Scars from the Great Recession are still visible on the books of most major corporations, and it’s clear that a lot of in-house legal departments didn’t escape unscathed.
Large markups on billable hours, expensive associate resources and lack of cost oversight on the vendor’s behalf in many cases led to painful internal cuts, resulting in more work for internal legal resources that would otherwise have been outsourced to law firms. Lessons have been learned and are being applied. Legal departments are now focused on delivery and cost — and are becoming more educated shoppers when it comes to the external provision of legal services.
They have to be. Identifying the work to outsource is one thing, choosing who to outsource to is another. Providers of legal services outsourcing (LSO) — or legal process outsourcing (LPO) — are now plentiful, offering the services and cost that corporate clients are seeking. According to some sources, some 47 percent of companies outsource between 11 percent and 30 percent of their legal work to LPOs.
However, such providers can differ markedly in their capabilities, experience and the range and quality of their services. With in-house teams becoming more familiar with legal outsourcing and more discerning about the services they require, quality is increasingly the key differentiator when selecting an outsourcing partner. Providers have to demonstrate that quality can be maintained and even improved through outsourcing. Only well resourced, established players in the market who recruit and train the best talent are able to do this.
The alternative service solutions that have become available through LSO are freeing up more budgetary spend and internal resources for legal departments, enabling in-house legal teams to focus on more strategic work and utilize their external counsel for the high level work product expected from law firms.
As markets recover, companies are moving back into outsourcing mode, lessening the burden on internal resources and getting more work done. What has changed is the amount of money they are spending to accomplish this — as well as the range of services that are on offer and being taken up.
With the lessons learned from the last market slow-down, corporates are still tracking, managing and trimming their legal spend. During the recession, money was tight and costs needed to be lowered. Although companies are now able to spend more, they are still attracted to the LSO market and the cost incentives available. Companies are operating hybrid models, where work is distributed based on volume and cost. In this post-recession environment, LSOs do more large volume / low complexity work. Law firms are still used for the highly complex dealings. However, work is not doled out matter by matter, but rather each matter utilizes a series of service providers. Savvy clients recognize that this model works best for the purse and product. Corporate clients get more done and for less money and their internal team has more bandwidth to handle more important issues.
But it’s not all about cost savings. It’s about offering tangible solutions that help clients in a number of ways, including minimizing risk and resolving resourcing issues.
The expanded range of services being utilized on a regular basis includes document review, contract management, compliance, transaction and litigation support. The increased confidence in outsourcing providers is helped by the quality and experience amongst the leading players.
Proven improvements in efficiency have also been a major factor. Leading IP and legal support services providers have brought in latest project management processes and procedures to manage and organize high volume, large-scale projects — and to improve reporting and measurement. We have also been early adopters of technology solutions to increase efficiency and reduce costs for clients. For example, modern software tools allow for machine-assisted review of documents and contracts, thereby reducing the overall volume requiring manual review.
Leading LSO providers are steeped in cost management and delivery timetables. The timetables are helpful in giving legal departments an estimate on time to completion. Couple these estimates with fixed billable rates and, for the first time, legal departments are seeing budgets that can be tracked. The elusive fixed legal project pricing is closer to becoming a reality. Legal departments are able to see how many known projects can be completed by using LSO ‘live’ estimates — rather than waiting to see how much the bill is before starting subsequent projects.
There will always be a need for the highly skilled law firm attorney. However, the market is demonstrating that corporate clients don’t want them marking up documents with their high billing rates. They would rather use LSOs to do large volumes of work at reduced rates.
While the global legal market continues to grow, the United States legal market remains flat. Yet, according to the U.S. Department of Commerce, the U.S. LSO market is booming. LSO providers continue to see larger books of business from satisfied clients, who appreciate the work product and, especially, the price. Leading providers realize that project management, transparency and fixed cost are paramount in helping corporate clients prepare for the ebbs and flows of profitability. This focus will help to ensure their success and help cement LSO’s position as an established player in the legal industry.