a huge benefit to companies seeking employees with the right degree of training. The number of graduates entering the legal market remains steady, despite the down-turn, with some joining the legal profes-sion immediately while others use their legal education to pursue other avenues of employment – creating a wealth of skills for companies wishing to enter the LPO sector in Scotland.

Since the emergence of the LPO market in the late 1990s the industry has grown rapidly and matured. Firms that initially outsourced high-volume, process-orientated work now recog-nise the opportunity to develop a multi-shoring approach with operations in multiple locations.

Scotland offers an ideal location for higher value qualitative work such as portfolio manage-ment, elements of corporate transactional work, governance, risk management and compliance. .

Many Scottish lawyers are dual-qualified and can advise on the law in more than one country. However, for the many solicitors specialising in company, commercial, consumer, tax and employment law, location isn’t an issue as UK law is essentially the same. Scottish lawyers can also practice as registered foreign lawyers, bringing their skills and experience to countries across the world.

Maintaining our legal reputationThe Law Society of Scotland is a professional body of solicitors regulating and representing all practising solicitors in Scotland. It is responsible for main-taining the high levels of service expected of the Scottish legal profession. Among its many responsi-bilities are education, continuing professional devel-opment, law reform and regulation liaison.

All practising solicitors can benefit from the expert advice and guidance of its professional practice department, which in turn means any company locating to Scotland has this august body of experienced professionals at its disposal.

the scottish legal workforceOur workforce is internationally recognised as being one of the best trained, most reliable and cost-effective in the world. With our world-renowned education system and its high ratio of graduates per capita, Scotland surpasses most countries in Europe of comparable size.

Labour market regulations in the UK, including working hours, are the most flexible in Europe, and staffing costs are highly competitive with salaries –

including indirect social wage costs such as employer’s national insurance – among the lowest in Europe.

Our high-quality education system has been turning out high-quality graduates year after

year, making our talent pool broad, skilled and exceptionally well-qualified. Between Glasgow, Edinburgh and surrounding loca-tions there are more than 287,500 students in higher education – making it one of the UK’s highest student concentrations. Within the legal sector, Scotland’s educa-tion system is respected worldwide for its specialism in law.

In Scotland we have 12 universities offering degree courses in law, which produces more than 2,800 law graduates each year. In addition 300 people qualify

through Scottish colleges, which means that we have more than 3,000 legal graduates bolstering this vibrant sector annually. This, coupled with our dynamic BPO workforce, makes Scotland the ideal location for an LPO business to succeed.

scotland’s legal profession – key factsl There are more than 12,600 qualified lawyers

in Scotland, compared to 3,000 in Wales and 3,500 in Northern Ireland.

l There are more than 22,000 people employed in Scotland’s legal profession, 17,000 of these are in Edinburgh and Glasgow.

l Three Scottish universities are in the QS World University Rankings for Law (2011).

l Scotland offers a flexible and cost-effective location for international legal services and, with the passing of the Arbitration Act and establishment of the Scottish Arbitration centre, provides a globally competitive place for dispute resolution.

l Scotland is also the centre of a rapidly devel-oping paralegal profession.

scotland – the bigger pictureAs outlined above, Scotland has a hugely talented, experienced and well-respected legal profession. But if you’re looking to locate to a new country there will be many other factors involved in your decision.

Here in Scotland our business and political envi-ronment is conducive to both entrepreneurship and growth. Companies that have invested in Scotland have, in turn, enjoyed a wide range of financial sup-port and incentives.

Our infrastructure, excellent transport links and low costs make Scotland the ideal location to build your company’s European – and worldwide – profile.

And, of course, there is our famous culture and lifestyle which will help you recruit high-quality staff from around the world.

For more information please visit www.sdi.co.uk or call +44 (0)141 228 2899.

Many Scottish lawyers are dual-qualified and can advise on the law

in more than one country

54


Scotland. Renowned for mighty castles and BPO solutions.We’ve built a very impressive reputation.

