Growing international pressure has led some of Australia's largest law firms to take their first tentative steps towards outsourcing legal services - though few are willing to talk about it. Angela Priestley reveals why LPO can no longer be ignored

Legal process outsourcing has, for a number of years now, been at the centre of game-changing developments regarding the delivery of legal services worldwide.

But locally, law firms have simply watched from the sidelines as their international counterparts commenced three-way relationships with clients and LPO providers.

All that is about to change, according to a number of LPO providers who claim that some of Australia's largest law firms are currently carrying out due diligence of LPO facilities both onshore and offshore - despite their unwillingness to discuss these investigations.

The change is being led by clients as well as the lessons learned from overseas - most notably, that of Magic Circle firm Slaughter & May, which proved that if a firm doesn't take the initiative to offer LPO solutions to clients, it may find itself in a difficult situation when clients themselves approach LPO providers.

Mounting pressure

The global LPO market has come a long way since suppliers of business process outsourcing (BPO) discovered the potential to get legally trained individuals into processing centres to assist with low-level legal tasks such as discovery, certain types of drafting, legal research and document review.

LPO providers initially started presenting their services to clients and law firms in the late 1990s, promising hourly rates at a fraction of those being charged in large law firms. It was a tough sell: law firms and their clients alike needed to be convinced that the confidentiality, security and quality of their work could be assured.

Then the global financial crisis hit. With the pressure mounting on legal departments to reduce their external legal spend, general counsel looked to their firms to offer solutions for reducing hourly billing rates - especially regarding the work usually reserved for junior-level lawyers.

And law firms had few choices but to respond. Consequently, a number of the UK's Magic Circle firms, and some of the largest law firms in the US, invested significantly in relationships with LPO providers in an effort to curb costs and present clients with cost-saving options (see box).

Meanwhile, if clients found that firms were ignoring their interest in an LPO option, they simply bypassed the law firm altogether and went to an LPO provider direct.

In 2009, Rio Tinto did just that. The mining giant declared it would outsource the bulk of its in-house legal work to India via an arrangement with CPA Global in a bid to cut its annual legal bill by 20 per cent.

At the time, Richard Susskind, author of The End of Lawyers, wrote that given significant parts of the legal work surrounding transactions and disputes are repetitive and routine, "in-house lawyers will be delighted that these can be packaged out to less costly providers".

"They're having a look at our centres, they're meeting our people, they're getting an understanding of the way we operate and an understanding of our processes and procedures while also meeting our talent."

Nicola Stott, Director, LPO provider Exigent

The delight has seen demand for LPO grow and consolidation of the global LPO market occur. Market analyst Ovum reported last year that the LPO industry is "set for significant growth over the next few years", despite being seven or eight years behind the general BPO industry.

Recently, the true impact of LPO on the global legal services market was highlighted when legal publisher Thomson Reuters purchased India-based Pangea3, an LPO provider with more than 650 lawyers.

Early mutterings

LPO providers have long enjoyed growth in legal markets overseas, but interest from Australian law firms and clients has only really developed over the past six months, according to Nicola Stott, a director of LPO provider Exigent.

Later this month, Stott says she'll take a number of "top 10 law firms" on a due diligence trip of one of her LPO centres in Cape Town, South Africa. "They're having a look at our centres," she says. "They're meeting our people, they're getting an understanding of the way we operate and an understanding of our processes and procedures while also meeting our talent."

But Stott is tight-lipped about which firms will be participating. "They won't let me talk to you guys!"

She says it wasn't long ago that she faced similar levels of secrecy in London. "But then it became the norm in the UK and, when the GFC hit, everyone was just under such cost pressures that the press occurring in the UK around outsourcing went bananas," she says.

So why the sudden interest from Australian law firms in exploring LPO options? "I think law firms here are being approached by their corporate clients to look at this as an option and to offer it as part of the toolkit of services," says Stott.

Michael Bell, the director of Fronterion, an LPO consultancy based in the United States, confirms this. "We had a recent engagement with a major Australian law firm, so this is definitely on the radar for the larger players in the market," he says.

Bell believes Australian firms may simply find they have few choices but to take an interest in LPO. "The international firms in Australia are competing with the international firms based in the US and the UK for their international client base, so it's a trickle-down thing where major firms in Australia are [now] enquiring about LPO services."

The conversation gets louder

While many of Australia's largest law firms are still not ready to talk about their ambitions to develop relationships with LPO providers, there are some exceptions to the rule.

Blake Dawson has declared that it is discussing outsourcing with clients after developing a new relationship with CPA Global. It wasn't an easy transition. When partner Tony Denholder spoke about the new relationship at the ACLA National Conference late last year, he himself conceded that just months prior to carrying out due diligence of the CPA Base in India, he could never have imagined outsourcing legal work.

"I had low expectations," he said at the time. "I seriously thought that having had bad experiences with call centres, that this would be a glorified call centre," he said.

But that wasn't the case. Instead, Denholder said he met a number of highly qualified and experienced Delhi-based lawyers, which consequently led to Blake Dawson agreeing to develop a three-way relationship with existing client Rio Tinto and CPA.

Advent Lawyers has also expressed interest in LPO via a partnership with Pangea3. According to the firm's managing director, John Knox, the move - announced halfway through last year - has not seen significant movement in the Australian market by clients immediately taking up LPO, but he says it has resulted in numerous discussions about the potential of LPO.

"People don't all of the sudden say, 'We're going to put all our work offshore.' It's an education process, where clients have to see the opportunities." The pace of educating, says Knox, depends on the client and how much transition they'll have to go through internally, especially in determining how they will physically manage the outsourced relationship.

"Some of those discussions move quickly, some have been going for nine months. It might be that they're running pilots to see how it would work... It's less about how Advent and Pangea3 are going to be able to handle the delivery of services and more about how the clients will resource and handle [the outsourcing work] internally."

Silence no option

In a global study undertaken by Exigent last year, 57 per cent of clients declared that their LPO questions for law firms would inform future decisions regarding the purchasing of legal services. A further 39 per cent said they were still undecided, while just four per cent reported that LPO-related questions would not impact informing future purchasing decisions.

Clearly, clients see the potential in LPO and are expecting their law firms to give some consideration to outsourcing solutions - if not immediately, then in the near future.

For now, though, legal process outsourcing remains the elephant in the room. With time, the conversation regarding LPO between clients, law firms and LPO providers - or at least between clients and LPO providers that choose to bypass law firms altogether - will finally get under way.

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