Companies have been outsourcing services for decades, so it’s no surprise that those companies’ in-house legal departments are following suit by increasingly outsourcing legal work, a practice commonly known as legal process outsourcing (“LPO”).
LPO was picking up serious steam before COVID-19, with the market for legal outsourcing companies already at $8 billion in 2020. It is now projected to surpass $30 billion by 2027.
With LPO becoming more common among in-house legal departments, you might be wondering what exactly legal process outsourcing looks like these days, particularly if your in-house legal team is contemplating handing off some day-to-day responsibilities to legal outsourcing companies.
Here's an overview of what's happening with LPO today, and where we see it going in the coming years.
What is Legal Outsourcing?
Before we go any further, let’s be clear what we mean by legal process outsourcing. Like business process outsourcing, companies are more frequently looking to outsource certain legal tasks to service providers other than outside counsel to optimize costs and better serve their internal clients. This makes sense for several reasons, not the least of which is that outside law firms’ hourly rates continue to increase. Today, even some associates are billing more than $1,000 for an hour of their time.
To stay lean and mean, many in-house legal teams have turned to LPO, allowing them to slash expenses while retaining the high quality of legal counsel their internal clients expect from them.
Legal outsourcing spans national borders, having expanded to countries such as Australia, Argentina, China, Canada, India, the Philippines, and beyond. Today, an in-house legal team in one part of the world can find a legal outsourcing department wherever they need it. Sometimes, an in-house legal team might require assistance with understanding regional law or with linguistic capabilities. Other times, a legal outsourcing department can provide much-needed administrative or technological assistance.
What Kinds of Legal Work are In-House Legal Teams Outsourcing?
In-house legal teams can outsource much of the work that normally falls on their plates that requires time and resources they simply don’t have. For example, in eDiscovery, document review and production can take significant resources, which is why traditionally in-house legal teams and even their outside law firms have relied on outside vendors to handle those tasks.
Contract drafting is one type of commonly outsourced legal service, and it is forecasted to grow. Service providers can draft contracts that cover licensing, financing, procurement, etc.—while tailoring them to the specified obligations and rights of the parties involved.
More high-risk outsourced services include litigation support, support for transactions overseas, issues of high public interest, and regulatory matters. For companies working in multiple jurisdictions around the world, relying on the expertise of local lawyers may be the best way to ensure an in-house legal team stays abreast of local legal developments and doesn’t run afoul of local legal customs that could get in the way of efficiently resolving legal issues.
As globalization continues to expand, it is likely we will see more of this kind of LPO.
Litigation-related tasks, such as voluminous data entry, document discovery and management, and legal research, are often outsourced. These can be handled by an outside law firm or an eDiscovery vendor, but it won’t be cheap—and, too frequently, it isn't fast or efficient either. With the right technology, some of these tasks can actually be automated for a fraction of what it would cost to outsource them.
The Benefits of Legal Outsourcing Services
LPO might seem reserved for only the largest in-house legal departments at the largest corporations. But it can be a boon to legal departments of all sizes. Because scaling an in-house legal team is easier with outside providers, small and medium-sized enterprises can rely on outside service providers and technology solutions to help them resolve their companies’ legal issues as their companies—and eventually, their legal needs—continue to grow.
When you use outside service providers to tackle some of your in-house legal team’s to-do list, you can expect to see the following benefits:
The most obvious benefit is that services that are outsourced—domestically or internationally—are significantly cheaper than when they’re performed by an outside law firm. LPO can be a way for you and your colleagues to keep your staffing and overhead costs low while still providing your internal clients with high-quality services at a cost that won’t make your accounting colleagues cry.
However, you need to be strategic about the type of work that you outsource so that the promised cost savings don’t end up turning into a broken budget.
Access to Talent & Expertise
You can’t be all things to all your business units all the time. But you can supplement your in-house legal team’s knowledge and abilities by relying on legal outsourcing companies.
You can partner with service providers who have technical expertise in specific areas of the law, or the globe, that your colleagues need legal assistance with. In countries such as India, you can hire high-quality legal professionals for a fraction of the cost you would pay if you were hiring domestically. Also, this is a less risky way to hire. If you are looking to expand your team, you can even “try before you buy” with remote freelance workers before extending an offer to a would-be permanent staffer.
