As the trend for legal process outsourcing gathers pace, Alex Aldridge and Georgina Stanley profile the key players and look at how law firms are incorporating outsourcing into their global strategies

The news that Microsoft is sending out legal work to a team of lawyers at legal process outsourcing (LPO) provider CPA Global in India is the latest indication that one of the most talked-about trends in recent years is no flash in the pan.

That the announcement followed the defection earlier this month of former Rio Tinto managing attorney Leah Cooper to a business development role at CPA only adds further credence to the growing acceptance of legal outsourcing – particularly since Cooper herself was the driving force behind an agreement struck between CPA and Rio last June that saw a team of CPA lawyers take on work such as document review and legal research for the mining giant.

And it's not just corporate legal departments showing interest in outsourcing. CPA has recently taken on basic legal work for several leading law firms, including Slaughter and May. "We're open-minded about outsourcing legal process work – but not legal advice – as the work we've done with CPA shows," says Slaughters practice partner Paul Olney.

Meanwhile, Integreon – one of a handful of other major players in this space – has won Allen & Overy (A&O) and Simmons & Simmons as clients, handling mainly litigation-related document review on behalf of the pair from its Mumbai office.

The home of outsourcing

The commute into work for CPA's Indian lawyers is an eventful experience; stuttering along in the bumper-to-bumper traffic towards the newly-erected high-rise buildings of the call centre capital of the world, Gurgaon, near Delhi – home to the Indian operations of CPA. Narrowly avoiding an implausibly heavily loaded rickshaw before swerving to miss a cow that has wandered into the road from a neighbouring patch of wasteland, it is a surreal prelude to eight hours in air-conditioned comfort doing junior associate-level legal tasks for some of the world's leading corporations and law firms.

The two floors CPA occupies in one of Gurgaon's identikit modern high-rises could be any office in the world. Casually-dressed lawyers – average age 27 – work from nine until six on the main open-plan floor, which is bordered by a series of secure separate rooms occupied by company-specific teams.

Among the desks and partitions wander five practice area experts from the UK and the US, with 10-12 years' post-qualification experience, who provide support and training. "My job is to ensure that all the work that goes out of here is of a level that I would be proud to see as a partner in a law firm," says CPA director of legal services Karlyn Stanley, formerly a senior lawyer at telecoms giant AT&T, who relocated to Delhi with her husband last September.

So far, it seems to be working for CPA. The company's headcount in India has increased from 150 in 2005 to a current total of around 600, including 60 lawyers carrying out general legal tasks such as document review, legal research and drafting. By July, CPA estimates that it will have a further 300 employees – the majority of whom will be lawyers carrying out legal services work from Gurgaon.

And there are no signs of it stopping here. The company has plans for further offices in southern India, the Philippines and South Africa, alongside a low-cost centre in the UK staffed by a mixture of paralegals and lawyers. By 2015 CPA estimates that it will have grown tenfold to employ 5,000 staff.

Its competitors are equally optimistic. Integreon expects to more than double its current total of around 400 lawyers – the majority operating out of Mumbai – to 1,000 within 18 months. Pangea3, meanwhile, is aiming to hire an additional 200 lawyers to its approximately 250 Mumbai and Delhi-based lawyers by the end of the year. Mindcrest and QuisLex are not specifying targets, but talk in similar terms.

Concerns

Amid all this talk about growth, it's easy to forget how new the concept of LPO is – and how young the companies doing it are. Although CPA was founded in 1969 it only moved into legal outsourcing on a regular basis three years ago. Integreon, meanwhile, moved into LPO in 2005, having made its name doing business process outsourcing (BPO) for investment banks following its establishment in 1998. Pangea3 and QuisLex were both founded as specialist LPOs in 2004, leaving Mindcrest – set up in 2001 – as the relative veteran of the group.

This lack of experience – coupled with the fact that everything seems to be moving so quickly – leaves some with the feeling that LPO will not prove sustainable in the long term. A posting on legalweek.com (written in response to Eversheds' announcement just over a year ago that it had struck a deal to outsource low-end legal work to India) sums up the sentiment: "Incredulous. It will not work and will collapse with dire consequences. Clients should be bold and give Eversheds an ultimatum – do it at a reasonable cost or they will get a cheaper firm that is just as good to do the work."

One of the most commonly expressed concerns about outsourcing legal work is security. A Kroll survey last year warned companies against making the assumption that the outsourcing provider they hire has the same security procedures as they do – giving the example of a 2008 case involving the Bank of New York Mellon, when the bank was the victim of a significant data breach while under the responsibility of an outsourced company.

