Many law firms outsource functions such as IT and accounting support regularly and have done so for many years. Since the mid 1990s there has been an increase in the outsourcing (including offshoring) of other support functions such as legal secretarial work and paralegal duties. More recently we have seen firms exploring the possibility of outsourcing actual legal work. I shall refer to all these types of work as legal process outsourcing (“LPO”).
The outsourcing of secretarial, typing and clerical processes did not grow rapidly at first. There was an understandable reluctance on the part of practitioners who had concerns about the technology which had to be utilised and they also needed to be satisfied that the work would be carried out economically, confidentially and ethically and that the service was being provided with the requisite level of quality. I remember speaking with a firm in central London in 1996 who were concerned that we might be running sweat shops in India. The firm’s senior partner was delighted when he saw pictures of our facilities in Delhi and noted that we had to operate in a highly competitive market to recruit the most able candidates. Outsourcing and offshoring of secretarial, typing and clerical processes is now commonplace.
LPO, which in my definition includes the processing of actual legal work, is well established in the USA and as with many such developments Europe tends to learn from American experiences and follows a few years later. In general LPO from the UK tends to be to lower-cost environments and these services are generally best provided by Commonwealth countries, some of which have legal systems very similar to the English legal system. Their processes and terminology tend to be similar and so the availability of appropriately qualified and experienced individuals is an advantage.
In this article, particularly because of my experience, I will use the outsourcing of legal work to India as an example. Several high profile UK law firms now have their own processing centres dealing with document management and other functions in India. Many others have outsourced such functions to third party providers in the UK and abroad.
Reluctance to outsource legal work
There is still a considerable reluctance on the part of practitioners to consider the possibility of outsourcing actual legal work to a third party let alone to a third party in another country. As they were with outsourcing secretarial work in the mid 1990s firms have concerns regarding quality, confidentiality and ethics but many are also not sure of the impact of the current regulatory framework on their ability to outsource. There are also concerns about the suitability of LPO providers and practitioners question the ease with which outsourcing agreements can be enforced against others in countries such as India.
Finally, and in my view most significantly, there is a total lack of understanding about the type and variety of functions that can be carried out effectively and economically abroad. Law firms are simply not sure which functions may be effectively carried out in India whilst Indian providers are trying to understand what types of work they might be able to take on.
SRA guidance on outsourcing
There is now guidance from the Law Society on the subject of outsourcing – see the Practice Note. This gives an overview of outsourcing and the regulatory framework (as at 13 October 2011).
The key factors to note are:
- The SRA’s ten mandatory principles must all be taken into account when a practice thinks about entering into an outsourcing agreement. The practice must ensure that any such arrangement does not prevent it from adhering to those key principles.
- The practice must be able to provide a proper standard of service to its clients (Principle 5).
- The practice must comply with its legal and regulatory obligations and deal with its regulators and ombudsmen in an open, timely and cooperative manner (Principle 7).
- The practice must run its business or carry out its role effectively and in accordance with the proper governance and sound financial and risk management principles (Principle 8).
- Whilst the entire SRA Code is relevant to the process of outsourcing the key areas are Chapter 4 (Confidentiality and Disclosure) and Chapter 7 (Management of your Business).
The SRA has provided examples of outsourcing which the SRA Code is intended to deal with, including:
- Activities which normally undertaken by a paralegal
- Initial drafting of documents
- Legal secretarial services and proof reading
- Research and document review
- Companies House filing
- Due diligence
- IT functions
- Business process outsourcing.
Reserved Legal Activities, which may not be outsourced to a person who is not authorised to conduct such activities, are:
- The exercise of a right of audience
- The conduct of litigation
- Reserved instrument activities (this includes drafting transfer deeds)
- Probate activities
- Notarial activities
- The administration of oaths.
Clearly the outsourcing of a legal process does not change the outsourcing firm’s obligations towards its clients. Ultimately the law firm is responsible for the legal services provided. This obligation may not be outsourced.
If a practice intends to succeed in outsourcing processes other than secretarial functions then it will need to set aside time and resources in ensuring that it complies completely with the SRA guidance and that it has an effective outsourcing agreement which caters for all its requirements.
Trusting third party providers
India has a large and rapidly growing LPO industry. The majority of these services are currently provided to US law firms but the uptake of these services by UK-based firms is gradually increasing. Practitioners often tend to find a barrier in working with service providers in other countries. They are sometimes unable to carry out sufficient due diligence or to understand the background and experience of service providers. They do not know how effectively to tie the provider into a binding and enforceable arrangement.
Increasingly, however, and to specifically deal with such situations, these service providers are establishing offices and alliances in the UK so that their clients have an office they can visit and people that they can meet. Outsourcing agreements are made subject to English law. This is the method that we have adopted in ensuring that our client firms have a UK office, contact and phone number that they can deal with. Our servers are entirely in the UK and the business is managed by UK-qualified and experienced lawyers.
Whoever a practice chooses to deal with, a considerable amount of training is needed, and trials of the service to be provided.
Setting up the outsourcing process
Once a suitable partner has been identified and terms agreed it is key that a considerable amount of time is spent in developing processes and methods and in training the third party provider’s staff to understand the law firm’s requirements and to replicate them. An initial investment of time and money will produce considerable long-term benefits.
The next stage will be to ensure that the third party provider has adequate staffing arrangements to provide a continuous service, taking into account holidays, absences and staff attrition. It is common practice in our organisation for each UK fee earner to be backed up by up to three “legal buddies” in India.
Once the LPO company’s staff have learnt a client firm’s methods and processes they will provide an efficient, high quality and economical service. As a result these benefits will enhance the UK firm’s productivity and have a direct effect on the bottom line.
How far can it go?
The range of work currently outsourced offshore in addition to legal secretarial work includes:
- discovery and disclosure processes;
- due diligence and risk assessment studies;
- certain conveyancing processes including the preparation of reports on title and reports on lease;
- drafting of basic documents such as powers of attorney and wills;
- company formations and filings;
- basic research.
There is no substitute for comprehensive due diligence of the service provider and an assessment of its physical and technical security arrangements.
Provided that a firm can dedicate enough time and resources to achieve these objectives there is no reason why in the long term a large number of activities in addition to administrative, clerical and secretarial duties may not be outsourced (other than reserved legal activities). In our view the possibilities are endless.
Sunil Radia is a former solicitor. He now runs UKTyping and Data which provides back office, typing and legal process services to the legal profession. The company has been trading since the early 1990s and now has a turnover in excess of £1,000,000 per annum.