Law firms, in response to the more-for-less value challenge posed by buyers of legal services, are exploring different organization models. The win-win goal is to provide services of equal or better quality to clients at a lower cost while at least defending, if not improving, law firm revenue and profit. Models range from network affiliations and combinations with law and other professional service firms to unbundling and re-bundling of services through multidisciplinary platforms, and everything in between.

Here, we discuss why law firms might choose to create one such model: the "Captive LPO" (LPO stands for legal process outsourcing). A Captive LPO is a subsidiary wholly-owned by a firm, created to handle legal process work (think: repeatable work which can be performed efficiently, effectively, and less expensively through the application of streamlined processes, project management, and technology). There are many types of work LPOs can handle; here are a few examples: document review, contract extraction, IP management, and company formation and maintenance.

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What Are the Pros and Cons of a Captive LPO?

By separating the practice of law from legal process work into two separate entities, these different types of work can be optimally managed, priced, and delivered under different business models. Some reasons a law firm might want to create a Captive LPO:

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  • For processing high volume, repeatable work;
  • To benefit from labor arbitrage and other cost savings;
  • To test a new business endeavor without risking the firm's brand integrity; and
  • To visibly demonstrate to clients a dedication to right-sizing workflow and providing value.

Creating a Captive LPO does have challenges and the firm should proceed with care when going down this path. Setting up a Captive LPO can be expensive in terms of time and money, especially if the Captive LPO is set up in another country as a foreign subsidiary. In addition to potentially complex management challenges, they can sometimes be more difficult to wind down than to create.