However, the leading LPOs dismiss such concerns, proudly flashing their hard-earned International Organisation for Standardisation (ISO) data security and quality of process certificates and citing the regular audits conducted by clients at their premises to ensure against any breaches.

"We have passed all the very stringent audits conducted by our multinational clients with flying colours," says Jonathan Goldstein, vice president and managing director of legal services at Pangea3. "Quite simply, we're more secure than a law firm," says Integreon global sales president John Croft (pictured). "In order to win business, we have to be."

And it's fair to say that, on this issue at least, most clients seem pretty satisfied. Simmons & Simmons former head of finance litigation Jonathan Kelly, who recently quit the firm for Cleary Gottlieb Steen & Hamilton, was one of the lead partners involved in Simmons' signing of an outsourcing agreement with Integreon.

He comments: "The top providers have very strong physical security systems, with separate secure rooms for teams working on certain projects and biometric recognition procedures. On top of that there are random tests and a whole series of double-checking systems, plus stringent 'one breach and you're out' policies acting as a further buffer against data leakage."

The other frequently-voiced worry about LPO is quality of work. In a recent Legal Week Big Question survey of law firm partners, half of those questioned said they thought the general standard of work currently on offer at LPO businesses 'could be better', and a further 7% termed it as 'poor'. (Set against that, 14% thought it was 'good' and more than a quarter (27%) thought it was 'OK'.)

Speaking before her move to CPA, Cooper (pictured) admitted that there had been "some hiccups" in the arrangement between Rio Tinto and CPA, describing quality as "the real risk, and the biggest leap of faith in legal outsourcing". She added that she had been unhappy with some of the work produced by certain members of the CPA team working on matters for Rio and had asked for them to be replaced – although she said these problems were expected and that she "wouldn't envision things going smoothly 100% of the time when dealing with UK lawyers [either]."

Certainly, Clifford Chance (CC) maintains that one of the main advantages of having its own offshore centre in India, rather than dealing with external providers, is the ability to control the quality of the work, as well as the strength of its brand. At present, despite the large number of firms signing deals with LPOs, CC's ambition is very much to strengthen its own offering, even though it does carry out some BPO with Integreon.

CC director of global business services, Amanda Burton, comments: "Our intention is to grow our own centre, as the model works for us. It gives us the flexibility of resource and is an offering for clients when they're looking for efficiency at reduced cost. It also maintains the quality of our service and means we can look at the type of work we are sending out."

For their part, the LPOs insist the quality of work they offer is as good as that provided by junior associates at international law firms, citing stringent recruitment policies, high salaries – albeit starting from £10,000 at a company like CPA compared with more than £60,000 at a City law firm – and decent training as the reasons behind this.

CPA vice president of human resources for India, Rakesh Kher, comments: "We only recruit lawyers who have graduated from the top 25 law schools [out of a total of around 300 law schools] and top 50 law firms, we offer very good training and supervision from lawyers with international experience and we pay top-of-the-market salaries and provide excellent benefits – all of this equates to high-quality work."

Such statements are backed up by the leading LPOs' relatively low attrition rates – last year the figures at CPA, Integreon and Mindcrest stood at 11%, 9% and 8% respectively.

The road ahead

With so much happening so quickly, it is difficult to predict what LPO will look like a few years from now, but what is certain is that the road ahead is marked with its fair share of potential pitfalls.

An obvious challenge is how LPOs develop structurally. Currently, most providers trot out a narrative about how companies and law firms will outsource work of ever-increasing complexity to them. Over time, they suggest, this will enable them to grow into institutions not dissimilar to law firms. "As clients become more confident with this and see the level of quality we can produce, they will send us more and more challenging work," says George Hefferan, Mindcrest vice president for sales and general counsel. But there is also an acceptance that there is a limit to what can be outsourced. "We'll never do top-level advisory work – and we ought not to do so," says Pangea3′s Goldstein.

Accordingly, there is a question mark over how the LPOs will keep their intelligent and driven lawyers motivated once they reach a certain level of experience. CPA's lawyers working on the Rio file do occasional secondments to the mining giant's international offices, and two outstanding lawyers at CC's own offshore facility in Delhi were recently invited to join the magic circle firm as associates – but generally there seems to be a cap on what a lawyer can achieve at an LPO. Attrition may not be a problem now, but it could be in the future.