We’re renowned for invention, innovation and the formidable

castle or two. An iconic legacy that stretches from Penicillin

and the beta-blocker to the creation of one of the largest and

most sophisticated BPO sectors in Europe. With a thriving

fi nancial and business service industry to call upon, Scotland

has become a highly desired location for high value BPO

solutions, assisted by a skilled and dedicated workforce fl uent

in over 26 languages. The fact is, our passion for success and

hunger to win, combined with our excellent customer service

and delivery levels are fi nancially irresistible. We can also

provide business continuity and a stable market environment.

And that’s why companies are investing in Scotland.

To see what we can do for your business, visit www.sdi.co.uk/bpo

SCOTLAND. SUCCESS LIKES IT HERE.

HotsPots: India and the Philippines

IndiaIndia at present holds a near monopoly on the global LPO market, with an estimated 85 per cent share of work. Many of the biggest LPO providers are Indian, and most at least have a delivery centre in the country. India’s successful LPO industry has sprung out of its knowledge processing outsourcing market, itself a subset of BPO, for which the country has consistently ranked top in the AT Kearney GSLI (Global Services Location Index). Coupled with a strong background in IT outsourcing, India’s position can be seen as almost ideal for legal off-shoring.

Like many other LPO destinations, India is able to provide skilled workers at low prices. Yet, what is particularly distinctive is the scale on which India can do so. With the world’s second-largest popula-tion, India has a huge pool of potential workers. This translates into the amount of legal professionals in the country – India currently has 1.8 million lawyers, and more than a quarter of a million stu-dents a year enrol into law schools as the profession becomes increasingly respected among wealthy and well-educated families.

India’s legal labour pool is not only large, it is also skilled and highly educated, capable of performing legal tasks compatible with the demands of UK and US lawyers. The country has the second largest body of English-speaking lawyers in the world, with Eng-lish being the official language and the language in which all legal proceedings take place.

India’s legal system is also advantageous to out-sourcing lawyers, since it is modelled on the English system and so shares aspects of UK and US common law. The scale and calibre of India’s workforce addi-tionally allows LPOs to offer flexibility: teams can expand and decrease according to the project.

Cost has typically been seen as the key factor for outsourcing, and India is one of the cheapest LPO destinations available. Outsourcing to India is signif-icantly cheaper than keeping work in the UK, even given the increased costs associated with travel, tele-communications and long-distance management. Indian salaries can be 75 per cent cheaper than those in the US, and the hourly cost of an attorney can be 10 per cent of the American price.

Low prices are furthered by government mea-sures, such as tax incentives, seeking to further India’s outsourcing industry. Given the background of India’s economy, which is growing at an average rate of 7 per cent a year, the cost of LPO to India is particularly appealing.

Doubts have been raised regarding the suitability of India’s infrastructure for international business. Travel links, clean water supply and electricity provision have all been found to be lacking, as was illustrated by the power outages in July 2012 that left 600 million without electricity, creating a virtual standstill as trains and traffic signals failed to func-tion. It has been estimated that serious infrastructure

problems inhibit India’s GDP growth by 1–2 per cent each year. The risk of natural disasters – particularly flooding and earthquakes – also damages the reli-ability of India’s infrastructure.

A series of public-private partnerships are intended to improve the country’s infrastructure. Some projects have already been completed, and many more are expected to be undertaken over the next few years, as the government attempts to create an infrastructure capable of facilitating international competition. Although travel and power distribu-tion may be somewhat lacking, India does offer a strong technological infrastructure that is continu-ally improving as well as one of the fastest-growing telecom markets in the world.

Another potential problem with India’s LPO industry is the hostility of the legal profession towards foreign lawyers.

Foreign lawyers are not normally permitted to practice in India, or even to travel to offer legal advice, which is problematic given the necessity for lawyers to supervise the work that they have out-sourced. Although some concern has been raised about this, as well as the ethical implications of LPO, it is not likely to provide a serious obstacle to LPO, since the Indian lawyers striving to outlaw foreign professionals are seeking to prevent competition and risks to their jobs. LPO, far from displacing Indian lawyers, surely provides additional opportunities for lawyers in the country.