With this increased access to talent and expertise comes the flexibility for in-house legal teams to outsource less-demanding tasks that stand in the way of them focusing on tasks related to their company’s core business and legal issues that only they are truly qualified to handle.
A Shorter Turnaround Time
Because many service providers are located across the globe, it’s possible to shorten delivery times. As U.S.-based in-house legal teams go to sleep (hopefully!), workers in India, Singapore and the Philippines go to work. The time difference means no time is wasted.
The Disadvantages of Legal Process Outsourcing
LPO isn’t all sunshine and rainbows. You should be aware of issues that might come up when your legal team outsources some of its legal work.
Security & Confidentiality
Breach of confidentiality is one of the leading concerns in-house legal teams have when it comes to using legal outsourcing companies. Some jurisdictions may have different requirements for protecting privileged or confidential information than your jurisdiction.
The American Bar Association, along with local U.S. bar associations, is making it easier for law firms to rely on LPO through favorable ethics opinions, but there will always be concerns over confidentiality and ethical standards when any legal work is performed by people outside of your legal team.
Language and Cultural Barriers
For work to flow smoothly, communication is key. This may be disrupted by language issues and cultural differences, resulting in misunderstandings and delays. From local customs to a different work ethic, outsourcing comes with its own set of challenges you may have to overcome—or at least acknowledge—before you engage a legal outsourcing company.
Some in-house legal departments shy away from LPO because of the hidden costs baked into legal outsourcing services. For example, eDiscovery vendors might include some features in a particular package, but conveniently leave out the fact that additional desirable features or services—some of which overlap with the included features—require an additional investment. Or, those vendors might bill things like “hosting fees” even when a company’s stored data takes up a relatively small portion of ultra-cheap digital space.
An Alternative to Legal Outsourcing: Bringing More Work In-House with Technology
The legal tech industry is booming. Last year alone, legal tech companies received more than $1 billion in venture capital investments for the first time in history.
This means more legal tech companies are introducing more technology-driven solutions that can help in-house legal teams get more work done in less time and more affordably than when that work is performed by an outside law firm or legal outsourcing company. As a result, in-house legal teams now have even more considerations to take into account when deciding which tasks to outsource and which to handle in-house.
With an increasing number of legal tech solutions available to them, the future of legal outsourcing for in-house legal departments will likely be driven by whether they can find particular legal tech tools to help them tackle in-house the kinds of tasks they would previously have outsourced to a legal outsourcing company.
When available technology is demonstrably more effective and efficient, and costs lower than a legal outsourcing company, most in-house teams are likely to adopt it or at least give it a trial run.
That begs the question: What kinds of tasks that in-house legal departments outsource could technology complete more effectively and efficiently, and at less cost? The short answer is “many.”
But every in-house legal department will need to determine, given the nature, frequency, and scale of those tasks and how their departments tend to approach those tasks, which option—outsourcing or handling in-house with technology—suits them and those tasks best.
For example, data entry and management tasks, given their very nature, are probably best handled by a legal outsourcing company because, not all the data being entered exists in digital form.
Other tasks, like reviewing a company’s contracts for similar or conflicting terms, or streamlining edits to boilerplate paragraphs, might be closer calls. There are plenty of legal tech companies focused on contract management. But for some companies, they might not yet have powerful enough offerings that can replace the contract management services provided by a legal outsourcing department. Or, some legal teams might not have the volume of contracts that justifies using a technological solution.
And then there are certain tasks that are no-brainers for handling in-house with the help of technology. Many of these tasks fall under the eDiscovery umbrella. From issuing legal holds, to collecting relevant custodian and non-custodian data, to processing files, to data searching, to producing documents, the eDiscovery technology available to in-house legal departments today is light years ahead of what was available to them just a few short years ago. And it can easily outperform outside counsel and vendors for a fraction of the fees they’d charge.
With the rise of legal tech, combined with the cost associated with LPO and the control over the processes being outsourced that in-house legal teams have to surrender, we expect in-house legal teams to increasingly bring back in-house tasks they once outsourced.
Legal tech tools like Logikcull — in the case of eDiscovery —provide similar benefits to traditional LPO, but with more transparency and control over the process, and at a significantly lower cost and faster speed.