Counting in LPOs' favour on this issue is the relative scarcity of better options available for the tens of thousands of new lawyers graduating from India's law schools each year. Speaking off the record to Legal Week, some LPO lawyers admitted that working for an LPO carried less kudos than a position at a top Indian law firm, but pointed out that there are relatively few jobs going at such firms. In addition, smaller firms have a reputation for being difficult to progress through without the right family connections. In this context, they said that the role of team leader and other management positions offered by LPOs were attractive.

Then there are the external factors that could potentially throw LPOs off course. Fast-growing economies go hand-in-hand with fast-growing labour costs – as seen in the IT industry during 2007 and 2008, when salaries among Indian IT staff rocketed. And a recovering economy could reduce the incentive to cut costs by sending legal work offshore.

However, the LPOs maintain they can take these issues in their stride. "The increases in salaries in the Indian IT industry were the result of 25 years of growth; we're way off that in LPO," says Goldstein. "And as for the threat posed by a more buoyant market, well, we just don't see things going back to what they were. Once people start making changes to a model that they recognise can be improved, they don't undo them – and I don't see there being much nostalgia for the high-leverage law firm model where scores of relatively inexperienced associates are charged out at very high rates."

The likes of Goldstein are not alone in their confidence – as illustrated by private equity firm Actis' $50m (£32.4m) investment in Integreon earlier this month and Intermediate Capital Group's (ICG) acquisition of a significant minority stake in CPA in January. Given the number of law firms already jumping on the bandwagon, as well as the growing number of corporates looking at offshoring aspects of their legal work, it seems that there is justification in the LPOs' confidence.

As Eversheds chief executive Bryan Hughes comments: "I believe that we will see more outsourcing, both on and offshore. The concept is not a new one outside the legal sector and we are seeing more and more law firms exploring the options in this area. No firm can afford to ignore it. There are obstacles and issues, of course; for example, getting client buy-in can be an issue. However, as more and more companies get involved in outsourcing, client resistance will reduce."

In fact, outsourcing is becoming so commonplace that according to CC's Burton, it is simply becoming part and parcel of how law firms have to be flexible with their client offering. Good news for the outsourcers, but perhaps junior lawyers at UK and US law firms should beware.

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Waking up to outsourcing

A few years ago even the idea that Slaughter and May would use a legal outsourcer was unthinkable. That the firm is now using CPA Global for some legal work at the request of one client – albeit in an extremely limited capacity – shows just how opinion within the legal sector has changed.

When Legal Week conducted a survey of the top 30 UK law firms in November last year, of the 27 responding firms, eight were looking at introducing some aspects of legal process outsourcing (LPO), while a further eight firms were already doing it.

Linklaters, Freshfields Bruckhaus Deringer and CMS Cameron McKenna were among those considering options either for the first time or to increase LPO, while Allen & Overy (A&O), Eversheds, Lovells, Pinsent Masons, Wragge & Co and Simmons & Simmons already use legal outsourcers to some extent.

As demonstrated by A&O's deal with Integreon to outsource some document review work, much of the legal work being outsourced so far is for litigation; however, firms are looking at it for other practices, too. Linklaters, for example, has considered outsourcing aspects of work such as document review, due diligence, contract development and legal research. Freshfields, meanwhile, has used outsourcing in practice areas such as corporate – though it does so on a case-by-case basis.

Part of the reason for law firms displaying an interest in LPO now is that as clients' acceptance and understanding has increased, so too have their expectations of legal advisers. The impact of the recession has only increased this desire for firms to look at ways to cut costs.

Eversheds chief executive Bryan Hughes says: "Law firms are coming out of the 19th century and are being pushed hard into the 21st century. Many were in denial at first about the need to change, but the credit crunch has polarised many issues and clients are now demanding that firms do things more cost-effectively."

Linklaters chief operating officer Simon Thompson (pictured above) adds: "Part of our role is to help our clients manage their legal expenditure as effectively and efficiently as possible. As such, we take the emergence of LPO seriously, and have actively worked alongside LPO providers for key clients already. We expect to continue to do so in the future. We believe that LPO has the potential to improve the cost-effectiveness and flexibility with which clients can procure services, thereby enabling clients and law firms alike to focus on their core strengths."

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Law firms doing it for themselves

Some law firms have gone so far down the outsourcing route that, far from still being at the stage of considering whether or not to use external outsourcing providers, they are already using – or looking at creating – their own offshore operations.