Any potential problems with India’s outsourcing industry have apparently been outweighed by the benefits, given the quantity and quality of legal outsourcing now taking place there. Far from simple administrative tasks, complicated legal processes and research are now outsourced to India. A host of big-name LPOs have centres in the country – Bodhi Global, CPA Global, Evalueserve, Integreon, Mind-crest, Pangea3 – and some law firms, such as Clifford Chance, have their own captive centres.

the PhilippinesThe Philippines is widely acknowledged to be the second-largest LPO destination after India. The Asian archipelago nation, which has the 12th-largest population in the world, is well established in the legal outsourcing industry because of the strong legal and linguistic affinity it can provide UK and US customers at extremely low prices.

The cost of LPO in the Philippines is possibly even cheaper than in India. The 2011 AT Kearney GSLI placed the Philippines above India in terms of financial attractiveness for outsourcing across all sectors. This cost advantage may be transferable to the legal processing market, with lawyers at top Filipino firms tending to earn less than their Indian counterparts. The cheap prices of the Philippines are secured by very cheap wages, and a low cost of living, alongside government support for LPO, including tax incentives.

Scotland. Renowned for mighty castles and BPO solutions.We’ve built a very impressive reputation.

We’re renowned for invention, innovation and the formidable

castle or two. An iconic legacy that stretches from Penicillin

and the beta-blocker to the creation of one of the largest and

most sophisticated BPO sectors in Europe. With a thriving

fi nancial and business service industry to call upon, Scotland

has become a highly desired location for high value BPO

solutions, assisted by a skilled and dedicated workforce fl uent

in over 26 languages. The fact is, our passion for success and

hunger to win, combined with our excellent customer service

and delivery levels are fi nancially irresistible. We can also

provide business continuity and a stable market environment.

And that’s why companies are investing in Scotland.

To see what we can do for your business, visit www.sdi.co.uk/bpo

SCOTLAND. SUCCESS LIKES IT HERE.

56


HotsPots: Australia and New Zealand

There are other additional advantages on offer for lawyers who outsource to the Philippines. The country boasts an excellent rate of English compre-hension, with English being an official language (alongside Filipino) and usually used in education, business, politics and law. The Philippines is the third-largest English-speaking nation after the US and the UK.

The Filipino legal system is modelled on the Amer-ican one, and contains elements of common, civil, Islamic and customary law. While the island nation is therefore compatible with clients from most English-speaking and English-influenced countries, it has a special affinity with American clients. This is because of the Philippines’ history as an American colony. Although the Philippines gained independence in 1946, it has retained aspects of American culture: the education system, as well as the legal system, is largely American and many Filipino lawyers sit US bar exams. The Philippines is also geographically situated so that it can offer round-the-clock coverage when paired with a US firm.

The Philippines has a reasonable background of economic and political stability. The economy is growing at a consistent rate, having escaped rela-tively unscathed from the global financial crisis. Technological advancements have facilitated an excellent IT infrastructure in the country, which is very good for international telecommunications, if slightly let down by internal telephone networks.

It has however been suggested that the country’s economic growth will be hindered by its poor trans-port infrastructure. Although the President has out-lined plans to mobilise both government funds and private investment in to develop roads, airports and railways, Filipino infrastructure developments have a history of progressing slowly. Power outages are not uncommon and the possible threat of natural disaster could potentially shut down the nation’s entire infra-structure. The Philippines is susceptible to volcanic activity, destructive earthquakes and typhoons.

Despite the shortcomings of the Philippines’ infra-structure, international lawyers have not been put off from outsourcing work to the nation. US firm White & Case has an outsourcing hub based in the Philippines, and many other law firms and lawyers outsource to one of the numerous specialist Filipino LPO companies.

Australia and new Zealand

As Legal Process Outsourcing develops into a quality- rather than cost-driven industry, countries with Anglophone lawyers well-versed in the Eng-lish legal system are likely to become increasingly popular. Australia and New Zealand are particularly strong candidates for this trend. Both have a sig-nificant number of skilled legal professionals, able

to offer high-quality LPO services. With increasing technological improvements, their geographical dif-ference is no longer a problem to UK clients, instead facilitating an advantageous ability to work through England’s nights.

Both nations share a strong historical affinity with the UK, which is reflected today in the shared lan-guage and legal establishments of the countries. Both Australia and New Zealand have common law sys-tems, which are very similar to English law.

