BLP makes bold stab at innovating for the LPO age with its £5m Thames Water deal

The news last week that Berwin Leighton Paisner (BLP) is to take on the bulk of Thames Water's in-house legal team caused a fair amount of attention across the City. Even for a firm like BLP, which has expanded aggressively in recent years, the creation of a managed legal service division to take over a client's in-house capabilities is a substantial bet on the way the market is moving, but one it has high hopes for.

On first glance there is much to commend the arrangement. BLP picked an obvious candidate to road-test the venture, choosing a regulated utility, which will provide stable work levels and incomes, making the project easier to manage.

In a very competitive market, BLP will pick up the majority of the company's legal spend, at a stroke making Thames one of the firm's biggest clients – generating a handy £5m a year in steady cashflows. This is no mean feat, considering BLP previously picked up only 15% of Thames' legal spend.

The firm will now take charge of Thames' high-value work, 30% of which previously went to magic circle firms, including securitisation work formerly carried out by Linklaters worth approximately £1m a year. Meanwhile, volume work, worth some 20% of legal spend, will fall to regional firms Pannone and Ashfords. BLP's locum unit 'Lawyers on Demand' will pick up some of the work, as well.

Thames Water is thought to be reducing its total legal bill by around 20% while getting budget certainty and guaranteed performance standards. BLP is confident that there are good margins to be made if it can carry out the work efficiently. The hope must be that this can be the equivalent of Eversheds' partnering arrangement with Tyco – a symbolic project that positions the firm as committed to innovation and efficiency and demonstrates a model that can be used to attract other companies. BLP says it will soon roll the package to other clients, arguing that it has already attracted some positive feedback to the scheme.

Perhaps one tricky issue for BLP to manage will be the general reaction from the in-house legal community, which may feel unsettled by the idea that the board could outsource much of their department to an external provider. In the case of Thames Water, general counsel Joel Hanson, who remains in the company's employ, is freed up by the move to focus on being a strategic adviser to the board.

Convincing general counsel of that model will be very helpful in gaining early adherents, otherwise BLP is left with the tricky balance of appealing directly to finance directors without annoying the legal team.

And, as some have pointed out, to an extent BLP's move is a reinvention for the age of legal process outsourcing (LPO) of sporadic agreements over the last 20 years that have seen major clients transfer teams to advisers. The key difference is that BLP is aiming to turn this venture into a repeatable business model. As innovation goes, the move looks promising in the clever-but-not-too-clever camp. One to watch.