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Understanding the Business Model for Legal Process Outsourcing

Even before the significant regression of the economy in late 2008 and into 2009, clients were putting pressure on firms to cut billings. The economic struggles over the last four years have only heightened that pressure from clients. Ultimately clients’ demand for reduced fees expedited a trend that has been occurring over the last decade. Primarily, the outsourcing of certain tasks and projects to outside support firms. Identified as either Non-firm firms (NFF) or Legal Process Outsourcing (LPO) providers, firms are looking to subcontract transactional and process oriented tasks.

The outsourcing of particular non-legal tasks is providing substantial savings to traditional firms. This savings, in turn, can be passed on to clients. Rather than billing $300-$500 per hour to have an associate review thousands of documents, research medical records, or manage contract preparations, a firm can outsource this work at a significantly reduced fees. While the reduction of costs have been principally driven by client demands, the benefits have been significant for law firms and in-house counsel alike.

As eloquently outlined in the diagram presented by Nikhil Lala and Michael Caplan at Inside Counsel, the business model concept of legal process outsourcing is simple. Outside counsel are traditionally used for legal tasks requiring the highest level of specialization. Any given corporate general counsel is tasked with protecting the corporation’s legal interests on all fronts. She knows the company inside and out, always aiming to reduce risk, expense, and exposure posed by looming legal issues. At times, however, a specialist is needed. For instance in bankruptcy scenarios or with particular intellectual property issues, a general counsel may require advice from a legal expert in the field. These are the scenarios when in-house lawyers will call upon outside counsel.

However, there are tasks that a general counsel may want to outsource that do not require the specialized knowledge of outside counsel, (or the heightened fees). These are typically tasks that are continually repeated throughout the course of business and require little to no specialized knowledge. These tasks may include billing, e-discovery, document tracking and filing, medical or legal research, contract tracking or filing, secretarial services, or discovery and negotiation support. Hiring outside counsel for these tasks becomes costly and unnecessary. As a result, groups are looking for support from LPO providers. Partnering with an outside group to support traditional and repeatable legal tasks is all but mandatory to be successful in today’s legal world.

As legal budgets continue to be cut, LPO providers offer significant support. Understanding the business model and when to outsource work is critical. The time-savings allow for increased efficiency by in-house counsel. The cost-savings allow for ease on the current budget constraints. Whether it’s outsourcing cumbersome tasks so the internal legal team can focus on more complex work, or clearing time in the day to finally get to the “wish list,” LPO providers are being utilized more now than ever. Effective corporate counsel and law firms must understand the business model and where there are opportunities to utilize an outsourcing partner. After all, clients are demanding it.