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Legal process outsourcing may deliver efficiencies and savings, but there are also elements that require caution, writes Beth Patterson.Clients of law firms continue to look for options to reduce their overall legal spend. In areas that are more process oriented, the growing interest in the use of legal process outsourcing (LPOs) by law firms is being driven by the needs of clients. Flexibility for clients is the key, and the use of LPOs is increasingly seen as one of a range of options.According to the Law Society in the United Kingdom, the global LPO market is worth approximately US$440 million, or about 0.1 per cent of the global legal market. While this shows that the use of LPOs is still relatively small, the LPO market has increased by almost 50 per cent since 2008.Growth in the LPO market is not surprising when you consider that 2008 was the height of the global financial crisis, with most companies tightening their belts, coupled with rising volumes of electronic documents for review, particularly in litigation. As the LPO market has matured and consolidated, providers have developed more ‘onshore’ or ‘near shore’ capabilities, often to complement existing ‘offshore’ capabilities.At the same time, public discussion of LPOs has matured from initial views that LPOs would revolutionise the way in which legal services are provided, to one which now sees LPOs, either engaged direct or by law firms, as one of a number of options available to clients.Grey areasIn practice, LPOs market themselves as the choice for dealing with high-volume, low-complexity legal work that is process driven. This includes document review work for discovery and due diligence, but can extend to other areas such as contract drafting and review, legal research, company secretariat services and a host of intellectual property related services.Supervision of the work of LPOs is a fundamental issue which remains to be resolved. Both clients, and those regulators in the United States and UK that have stated their position, favour a model in which the law firm retains responsibility for supervising the work of the LPO. While this is the case, there is no generally accepted market practice regarding how such supervision should be implemented. Australian regulators have yet to state their formal position on the use of LPOs.Liability and insurance issues are also unresolved, issues fundamental to the protection of clients’ interest.Government bodies, courts, law firms and clients are focused on how to reduce costs of litigation that have been exacerbated by the explosion of electronic data. Last year, under the direction of the Attorney General, the Australian Law Reform Commission published a report entitled Managing Discovery: Discovery of Documents in Federal Courts and, recently, the NSW Supreme Court Equity Division released Practice Note SC Eq 11 – Disclosure in the Equity Division which looks to limit or eliminate disclosure/discovery “unless it is necessary for the resolution of the real issues in dispute in the proceedings”. The Practice Note also says: “The Court will not make an order for disclosure of documents (disclosure) until the parties to the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure”. Time will tell how this plays out with regards to reducing the volume of documents for review.Risk and rewardIn the meantime, there are benefits and tradeoffs for clients in using LPOs. The first benefit is the potential saving on their legal spend by having such high-volume, low-sensitivity work performed by an LPO. This stems from the lower hourly and per unit pricing offered by LPOs. However, additional costs are incurred when a law firm works with a third party LPO, due to the need for the law firm to supervise the LPO’s work.With these savings comes risk. Recently, the England and Wales High Court awarded an interim payment of ₤135,000 (AUD$209,000) to the defendant for wasted costs in the case of West African Gas Pipeline Company Ltd v Willbros Global Holdings Inc [2012] EWHC 396 (TCC). The court found that West African Gas Pipeline had failed to undertake proper discovery after having used two external litigation support providers, one of which was based in India, to perform discovery.Also, many LPOs are ‘technology agnostic’ and do not offer their own technology solutions. Due to the often iterative nature of determining what documents need to be reviewed, significant advantages and efficiencies are gained with an integrated offering of document review and technology teams. Such integrated teams can work together to use sophisticated early case assessment technologies to reduce review volumes and thus reduce costs.For law firms, the main benefits of engaging an LPO are scalability, freeing up junior lawyers to do more substantive work and packaging new offerings to respond to client demand. On the flipside, law firms must be aware of potentially inhibiting issues such as the lack of proximity to the LPO for flexibility when instructions change and the limitation of an LPO’s liability by contract.Allens has been using LPOs for some time on a case-by-case basis as agreed with the client. The firm offers clients a range of alternatives for document review work. All options leverage off the use of integrated technologies as well as pragmatic decision making to reduce volumes for review and minimise risk.Those options include traditional lawyer review, a specialised in-house document review team balancing lower costs, risk and integrated technologies, and the use of preferred LPOs.All of these are options are available to our clients and Allens is guided by them. Beth Patterson is the director of applied legal technology at Allens Arthur Robinson.www.aar.com.au  Note: The Australian Law Management Group will be conducting its 2012 World Masters of Law Firm Management seminar in Sydney on Thursday 11 October 2012, on the theme ofLegal Process Outsourcing – the real story.  The event will present a ‘no holds barred’ perspective from numerous presenters who have pioneered legal process  outsourcing in law firms.  For further information visit /sections/legal-practice/events/world-masters.cfm.

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