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The recent LPO Summit conference in New York featured a number of presentations focused on structuring relationships with LPO (legal process outsourcing) vendors.  Corporate legal departments looking to offshore legal work face a number of challenges in establishing an LPO arrangement.  Only a careful and reasoned approach will result in a working relationship that ultimately preserves or enhances work quality while reducing cost.  Given the nascent LPO industry and the increasing number of providers, it is undoubtedly a good idea for corporate legal departments to solicit the advice of outsourcing consultants and outside law firms with “outsourcing practices.”  At the LPO Summit, a number of these outsourcing consultants and outsourcing lawyers provided several good pointers about how to select an LPO and how to structure an outsourcing deal with an LPO.

But it may be risky to rely exclusively on the advice of outsourcing consultants and lawyers.  The danger stems from an overarching question that is not easy to resolve: is LPO more “legal” or more “outsourcing?”  To put it another way, is working with an LPO more like working with an IT outsourcing (“ITO”) or business process outsourcing (“BPO”) company, or is it more like working with outside counsel or a contract attorney staffing agency?  To be sure, there are elements of both.  While LPOs can provide help and support with tasks traditionally done within legal departments and law firms, many have primary delivery centers in India, just like ITO and BPO companies.  So the structure of LPO relationships should, naturally, give due weight to both the “legal” and the “outsourcing.”  Yet, based on the approach adopted by consultants and outsourcing lawyers at the LPO Summit, it seems that many outsourcing consultants and lawyers tend to view LPOs as substantially more similar to ITO and BPO companies and that their advice is therefore fully transferable to structuring LPO relationships without amendment or addition.  Advice based on an initial categorization of an LPO as more “outsourcing” than “legal” can result in a detrimental approach that may not only defeat the advantages of using an LPO, but also make the time necessary to manage the LPO prohibitive for a corporate legal department.

Two examples of where transferring lessons learned from ITO and BPO contracts to the LPO industry may not be appropriate without relevant amendment and addition are: 1) the Six Sigma approach and 2) service level requirements.

Example 1: Six Sigma

Pioneered by Motorola, Six Sigma is a business strategy applicable to manufacturing and service processes.  A consensus definition has emerged that a Six Sigma process is one that produces 3.4 defective parts per 1 million opportunities.  Advocates of Six Sigma claim that by following its approach, an organization can develop a rigid, fact-based, methodology to its functions resulting in improved product or service quality and greater efficiency.  When applied to a BPO process such as a call center, Six Sigma may be a solid approach to improving the level of service.  Companies looking to offshore call center functions might have very good cause to listen to Six Sigma consultants when assessing whether a particular BPO company is a suitable partner.

But Six Sigma has its limitations.  One key area is for processes that require judgment and discretionary decision making.  Consider drafting an appellate brief.  Does it make sense, when selecting among a group of appellate attorneys, to require Six Sigma certification and examples of how the attorney’s legal research and brief drafting processes are Six Sigma compliant?  Preparing an appellate brief requires a substantial amount of judgment and discretionary decision making, including analyzing which precedents are relevant and persuasive, evaluating the strength of various arguments, developing an order of presentation in the brief that is most likely to persuade the court, etc.  Appellate brief writing is pure legal work, and thus, beyond the scope of Six Sigma.

LPO work, although not usually focused on work as sophisticated as writing an appellate brief, nonetheless often requires judgment and discretionary decision making.  This is true for privilege review, for example.  Every attorney knows that some documents are clearly privileged and some are clearly not-privileged.  But anyone who has ever reviewed documents for privilege also knows that a not  insignificant number of documents can be interpreted either way, and it is up to the reviewing attorney to exercise legal judgment and decide whether a privilege claim is warranted, and to know when to seek guidance from the client and how to frame the question for the client.  Privilege review is not as systematic as running a call center or mass producing cell phones.  Hence, if you are looking to use an LPO to handle work that you otherwise consider having done by personnel within an outside counsel firm or with domestic contract attorneys, Six Sigma may not be an appropriate yardstick.

Example 2: Service Levels

The majority of ITO and BPO contracts focus on service levels.  Service levels set forth a level of work, which, if unmet by the provider results in service level rebates granted back to the customer or client.  Service levels can be effectively used when service quality can be objectively determined.  A good example is response time to a helpdesk IT request.  The response time can be objectively measured, and if the provider fails to respond according to the service level agreement, the customer receives a pre-defined rebate.

But when outside counsel specializing in “outsourcing” advises on an LPO contract, the question of service levels can be much more complex.  Objective metrics are not readily apparent for legal work requiring judgment and discretion.  Moreover, many of the services provided by LPOs are not susceptible to tracking and monitoring.  Consider the example of a 5 million page document review project.  At the LPO Summit, one corporate “outsourcing” attorney from an AmLaw 100 firm advised corporate legal departments that false positives and false negatives in responsiveness decisions would be an appropriate service level metric.  Upon closer examination, however, this approach makes very little practical sense.  First, there is no rigid definition of a false positive or a false negative.  As litigation counsel know, a number of documents will fall into a gray area where reasonable arguments can be made to support opposite positions.  Second, even if there were an objectively “correct” answer for each document, the only way to determine the performance of the LPO is to re-review the entire document set, assuming that the persons tasked with the re-review are not susceptible to making errors themselves.  Third, even a re-review of just a statistically significant sampling of the document set fails to be an objective measurement because different document custodians present different challenges to reviewers.  And such an approach treats each of the 5 million documents as equals, when anyone knows that levels of importance vary between documents.

Everyone involved with legal services needs to do more hard thinking and work to develop metrics appropriate for measuring the performance of providers of legal services beyond the usual budgeting process with variance analysis.  Certainly, LPOs, outside counsel, and contract attorneys performing document review services should adopt precautions and processes designed to minimize error and variation and manage those processes with rigor.  Good LPOs have developed such processes, and clients should demand them.  But insisting on a service level agreement may be completely inappropriate for the type of work being outsourced. 

As a rule of thumb, we suggest considering whether the proposed service level agreement would even be requested if the work were not being sent offshore.  Most of the service levels negotiated in ITO and BPO contracts apply equally well when services are performed in the U.S. as when they are performed abroad.  In the context of document reviews, service levels are rarely, if ever, demanded of outside counsel.  And service levels for contract attorneys usually center around attendance and the number of hours worked - not quality or efficiency metrics. 

An appropriate service level for document reviews may simply be documented adherence to a quality control and efficiency process.  Aphelion, for example, has developed certain processes designed to enhance the quality and efficiency of a review.  These or similar processes can - and should - be applied to document reviews regardless of whether reviewers are associates with outside counsel, domestic contract attorneys, or LPO employees. 

In conclusion, consultants and “outsourcing” attorneys can provide much needed advice when a corporate legal department looks to use an LPO.  But it is important to temper advice based primarily on experience with ITO and BPO agreements with a reasoned approach to the elements of LPO work that more closely resemble the work of outside counsel and contract attorneys.