Although estimating the value of the LPO industry is certainly not easy, Forrester Research has predicted that around £2.6 billion worth of legal work will be outsourced to India by 2015 (How legal process outsourcing is changing the legal landscape, Law Society Gazette, www.lawgazette.co.uk/in-business/a-first-hand-look-a-legal-process-outsourcer-provider-india). However, the market is still quite immature. The Indian LPO space is dominated by "pure play" LPO providers such as Pangea3, CPA Global, Unitedlex, and Evalueserve, with some of the more traditional outsourcing service providers, such as Tata Consultancy Services and Wipro, now also entering the LPO market. However, relative to the size of the legal industry, the number of providers is still quite small.

A recent report on LPO by Value Notes, an Indian research company, suggests that ten to 15 established LPO providers currently generate two-thirds of total industry revenues (www.sourcingnotes.com/content/view/489/54/ (licence fee required)). If a major scandal or data breach were to occur to one of these companies, the impact on the industry could be catastrophic.

One of the causes of this major shift in the provision of legal services has been the economic downturn. This has had a direct impact on the profitability of firms as transactions have dried up, and has led many firms to try to find ways of providing the same services for a lower cost. By outsourcing the more routine elements of legal projects, it is possible to reduce overall costs to clients substantially, both in modest-sized and large-scale transactions or disputes. If you add more complex aspects of a case to the scope of what can be outsourced, clearly even greater savings may be possible.

Similarly, in-house legal budgets have been slashed and many general counsel have been forced into looking at alternatives to employing large teams of lawyers to service their needs, or relying exclusively on their preferred law firms.

In addition, the increase in confidence in the dedicated LPO service providers has led to a greater level of trust that an outsourced arrangement can work. Global companies realised the benefits of offshoring their back-office IT services, having tested the waters with software development during the late 1990s. Similarly, the economic downturn has led law firms to look into initial pilot projects and to experiment with LPO. This initial experimentation has been successful and has now led to far more significant partnerships developing between law firms, companies and, mainly offshore, service providers.

As for any outsourcing project, law firms and in-house departments need to consider the risks of outsourcing services to a third party, and undertake thorough due diligence on their chosen provider, particularly as LPO raises challenges that may be different to other types of outsourcing (see feature article "Risky business? Evaluating and managing risk on outsourcing", www.practicallaw.com/3-500-1941). For example, law firms will have professional indemnity coverage, which may not extend to outsourcing service suppliers, and lawyers are subject to rules governing, for example, confidentiality and dealing with conflicts of interest. However, given that service providers will not be constrained in the same way, it is likely that a law firm would need to pass these rules and obligations on to its outsourcing provider by way of contractual obligations.

Conflicts are an issue of professional responsibility, rather than direct accountability to a regulator or to the client. Providers will, however, have to carry out some form of conflict check to ensure that they are not unintentionally acting on both sides of the same matter, and that, where necessary, information barriers are established.

Whenever an organisation is outsourcing services that may be considered "core" to the business, it is essential to ensure that the services that are being performed are of a sufficiently high quality. Similarly, it is vital to make sure that there are resources allocated to supervise the performance of the service provider, review work as it is received, and ensure that standards of quality are being maintained, if not exceeded. Many of the providers entering into this market are very small, and consist of just a handful of lawyers, so there will be a question as to how many large law firms such providers can appropriately handle as their clients.

In terms of cross-border risks, language is unlikely to be an issue, and the different time zones involved are more likely to be a big advantage, as it allows the firm to outsource work to an LPO provider that may be able to do the work overnight, for example, thereby allowing the work to be turned around more quickly.

Firms should consider running a pilot project with one or more providers to see how efficiently the work is performed. It may also be a useful idea to place one or more lawyers from the provider within the firm for a period of time so that they can understand the levels of performance expected.

Firms should also ensure that they plan for the end of the relationship, and what they will need to do in order to seamlessly transfer services either back in-house or to another provider. Firms should ensure that an exit plan is developed with their provider, and that this is maintained throughout the life of the relationship. This will enable both parties to be certain as to what processes will be required in the final months of the contract. For example, the contract might deal with what information will need to be returned, and also whether training might be needed for a replacement provider.

Security and confidentiality are, of course, also going to be critical issues to address up front. In terms of cost savings, running a competitive procurement exercise is also likely to improve the chances of getting a better overall deal.

The benefits of outsourcing are well understood. Cost savings, access to a large, educated talent pool, and faster turnaround of work should all be easily obtainable from all of the top-tier providers in the LPO market. However, the risks of entering into a long-term engagement should also be carefully considered in order to mitigate the potential for the relationship breaking down.