In addition, each country has a strong system of legal education. Australia’s 32 law schools create a surplus of qualified lawyers – less than two thirds of law graduates enter the legal profession, perhaps because of demand – and the country currently has about 56,000 lawyers. New Zealand, too, has a large pool of lawyers, with estimates suggesting that only the US and Brazil have more lawyers per capita. Fur-thermore, many New Zealand lawyers have returned home following training and employment in the UK, with some having worked for magic circle firms.

Although Australia and New Zealand are sig-nificantly more expensive than traditional LPO destinations such as India and the Philippines, they remain cheaper than keeping work in London. New Zealand in particular offers a strong cost incentive to UK lawyers. Even in Auckland, one of the coun-try’s more expensive locations, the average salary is about 25 per cent less than that of a London worker. The excellent telecommunications infrastructures of both nations also go some way to counteract the increased costs potentially induced by travel. High-speed internet and strong phone networks are avail-able throughout both countries, with, for example, New Zealand aiming for ultra-fast broadband for all businesses by 2015.

While there are few LPOs explicitly operating in New Zealand, it has been suggested that many New Zealand law firms conduct work for UK cli-ents. Some have done so quite publicly: in 2010, Australian law firm Minter Ellison decided to use its New Zealand offices to process employment, sports, corporate due diligence and energy law work outsourced from UK clients. The high proportion of ex-magic circle employees, operating at prices sub-stantially below city norms was cited as a reason for the success of the venture.

Some Australian law firms, too, have begun to offer LPO to international clients. There are also a few niche LPO companies in existence, although as yet these tend primarily to accept work from domestic clients. For example, LegalResources, which relaunched in July 2012, provides a range of LPO services to Austra-lian clients. There are, however, some signs that Aus-tralia is tapping in to the international LPO market as global LPOs such as Exigent begin to establish delivery centres in the country.

At the moment, LPO in both Australia and New Zealand remains fairly small and unstructured, with lawyers making use of it on a fairly ad hoc basis. While this is likely to become more organised as demand grows, neither nation is likely to have

57


HotsPots: Brazil and Eastern Europe

the large-scale process-driven legal outsourcing industry that is offered in some Asian countries. What the countries will become is increasingly skilled in small-scale or niche legal services, which require intelligent engagement with the English legal system.

BrazilBrazil is already established in the BPO and IT indus-tries, with outsourcing in the country dating back 30 years to IBM’s decision to outsource IT there. Since then, the country has received outsourcing work from various renowned clients, seeking to make the most of the country’s political stability and skilled workforce.

Brazil has the largest economy in Latin America, with a substantially greater GDP than its closest competitor, Mexico. Furthermore, Brazil offers US clients a host of ‘nearshore’ advantages in the form of proximity and cultural affinity. Despite these advantages, however, Brazil has yet to markedly enter the LPO market, although it is poised to do so in the near future.

Brazil’s legal profession is maturing, with Brazilian lawyers becoming increasingly prominent in inter-national law. Despite the country’s civil law system, many Brazilian lawyers work closely with interna-tional clients. The country has a rigorous legal edu-cation system, with students studying an academic degree for five years usually while simultaneously gaining practical experience within a law firm. Furthermore, Brazil has a huge body of legal profes-sionals, with its 677,000 lawyers creating a rate of about 3.55 lawyers per 1,000 citizens in the country.

The traditional obstacle to Brazil’s entry into the LPO industry has been a lack of English skills. Without strong English comprehension, outsourced legal work is necessarily curtailed at an extremely low level. However, there are currently several ini-tiatives in Brazil intending to develop English capa-bilities in the country. The government has made it compulsory for young children in major cities to be taught English. Private schemes, too, are tapping into a national desire to improve English fluency, with a huge number of private English-language schools setting up shop.

A possible downside to Brazil’s LPO industry is the prevalence of regulations making it difficult for some foreign companies to do business. Specifically in the legal profession, alliances between Brazilian and international lawyers are not allowed, with for-eign lawyers forbidden from practising Brazilian law. The extent to which this could limit LPO is unclear.

