As organisations increasingly opt to outsource back-office functions, Cameron Timmis looks at whether any will take the next radical step of outsourcing legal work

Outsourcing business functions offshore – where labour can be far cheaper – has proven an effective, if sometimes controversial, way for companies to cut costs. Now law firms are following suit: last month, Clifford Chance announced it was aiming to transfer 300 IT and financial jobs to India, as part of a £30 million cost-cutting drive (see [2006] Gazette, 5 October, 1). It follows the likes of Allen & Overy and Baker & McKenzie, which offshore back-office services to India and the Philippines respectively.

A more intriguing possibility is that law firms, or in-house legal departments, will choose to offshore legal work itself. In fact, this is already taking place, particularly in India, home to a number of new specialist legal services outsourcing companies.


While the scope of legal work that is being outsourced is currently fairly limited, and certainly not all outsourcing ventures have been successful, the signs are that it is gaining ground fast. The question is whether its effect will ultimately be beneficial – helping law firms to cut costs and become more competitive – or whether it will simply take legal jobs away from UK law firms.


It is no surprise that India is the favoured location for legal services outsourcing (also known as legal process outsourcing, or LPO). Already the low-cost outsourcing location of choice for many other industries, it also has another key attraction for law firms: a huge pool of common-law trained lawyers. Although estimates vary, some put the number of Indian lawyers at around 850,000, with around 300 law colleges producing 40,000 law graduates a year.


With Indian lawyers typically earning only 10% of the amount their UK or US counterparts are paid, the potential market for legal services outsourcing is huge. Research firm ValueNotes says that by 2010 legal services outsourcing in India will be a $650 million (£350 million) industry, employing 24,000 legal professionals.


Although as many as 50 companies in India now offer LPO, few specialise exclusively in the law. (Some of these are ‘captives’ of large companies, such as General Electric, which began outsourcing legal work to India in 2001.) However, in the past two years, a number of specialist LPO companies have emerged.


One is QuisLex. Founded in 2004 by Ram Vasudevan, a US lawyer born and educated in India, QuisLex has grown rapidly. It now has more than 100 lawyers in its office in Hyderabad and is looking to double in size every year. It is not a law firm, as Mr Vasudevan makes clear: its aim is to provide support services to law firms and in-house legal departments.


‘As it’s a similar legal system, we started with the idea that with the right emphasis on hiring and training, it should be possible for us do to basic legal work [for US and UK clients]’ – work that would be done by paralegals and junior lawyers, explains Mr Vasudevan. It currently covers five areas (‘solutions’): litigation support, contract review, contract management, legal research, and compliance for financial reporting, such as securities filings.


According to Mr Vasudevan, the average cost saving for clients who offshore this work will be around 50%, although he says this does not take into account ‘process efficiencies’ that can be gained, for example by exploiting the time difference.


Mr Vasudevan scoffs at the notion that QuisLex is taking legal jobs away from ‘onshore’ law firms and companies: ‘That’s a misplaced concern. If companies are trying to do this with a view of displacing UK or US lawyers, that’s wrong. It doesn’t work that way. We are helping UK and US lawyers function better. We are freeing up a lawyer’s time.’


Another leading firm based on a similar model is Pangea3, founded by David Perla, formerly general counsel of recruitment company Monster.com, and Sanjar Kamlani, previously general counsel of outsourcing company Office Tiger. Launched only last year with 13 staff, the company how has more than 120 employees and hopes to grow to be 1,000-strong within a few years.


Pangea3 primarily targets in-house legal departments of large companies, offering a range of corporate and litigation support services. It also offers intellectual property support services, including patent drafting, invalidity and infringement support. The scope of the services offered, says Mr Perla, ranges from simple, repetitive tasks to more complex, ‘judgement-dependent’ work, such as drafting and reviewing contracts.


Like QuisLex, Pangea3 promises huge cost savings to in-house legal departments. Most litigation clients can expect to save ‘easily 75%’, on their legal spend, up to 90% in some cases, he says. For reviewing and managing contracts, the figure is around 50%.