Clifford Chance (CC) and Baker & McKenzie both have longstanding centres allowing them to offshore work to India and Manila in the Philippines respectively, while Eversheds is piloting an initiative with its South African ally.

Bakers set up Global Services Manila in 2000. Now operating with some 500 staff, the base has tended to be used primarily for business support work such as invoicing but, on the legal side, since 2002 it has handled trademark portfolio management and employs a number of qualified lawyers in areas such as know-how and litigation support.

Bakers London office head Gary Senior (pictured) told Legal Week: "The nature of legal work we have delivered from our global services centre in Manila to date has been limited. Given increased client interest we are now looking at it more broadly. It's about firms proactively looking to utilise resources they have available to them globally, rather than just locally, in order to maximise value for both the client and the firm."

CC, meanwhile, operates its Global Shared Service Centre (GSSC) in Delhi, which supports various back-office functions such as finance, IT and research. The centre, launched in 2007, has 270 staff and is expected to grow between 10% and 20% by the middle of 2011. By that point the firm estimates it will have saved around £8m. Within the GSSC is a knowledge centre staffed by 25 qualified Indian lawyers. It helps all practice areas in the firm, other than tax, with work such as drafting contracts, proofing and research, and staff count is expected to reach around 40 people by mid-2011.

The benefits of conducting outsourcing in-house are clear – lower production costs due to a cheaper location and workforce, but greater control than using an outsourcing company. It's unsurprising, then, that Eversheds is also making its move into the arena. On top of the secretarial outsourcing it already carries out with Exigent and the small amount of legal outsourcing it conducts in India with Williams Lea, the UK firm launched a pilot this year that could lead to the creation of something far bolder.

It is teaming up with its South African ally, which last year rebranded from Routledge Modise to Eversheds. If the pilot – which involves the outsourcing of some leasehold renewal work – is deemed successful, it could be expanded into a separate joint venture business with an outsourcing offering that other law firms could sign up to. Document and contract review, as well as litigation and property-related drafting, are among the tasks that could be outsourced as part of the project.

Chief executive Bryan Hughes commented: "We see huge potential, but how the ultimate picture looks isn't yet clear as we're still testing out the opportunities in South Africa."

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LPO – the leading players

CPA Global

In a nutshell: PR savvy outfit with high-end ambitions. "We see ourselves as a legal outsourcer rather than a legal process outsourcer" – CPA communications director Rob Coveney.
How long: Founded in 1969 as a patent renewals service, first moving into LPO in 2005.
How many: 60 lawyers in Gurgaon, near Delhi, plus three onshore low-cost centres in the US.
Clients: Microsoft, Rio Tinto, Carillion, Bupa, Slaughter and May, Eversheds.

Integreon

In a nutshell: LPO with BPO roots. "We're better at doing repetitive tasks like document review than law firms" – John Croft, Integreon global sales president.
How long: Founded in 1998 as a BPO specialising in work for investment banks, but moved into LPO in 2005.
How many: Around 350 lawyers spread across Mumbai, Delhi, Manila, Johannesburg, Fargo (US) and Bristol.
Clients: Allen & Overy, Simmons & Simmons and several FTSE 100 companies.

Pangea3

In a nutshell: Catchily-named US outfit with several US clients. "At Pangea3, internet and telecommunications have reconnected the world to create a single workplace and marketplace for legal outsourcing" – Pangea3 website.
How long: Founded in 2004 as an LPO.
How many: Around 250 lawyers.
Where: India – Mumbai and Delhi.
Clients: GE, Philip Morris International, CIT Group and several global law firms.

Mindcrest

In a nutshell: US-headquartered pioneer. "We were the first into this game" – George Hefferan, Mindcrest vice president of sales and general counsel.
How long: Founded in 2001 as an LPO.
How many: Around 600 lawyers.
Where: India – Pune and Mumbai.
Clients: Fortune 500 corporates and several leading law firms, including international UK law firms.

QuisLex

In a nutshell: Plucky start-up with a solid reputation. "We started with three lawyers five and a half years ago and it's just grown" – QuisLex CEO Ram Vasudevan.
How long: Founded in 2004 as an LPO.
How many: Around 250 lawyers.
Where: India – Hyderabad.
Clients: Fortune 50-500 companies and several top 10 international law firms.

For more, see Partners seek new models but wary of LPOs and Eight more UK top 30 firms size up legal outsourcing moves.