Although the cost of outsourcing to Brazil is sig-nificantly more expensive than Asian LPO destina-tions, due to the high living costs, salaries and rent in the major cities, there are financial benefits to outsourcing to Brazil. Establishing centres in the suburbs are much cheaper than the city centres. Furthermore, the government is keen to promote BPO, and has offered incentives to outsourcing com-

panies, including a scheme whereby money spent on staff training can be deducted from income tax.

While Brazil has not yet entered into the global LPO market, it is still very much an emerging inter-national country, with developments over the next few years seeming likely to propel Brazil’s interna-tional position, perhaps launching it into LPO. The country’s already reliable telecommunications infra-structure, and transport infrastructure are due for significant improvement in anticipation of the 2014 World Cup, and 2016 Olympics, which are both to be hosted by Brazil.

eastern europeEastern Europe is increasingly developing as a ‘near-shore’ alternative for European companies seeking to outsource their legal services. Offering offices situated only a couple of hours’ journey from major European cities and legal centres, as well as staff competent in a selection of languages, Eastern Europe has unique advantages to offer the LPO market. With many countries having joined the European Union in 2004, Eastern Europe has much to offer European lawyers: the EU ensures free trade and travel, as well as high intellectual property standards.

Eastern European nations were generally quite badly hit by the global financial crisis, causing the instigation of tough austerity measures. Conse-quently, the region can offer skilled labour at low prices. The region’s high number of skilled graduates at comparatively cheap cost is one of the factors con-tributing to its success in BPO and IT outsourcing.

Eastern Europe can further boast political stability and infrastructure unrivalled by its Asian competi-tors. The 2011 AT Kearney GSLI placed countries from the region fairly evenly across the top 50 loca-tions for outsourcing, but, many of these countries were shown to have experienced significant growth in outsourcing from 2009. For example, Poland climbed 15 places, Latvia 14 and Hungary 6.

As Eastern Europe becomes more established in the outsourcing industry, it seems likely that it will branch further into legal outsourcing. This has yet to happen on a major scale, probably because of India’s grip on the market. However, as LPO comes to be more about quality than cost, nearshoring seems likely to grow. Issues have further been raised about the fact that the majority of Eastern European nations have civil, not common, legal systems. This is unlikely to affect the majority of LPO work, as is attested by the fact that the region has already been unofficially dubbed the forerunner in multilingual patent outsourcing. Additionally, global law firm White & Case reported in November 2011 that it was considering establishing an LPO hub in Poland, Hungary, or the Czech Republic.

Romania is already established in the legal out-sourcing market, with international BPO and LPO provider Evalueserve having opened a delivery centre in the country in 2008. Romania is starting

58


HotsPots: China

to produce its own LPO companies. For example, Lawpakt is a Romanian LPO offering a wide range of legal services. The company sells itself through its wealth of skilled professionals, with attorneys skilled in English, Italian, French and German.

Romania’s proficiency in foreign languages – with 60 per cent of Romanians estimated to speak at least one foreign language – ensures the country is able to provide a range of services to international clients.

Another Eastern European country that is gaining prominence in legal outsourcing is Hungary. Like Romania, Hungary has excellent language skills, with one estimate claiming that up to 90 per cent of the population may be proficient in English. Paralaw, a London-based provider of document review and e-discovery, has outsourced to Hungary since 1997.

Additionally, there are some Hungarian compa-nies specialising in LPO. Pava International provides legal services from its highly skilled team in Buda-pest. Pava describes itself as focusing on quality, hiring and training specialised teams for each project, and employing well-qualified professionals with strong IT skills, who are fluent in English. As companies like this grow, it may be possible that Hungary can offer a strong balance between Euro-pean quality and prices substantially below those of Western Europe.

the Czech Republic is another emerging LPO destina-tion. Its background in high-end IT and BPO make it a favourite for future KPO success. Several global BPO and LPO companies – including Infosys, EXL Service and Script Legal Services – already have delivery centres conducting a range of outsourced work in the country, and more are anticipated in the near future.

