The Sweet Spot

Rio Tinto shocked the global legal community by announcing that they would be outsourcing significant legal work with an expected annual savings of about $20,000,000 (20% of an annual budget of about $100,000,000). This announcement is not so shocking if you consider that Microsoft, GE, Intel and other major players are already enjoying huge savings from legal process outsourcing (LPO).

As the value of LPO starts being realized by the broader legal community and confirmation of its permanence is made on a daily basis, it becomes necessary for skeptics to understand the applicability of this method of service to take full advantage of its benefits. LPO is not going away!

LPO provides tangible and intangible benefits. The focus of this article, however, is on the tangible benefits of LPO and on how the relationship between the complexity and volume of work influence the cost of services.

LPO providers typically offer a broad range of services, ranging from A (e.g. abstracting documents) to V (e.g. verification of information) (I can’t think of a service that starts with a “z”!). Initial conversations with clients inevitably revolve around what type of services an LPO provider offers. However, clients should also consider the complexity and volume of work the client intends to outsource. 

The graph below demonstrates the relationship between these two aspects as they relate to LPO.



High volume, low complexity work – The bottom right of the graph illustrates work that is ideally suited to LPO and is the ‘sweet spot’ for LPO. Low complexity work (e.g. document review such as contracts, forms, insurance policies, wills, trusts, powers of attorney, etc.) does not require the services of Canadian lawyers (or paralegals) with specific experience and expertise. Accordingly, the costs of/billing rates for LPO lawyers performing this type of work are low. Further, since this work is ongoing, the utilization of the LPO lawyers measured over a period of time (e.g. a year) is high; and there is no need to build costs of idle time into the billing rate. Most large organizations (such as banks, insurance companies, companies with high volumes of contracts with customers, etc.) handle a steady flow of this “low complexity” work. Since the volume of this work is high, a Full Time Equivalent (FTE) resource is the most economical way in which organizations can realize the greatest benefit from LPO.

Low volume, low complexity work – The bottom left of the graph illustrates work that can also be performed by LPO lawyers. However, since the volume of work is low, the costs of/billing rates for these lawyers will be significantly more than for higher volume work. However, using a FTE resource from an LPO to work on various types of work at the same time would be the most economic approach to this type of work.

Low volume, high complexity work – The top left of the graph illustrates work that is better suited to in-house or specialist Canadian lawyers. Complex work requires the services of Canadian lawyers with very specific experience and expertise. Accordingly the cost of/billing rates for these lawyers are on the high end of the spectrum. Further, if this work is sporadic, the utilization of these lawyers measured over a period of time (e.g. a year) is low; and the costs of idle time are built into the billing rate.

High volume, high complexity work – The top right of the graph illustrates work that could be suited to LPO but will require a more careful economic evaluation to understand the suitability. More complex work will require significant training and more experienced personnel will be needed to do the work – both of which would add to the costs. Ultimately, the investment from the customer will need to be a long term investment with significant involvement in the training and work product. However, since the volume of this work is high, there are likely to be significant savings that can be realized.

If you are thinking about how LPO can save your legal department significant amounts of money, consider not only the type of work you would outsource but also the complexity and volume of work (over a period of time) you would outsource. The services of the LPO provider on a FTE basis will generate the maximum savings you can achieve.