Mr Perla also refutes the suggestion that jobs will be lost as result of outsourcing: ‘You are not going to see a loss of jobs, but certain types of work will be handled in India. The people currently doing that work will migrate up to different types of work.’ Besides, he says, there is an ‘almost endless capacity to increase legal work’.


The workload of staff is part of the reason firms are beginning to look at this kind of outsourcing. Speaking at the recent International Bar Association annual conference, Tony King, head of HR development at Clifford Chance, explained that his firm has begun to look at outsourcing of lower-level legal work – whether domestically or offshore – in the context of ensuring that associates have a higher-quality workload that heightens their job satisfaction.


City firm Lovells has already been down this road with some success. Almost five years ago it launched Mexican-Wave, through which it handles the higher-grade work while managing the outsourcing of more routine work to a panel of four regional practices. It was the brainchild of head of real estate Bob Kidby in conjunction with major client the Prudential, for which it is about to handle its 5,000th matter through the scheme.


Mr Kidby says property work was the catalyst, although it is now used across the firm. Mexican-Wave recognised that ‘there are so many examples of property transactions that don’t require added value, but technical competence and speed’, which are far from the preserve of a big City firm. ‘It harnesses the people at this end to the work they should be doing,’ he adds – which is more profitable matters where they can add value. It also provides ‘more honesty’ with the client.


As well as specialist LPO companies, Indian law firms themselves have begun to look at the potential market in offshore legal services. ALMT Legal, for example, recently launched an outsourcing service company, ALMT Synergies, which has undertaken a number of outsourcing projects for both in-house legal departments and law firms.


According to ALMT’s London-based partner Shalini Agarwal, the kind of work it is targeting for outsourcing includes property contracts, and intellectual property and software agreements. ALMT does not advise on English law through either its law firm or service company but offers what Ms Agarwal describes as professional support lawyers, leaving ‘the junior staff free to do other client-facing work’.


Ms Agarwal estimates that firms can save costs by up to 60% by outsourcing, not only because of the cheaper hourly rates, but also because of other ‘hidden costs’ such as premises, taxes and employee benefits.


Despite these benefits, she acknowledges that LPO has not yet gathered momentum: ‘We have had to put things on the back burner for a while. It’s a very slow growth area. Firms are very conservative in their approach. It will take time to gear up, but it is a matter of when, and not if, lawyers come to grips with LPO.’


ALMT Legal is not the only law firm to encounter resistance to offshoring among UK law firms. One of the early pioneers of legal outsourcing, Hemel Hempstead firm Underwoods, has recently been forced to abandon an offshoring venture in South Africa, launched two years ago in a bid to capture high-volume, low-margin personal injury litigation work from English and Welsh law firms.


According to managing partner Kerry Underwood, the firm failed to generate a sufficient volume of offshore work and no longer has anyone working permanently in its South African premises – although Underwoods is planning to build up its own South African practice.


Mr Underwood ascribes the failure of his venture to short-sightedness among solicitors, particularly in coming to terms with the increasing cost pressures faced by firms handling high-volume legal work. ‘The legal services profession is burying its head in the sand,’ he says. ‘It doesn’t seem to have got home to people… I thought there would be enough solicitors to see that and steal a march. I was wrong.’


Despite this setback, Mr Underwood is in no doubt that legal offshoring will have a huge impact on UK legal services. This, he says, is not only because of the lower costs of using offshore lawyers but because of the transformation likely to occur following the implementation of the Legal Services Bill.


As a result of these reforms, he says, ‘the so-called commoditised work will go almost immediately to the big institutions who will offshore it. Conveyancing and personal injury work will inevitably go abroad… I have absolutely no doubt that the vast majority of legal work will be offshore.’


The combined effect of these two forces could have a seismic impact on the UK legal profession, says Mr Underwood, ‘I think 80-90% of law firms will disappear.’


Cameron Timmis is a freelance journalist