The Czech Republic is strong for language skills, with 70 per cent of the population believed to speak at least one foreign language, often English. For this reason, the country is a favourable destination not only for English-language LPO, but also work that involves the use of several European languages. Although the country has a robust legal profession, lawyers even in high-end firms tend to come rela-tively cheap, which, alongside rents a fifth of the cost of London and favourable tax rates, makes the Czech Republic a financially attractive option for outsourced legal services.

While Eastern Europe is still an emerging market for LPO, there are hints of some new contenders.

Bulgaria, which is already established in IT out-sourcing, offers a couple of LPO providers. ukraine, too, may branch into international outsourcing. There is already a market for niche outsourcing centres to provide legal services to big Ukrainian law firms and in-house counsel. As the market for Eastern European LPO develops, it is possible that these LPO providers could begin to cater for interna-tional clients.

There are a number of factors suggesting that Poland, too, is favourably situated to enter the LPO market. By far the largest country in Central and Eastern Europe, it has a large pool of potential

workers, many of whom are appropriately qualified. Krakow boasts seven universities, producing many young lawyers. Additionally, half of all students in the country are believed to be fluent in English, with most others also having some proficiency in the lan-guage. Poland can therefore offer a potentially large and talented pool of workers to LPO. The country has shown its capabilities for outsourcing through the number of BPO and shared services ventures that have already been established there. Furthermore, Poland is economically and politically stable, with a modern telecommunications infrastructure.

Since LPO is only beginning to take hold in Eastern Europe, it is difficult to predict how influen-tial this market could become. Yet with its nearshore ability to provide cost-effectiveness alongside quality Eastern Europe could become more attractive.

ChinaChina is likely to emerge as an increasingly fea-sible LPO destination as outsourcing makes subtle changes to the culture and practice of the interna-tional legal profession.

As LPO increases the globalisation of the legal profession, with lawyers from around the world working on the same cases and projects, traditional barriers of language and international legal differ-ences will become less relevant, causing China to appear less ‘different’ to its LPO rivals.

Additionally, as LPO furthers the commoditisation of law, with projects being broken down into smaller tasks and processes, China’s strong background in the IT and manufacturing industries and approach to international business will allow it to efficiently and cheaply offer legal services.

As yet there are comparatively few Chinese LPOs. Where there are companies offering legal services, these have usually sprung out of a knowledge pro-cess outsourcing department at a larger BPO or IT outsourcing company. It is in the fields of business and technology that China’s outsourcing industry is currently focused, although expansion into LPO is foreseeable. China has consistently ranked second in the AT Kearney GSLI, providing high-quality out-sourced services at low prices.

The traditional impairments to China’s expansion into LPO are perceived as linguistic, cultural and legal differences. Certainly, China may seem much more alien than India, sharing substantially less culture and history with the UK. This is reflected in legal differences – China has a civil law system not influenced by British common law – as well as a per-ceived weakness in English language skills.

These weaknesses are being addressed. China is currently estimated to have 10 million English speakers (less than one per cent of the population), but government measures with the intention of increasing fluency in English are frequently unveiled. For example, in 2010 the government made it com-pulsory for schools to start teaching English at kin-

59


HotsPots: Northern Ireland and The Republic of Ireland

dergarten level, with many children expected to be fluent by the age of 10. As this generation grows up, lawyers will have increasingly better English skills. Although China’s legal system is different to former commonwealth nations, this does not mean Chinese lawyers are unfamiliar with British law. Significant numbers of Chinese lawyers study at top UK and US universities, consequently developing not only an understanding of these legal systems, but a good degree of fluency in the English language.

If certain historic obstacles can be overcome, and China’s LPO potential can be advertised more effectively, China has several advantages that it can offer to international lawyers. Workers at Chinese BPOs often speak not only Chinese and English, but also Japanese and Korean, potentially enabling the outsourcing of legal work concerning several Asian and English-speaking nations. The nation also has a strong history of research & development skills, necessary for its prevalence in the manufacturing industry, which are transferable into an excellent platform for KPO services including LPO.

