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Law firms are losing work to LPO providers

Law firms are being bypassed on process-based work as general counsel instruct LPO providers directly, study finds

3 September 2012

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By Manju Manglani, Editor (@ManjuManglani)

General counsel are increasingly bypassing law firms and instructing legal process outsourcing (LPO) suppliers directly, an international study has found.

With supplier margins remaining high, offshore models can be exploited further to generate savings of up to 50 per cent.

Currently worth over $1bn (£629m), the LPO market is forecast to double in size in the next two to three years.

Changing approaches to LPO work

There has been a major shift in buying patterns for process-based legal work, according to a global study on the LPO market.

An increasing number of general counsel in large organisations are instructing LPO providers directly, cutting law firms out of the market.

This trend is set to continue, loosening law firms’ historical monopoly on transactional legal work.

The study found that the biggest users of LPO are large law firms and corporations. Over half of corporate users report a turnover of over $3bn, and over three quarters of law firms using LPO report a turnover in excess of $500m.

The report notes that general counsel currently account for almost 70 per cent of the LPO buying community, as measured by value.

“The impact on law firms could become financially significant, but there is still the opportunity to stem the flow of work away from law firms. Adapting a firm’s business structure is very difficult but it is the only way to address the changing marketplace,” said Edward Brooks, founder of The LPO Program, which produced the LPO market study.

“The strategic adoption of LPO will be the next big trend, as US law firms start to emulate the UK firms and decide to adopt radically different delivery models, moving out of transactional activities,” Brooks added.

Potential to increase LPO savings further

The report notes that, with supplier margins remaining strong, offshore LPO models can be exploited further to maximise potential savings.

From a law firm and general counsel perspective, LPO has been found to generate savings of over 30 per cent in over 75 per cent of deals.

The study found that, even from onshore US or UK providers, savings of 30 per cent are relatively easy to achieve, with little margin pressure on LPO suppliers.

In some cases, LPO has generated savings of over 50 per cent, depending on the delivery model adopted, it noted.

Rocketing growth in the LPO market

The study found that the global legal outsourcing market has crossed the $1bn threshold and is continuing to grow at an annualised rate of 32 per cent.

It forecasts annual growth of over 30 per cent in the next three years and a doubling of the market’s size in the next two to three years.

“The market still has a long way to grow as currently it constitutes only 0.25 per cent of the total global legal spend,” said Brooks.

“We estimate that even law firms that currently use LPO only use it to about five per cent of its potential. In itself, growing use by existing users could double the market size within two years”.

The report highlights that almost 9,000 people are currently employed in legal outsourcing. If put under one roof, this workforce would constitute one of the largest law firms in the world.

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