LEGAL PROCESS OFFSHORING 2016
Legal Process Offshoring (LPO) refers specifically to Legal Process Outsourcing work that is sent to countries outside the United States. Although the two terms are often used interchangeably in the literature, LPO as used in this article will refer specifically to legal work outsourced overseas.
HISTORIC GROWTH
In the 90’s and early 2000’s when LPO was first coming into play as a viable means to reduce legal costs by law firms and corporations, there were various predictions of the amount of growth of the LPO sector would grow in the future. In a July 2007 report from ValueNotes, LPO revenues were expected to rise from $146 million in 2006 to $640 million by 2010. In a 2013 article in Inside Counsel, author Bill Moore quotes the LPO Program a consulting firm in New York that the value of the global LPO sector has reached over $1 billion dollars. My attempts to verify that figure were unsuccessful, but it seems clear at least from anecdotal information that the use of LPO does continue to grow.
LPO USER FEEDBACK
There have been testimonials over the years from companies that have used LPO and found its use to significantly reduce costs in the legal area. Dupont and Motorola were a couple of the early converts, and more recently Microsoft have all sung the praises of cost reductions/efficiencies realized through the use of LPO. In a series of articles in Inside Counsel in 2014, then Microsoft AGC Jeff Ranck detailed how Microsoft was able to triple its patent filings through the use of a third-party LPO without increasing its headcount. So, whether the revenue attributed to the LPO sector is as high as speculated, it is clear that those who use LPO are finding it worthwhile from a business perspective.
2016 TRENDS
Nonetheless, a couple of recent surveys indicate that the bloom may be off the rose in terms of LPO growth. The 2015 Chief [Corporate] Legal Officer (CLO) Survey by Altman Weil, Inc., who have been producing these surveys since 2000, indicates that 40% of respondents will be reducing their spending on outside counsel in 2016. Conventional logic from the LPO world would be that much of this decrease would be allocated to a greater use of LPO. However, 76% of the respondents indicated that the dollars saved from spending on outside counsel would be spent on beefing up their in-house legal staff. Only 23% of the respondents saw the savings going to non-law firm vendors or other contract attorneys. Although the respondents were not specifically asked about the use of LPO, if it is being used, it would show up in that 23% number.
Similar finding were reported in another CLO survey at the end of 2015 by the Association of Corporate Counsels (ACC). They also found that 37% of respondents increased their in-house staff last year and 14% made significant increases to their staff (greater than 10%). Looking ahead, 41% of the CLO’s who anticipated a 10% decrease in their outside budget would also decrease outsourcing their legal work. 18% of those plan to increase their in-house staff. Once again, although it seems counterintuitive, many CLO’s are building up their in house staff rather than achieving savings through LPO.
DIVERGENT TRENDS?
Based on the foregoing it appears we are faced with two separate trends going in opposite directions. LPO revenues continue to climb, yet CLO’s are reporting less outsourcing and more beefing up of their in-house staff. Can both be true? Although it seems obvious, as in the Microsoft example, that large companies continue to find that utilizing LPO provides them with significant cost savings, either by increasing the amount of work completed without increasing headcount or by completing that work using lower paid labor. It must also be true that many companies are simply not willing to go in that direction.
What seems to be lacking is solid, comprehensive data on the current dollar amount of LPO work, and who is using LPO. We have some anecdotal evidence from some large companies about the benefits of LPO from their experience, but we do not have data on medium size or smaller law firms that may be using LPO. After all, smaller firms, particularly IP firms, could be the ones who benefit most from using LPO for work overloads, or to be able to handle additional business without the necessity of hiring additional staff. If any of this data exists, I would greatly appreciate feedback from readers.
In the interests of brevity I did not include citations for the information contained in this article. Anyone who is interested can request the same from me and it will be provided.
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