The cost of outsourcing to China is highly competi-tive. Chinese lawyers of all levels earn significantly less than their British or American counterparts. Entry-level BPO employees earn the equivalent of $300 a month, roughly 10 per cent of the salary of an American worker. Additionally, in the urban centres where LPOs would be situated, China has an excellent infrastructure. Continued investment in the nation’s transport links, particularly railway, has enabled the establishment of a strong physical network, alongside a modern IT and telecommunications infrastructure.

northern Ireland Northern Ireland can offer UK clients an advanta-geous balance between the benefits of keeping work onshore and the low price of offshoring.

Outsourcing to Belfast entails a host of advantages unique to keeping legal services in the UK: there are no linguistic or cultural obstacles, the legal system is extremely similar, travel is cheap and quick, and currency and infrastructure are the same. UK-spe-cific advantages are especially important given the tendency of offshore LPOs to cater to a US market in their operations, potentially alienating UK clients.

In 2011, two big law firms established delivery centres in Belfast. Allen & Overy outsources the majority of its business support work, along with some legal tasks, and Herbert Smith outsources the high-volume document review associated with dis-pute resolution. While as yet it is mostly only big law firms and companies (such as Citigroup) that have outsourced to Northern Ireland, given the success of these ventures and the potential of the market, LPO is likely to expand into smaller firms and specific LPO companies.

The primary benefit for UK lawyers outsourcing to Northern Ireland is that they retain the quality that they would have if the work was kept in-house.

The background against which Northern Irish LPOs operate is essentially of the same quality as in London – for example in terms of infrastructure – and cheap and efficient flights to Belfast from most major English cities allow the supervision of Northern Irish operations to be implemented easily.

Most notably, however, it is the skill of the work-force that ensures the quality of LPO to Northern Ireland. Belfast boasts a surplus of high-calibre grad-uates – the city’s two law schools are both ranked within the UK’s top 15, immersing students in a law very similar to that of England and Wales. Addition-ally, with more than three times as many law stu-dents graduating each year than there are graduate places in law firms, Belfast has a significant number of skilled young lawyers looking for work.

While Northern Ireland obviously cannot rival the costs of LPO in India or the Philippines, it is still substantially cheaper than keeping work in London, or even other parts of the UK. Salaries in Northern Ireland are 20-40% less than in the rest of the UK, or the Republic of Ireland, and property prices are also substantially lower. Northern Ireland is also keen to promote its LPO industry, offering financial rewards to companies that further it. Allen & Overy was granted £2.5m in public funding from Invest Northern Ireland for the creation of 300 jobs, and Herbert Smith was given £208,000.

The success of outsourcing to Northern Ireland appears likely to trigger LPO in other UK locations that can offer cheaper prices than the capital.

Scottish Development International is promoting Scotland as an LPO destination to big London firms, LPO providers and companies with in-house legal teams in a move that was directly inspired by Bel-fast’s success. This follows a trend of other UK areas being established as outsourcing centres, as in the increasing trend of ‘northshoring’.

In January 2012 Integreon also tapped into the potential of onshoring, opening a delivery centre in Bristol. This allows the firm to offer London clients a range of near and distant LPO locations, providing a flexible way of adapting projects for optimal cost and quality. Although onshoring in the UK usually only generates half the savings of offshoring, like sending legal work to Northern Ireland, it is an option that secures high-quality work without causing ethical qualms for management.

Republic of IrelandThere has, as yet, been only limited interest in legal process outsourcing to the Republic of Ireland, with some small companies offering LPO on a relatively ad-hoc basis. However, with a strong background in business process outsourcing – especially at the high-end, high-skill end of the spectrum – the country seems poised to enter the LPO market. Dublin, in particular, is known for its young and well-educated population, and Cork and Kilkenny are also active in the outsourcing industry.

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HotsPots: South Africa

Like its northern neighbour, the Republic of Ireland can offer a variety of ‘nearshore’ advantages to UK clients. The two countries share a time zone, language and culture, making communication and shared work easy. Additionally, travel to and from Ireland is straightforward: between London and Dublin there are over 300 flights a week, lasting just over an hour, often at low prices. Furthermore, the Republic of Ire-land has an excellent infrastructure, with the techno-logical and telecommunications systems necessary to support international work.

