The current macroeconomic environment has thrown up several interesting examples of cost cutting by law firms across the globe. In the spirit of their new found fiscal discipline, firms have axed Christmas parties, made communal chockie biscuits contraband, put an end to partner washrooms stocked with lush 40-ply toilet paper, and of course, laid off countless lawyers- all consequences of the need to decrease overhead costs and keep profit margins fat and balance sheets healthy.
It is against this maelstrom of cost cutting that legal outsourcing, also known as legal process outsourcing (LPO) has again risen to prominence as a means to not only slice operating costs, but to keep clients happy in the saddest of economic times. And while the latter may just be good PR sense, some have serious doubts as to whether firms engaged in LPO will actually see any tangible savings much less be able to pass these on to their clients.
The savings smoke and mirror
What makes LPO so appealing to firms such as Clifford Chance, Eversheds and others who dabble in offshoring work to places such as India and Israel- first and foremost- is that it presents a way to greatly reduce costs and even create work for the firm which is not normally done ? things such as contract reviews and the like.
The average annual salary for an Indian professional engaged in LPO work starts at around US$6000 per annum, with charge out rates at only US$30p/h. Add to this the overhead costs such as office rents and the like that UK and US firms escape by sending work offshore, and the financial merits involved become quite clear.
But as Wendy Gross, partner at McCarthy T‚trault, told Lexpert Magazine beneath the facade of spectacular savings there are plenty of other factors that need to be considered. "On its face, the hourly rates and the unit price are lower, but you have to factor in the additional costs of managing your service provider, and in the context of legal services you can't just take those and flow them through directly to your client."
Other sources close to ALB agree. "The costs associated with outsourcing legal work to places like India may not be as small as some may think. If this is the case, then how much of a saving that firms can actually pass on their clients may be debatable- will they actually save their clients anything? Savings may be negligible."
But while firms should not expect the savings from LPO to go through the roof, many expect the goodwill that this process will create will be as good as money in the bank. ALB's source explains, "the PR that some firms can build off of this could be enormous. I think that clients only want to hear one thing in the down times: how their lawyer is saving them money?"
In addition, the complexities involved in LPO may prove to be something of a headache for law firms considering outsourcing. Law society rules in home jurisdictions, restrictions on who can do legal work and the types of work they can do, conflicts, confidentiality, privilege and privacy are all important considerations. Quality control issues also loom large, not to mention the fact that LPO may actually
cut out a vital link in the accountability chain.
But where the whole LPO model fits into the broader fiscal strategies of law firms is another point of contention, most notably, in relation to how the tensions between the want of law firms to increase profits and their current need to reduce them are reconciled.
"In most law firms, the objective isn't to reduce costs; the objective is to increase costs as much as possible," a source close to ALB said. "Lawyers want to increase the amount of work being done, and increase the fees wherever they can get away it," the source says, implying that LPO may just be a stop-gap solution during the economic downturn.
Hot air
Even so, lawyers interviewed by ALB questioned whether LPO was being used as extensively by international law firms as media reports suggest. Hence, while the media claims that the likes of Clifford Chance and Eversheds are outsourcing everything from conveyancing and accident claims to due diligence investigations and patent work to Indian outsourcing outfits, lawyers like Som Mandal, managing partner of FoxMandal Little, says the firms doing the outsourcing may be indulging in a little bit of exaggeration.
"The assertion that firms [who outsource work] are sending all low-end work to India is just hot air," he says, noting that by far the largest exponents of LPO have, and always will be, multi-national corporations (MNCs).
Indeed, a cursory glance at some of the major LPO players seems to indicate as much. SDD Global Solutions, the affiliate arm of New York-based law firm SmithDehn is one such firm. According to SDD?s president and chairman, Russell Smith, the majority of its work comes from in-house legal teams rather than referral from the monolithic UK and US law firms.
SDD is by no means an isolated case. Other LPO operators in India such as LexOrbis, New Galaxy Partners, United Lex, ATI Advocats, LEX, and InFosys LPO all note that the bulk of their work comes from foreign conglomerates and domestic companies looking to slash legal bills rather than law firms overseas.
Says the founder at one of India's largest LPO operations: "We expected to receive a lot of work from international firms in the UK, but nothing much has materialised. Our work really comes from MNCs who are under more pressure to cut costs in the current environment."
Pigeon-holing India
The effects that the growth of the LPO sector will have on the complexion of the broader Indian legal services market have not been the source of much debate, but is nonetheless important as the country hurtles towards legal market liberalisation.
However, it is a debate that needs to be had, according to sources close to ALB. "The ramifications of LPO for the Indian legal market could be quite interesting, but we really need to talk about what, if any effect, it will have on the market," says Mandal.
Other Indian lawyers agree. "LPO may create a three- or even four-tier legal market in India you may have corporate law firms, possibly, international firms, specialist firms and then LPO outfits. This isn't entirely bad, but may result in overcrowding."
Overcrowding may just be the panacea to the country's oversupply of lawyers. The Bar Council of India notes that Indian universities graduate nearly 80,000 lawyers per year- a number which does not take into account those who study at overseas universities and return in search of work. Statistics indicate that of these fresh graduates, only 42% find gainful employment as lawyers in India with others having
to content themselves with jobs in the country's booming services and IT sectors.
But the question still remains- what risk is there of India being pigeon-holed as the home of mass-produced low-end legal grunt work, similar to the infamy of the country's call-centres? "These claims are without basis," says Saurabh Misra of Paras Kuhad & Associates.
"With the continuing interest of so many foreign companies to do business in India, this pigeon-holed issue doesn't arise at all," he says, also refuting claims that LPO will affect standards in the Indian market.