The jury is out: legal process outsourcing services continue to gain momentum

A global paradigm shift has taken place in the legal industry in recent years in the delivery model for legal services. The traditional delivery model of combining in-house counsel and law firms has come under growing scrutiny as in-house corporate legal departments face increasing regulatory and compliance requirements, combined with pressure to cut overall costs without compromising on quality. Legal Process Outsourcing (“LPO”) was born out of these competing needs.

Given the shifting pressures, corporations are reluctant to add fixed cost in-house resources and find law firms too expensive and structurally limited in their ability to innovate. Legal process outsourcing denotes the practice of corporations and law firms securing legal support services from outside companies in order to recognize cost savings and streamline productivity.

In 2018, the U.S. LPO services market reached nearly $1.0 billion along side the complementary tech-enabled global eDiscovery market which generated nearly $12.0 billion.  Each of these markets is projected to achieve incredible growth over the next five years, increasing 34% and 11%, respectively.

In a recent study, it was reported that 60% of general counsels report cost control and cost management as one of their department’s greatest challenges, while approximately 80% expect their legal resource requirements will increase over the next two years.  Overall, the in-house delivery model is becoming increasingly resource constrained and is inflexible and slow to adapt to new technology and innovation.

Corporate legal departments are increasingly turning to LPO providers as a result of the pressures they are facing and the inability of the traditional law firms to adapt.  Such departments are looking to disaggregate their total legal spend into discrete activities and to choose the best solution for each activity. As such, LPO providers fill such a void by delivering distinct services through a combination of outsourced onshore, nearshore or offshore resources supported by eDiscovery technology platforms that drive faster data and document review.

Favorable growth prospects across these markets is driven by several key themes as the legal industry continues to evolve from the traditional corporate legal model to a nimbler, more flexible outsourced approach.  These market drivers include:

• Increased complexity. Complexity drives demand for more in-depth, extended legal services including managed review and eDiscovery
• Data proliferation. Increasing amounts of data requiring review is placing a greater burden on large corporations and law firms
• Flexible workforce. Corporations and law firms continue to build more agile workforces to reduce costs and fill short-term gaps
• Competition for talent. Talent pool for traditional law firms continues to shrink with greater movement into in-house legal departments and alternative legal services providers to enable greater work-life flexibility
• Continued technology advancement. Technology embedded in eDiscovery platforms facilitates document review for all legal services providers

As support increases for outsourced services within the legal sector, more and more LPOs are becoming a viable alternative to law firms without compromising quality, confidentiality or compliance, we can anticipate transactions, and multiples, to increase.

This article was originally published in the 2019 Global Business Services Report.

Click here to read the full report.