The Republic of Ireland has a strong background in knowledge-based BPO and IT outsourcing. A Global Services 2009 report placed Dublin fifth of 50 cities worldwide for outsourcing – the only non-Asian city to make the top eight – and Cork among the top-10 aspirants. Irish BPO companies have suc-cessfully made the transition into knowledge process outsourcing, being already established in high-skill areas such as the outsourcing of health research.

The demand for Irish BPO is also increasing, with the market growing at 10-20 per cent a year, and an annual turnover of €250m. Given the confident grounding in outsourcing of many Irish companies and professionals, full-on expansion into LPO seems likely to gradually occur.

Many Irish cities, especially Dublin, already have an appropriate body of legal professionals for LPO work. While the industry has ultimately limited scalability, due to the fairly small population of the Republic of Ireland (certainly when compared to places like India), there is a surplus of trained lawyers.

Dublin’s population is renowned for being young, skilled and well-educated, and the city’s economy predominately relies upon the services industry. Additionally, it was reported in March 2011 that the number of practising solicitors in Ireland increased in 2011 despite cuts to jobs in the profession. The Law Society of Ireland estimates that there are at least 1,200 unemployed lawyers in the country.

The Republic of Ireland therefore has a significant number of professionals that could potentially be employed by LPOs. They are also trained in a law extremely similar to British common law, at univer-sities that are internationally respected.

Concerns have been raised that the Republic of Ire-land is too expensive to offer an incentive to lawyers seeking to outsource work. However, the country was very badly affected by the global financial crisis, which has lowered prices for those seeking to invest.

For example, although in 2008 real estate company CBRE found office space in Dublin the 12th most expensive in the world, Dublin now does not rank in the top 50. A property crash means the costs of set-ting up office in Ireland are relatively low. Although labour costs are significantly more expensive than in certain other LPO destinations, they are still favourable when compared with the cost of London workers. Additionally, pro-business government poli-cies and a favourable tax regime – including only 12.5 per cent corporate tax – ensure that there are eco-nomic benefits to outsourcing to Ireland.

south AfricaSouth Africa is continuing to grow as a major player in the LPO market. Alongside several South African companies specialising in LPO, international com-pany Exigent has a delivery centre in Cape Town that has attracted major UK law firms including Lovells, Pinsent Masons, Eversheds and Clarke Willmott.

A strong affinity with UK culture is behind South Africa’s flourishing LPO industry. The country shares aspects of Britain’s legal system, with a law based on English common law alongside aspects of the Roman-Dutch civil system. It also has a strong legal education process, producing graduates capable of providing skilled legal work. Additionally, South Africa can offer good language skills. Although Eng-lish is only one of 11 official languages, it is the lan-guage of law, politics, business, media, and, usually, education. Some 45 per cent of the population are believed to have a speaking knowledge of English.

South Africa’s government is keen to further advance the rapid development of BPO and LPO in the nation. Consequently, South Africa has several government-backed measures similar to those which have secured India’s prevalence in the industry. Low costs and good tax rates – with pay-roll tax at merely 2 per cent – ensure that the price of LPO in South Africa is competitive. There is also a national association, Business Process enabling South Africa, dedicated to providing a network for BPO professionals.

South Africa is widely believed to have the most stable political and economic environment in Africa. This is attested by figures released by the World Eco-nomic Forum, which in 2011 placed South Africa as second worldwide for soundness of banks, and third for availability of financial services. The country is also believed to have first world standard data pro-tection laws and legal governance framework. South Africa has a modern infrastructure unrivalled by other African nations: hosting the 2010 FIFA World Cup triggered the upgrading of the country’s air-ports, roads and rail connections, and the infrastruc-ture continues to be supported by investments and government backing.

While South Africa cannot offer the low prices of some Asian LPOs, it is a much cheaper outsourcing destination than keeping legal work onshore. The average salary of a South African graduate or paralegal is less than half that of a UK worker. The highly skilled nature of South Africa’s LPO workers also offers some advantage over those in other countries. The potential growth of LPO in South Africa is however stunted by the relatively small number of qualified workers. For example, while South Africa has roughly 20,000 law-yers, India has more than a million.

South Africa is an increasingly popular destination for LPO, particularly for UK clients seeking to take advantage of their cultural, linguistic and legal affinity with the nation, as well as minimal time difference.

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