Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Risk Management of Important Issues of LPO

Posted by William Byrnes on July 23, 2009


Quote for this blogticle: “First weigh the considerations, then take the risks.” Helmuth von Moltke

In my last blogticle I listed the types of LPO services undertaken with a link to over 100 providers of LPO services.  Hereunder I address several important considerations concerning avoiding the sinkholes in the road to outsourcing. 

Attorney Ethical Issues

In 2006 the New York City Bar Association published a formal opinion regarding the ethical considerations of overseas legal outsourcing of services.  The New York City Bar considered whether a New York lawyer may “ethically outsource legal support services overseas when the person providing those services is (a) a foreign lawyer not admitted to practice in New York or in any other U.S. jurisdiction or (b) a layperson?”[1]  That bar association concluded that a lawyer may do so, upon meeting the following conditions (quoted from its opinion)[2]:

(a) rigorously supervises the non-lawyer, so as to avoid aiding the non-lawyer in the unauthorized practice of law and to ensure that the non-lawyer’s work contributes to the lawyer’s competent representation of the client; (b) preserves the client’s confidences and secrets when outsourcing; (c) … avoids conflicts of interest when outsourcing; (d) bills for outsourcing appropriately; and (e) … obtains the client’s informed advance consent to outsourcing.

Early last year, the Florida Bar Association addressed the same issue and it found no distinction between hiring contract paralegals in the US and contract foreign (specifically Indian) attorneys outside the US, concluding that contractual legal services do not aid the unlicensed practice of law if the Florida law firm provides adequate supervision.[3]

Security

The legal and operational issues that perhaps attracts the most attention, and deservedly so, because of a few highly publicized cases, are privacy, confidentiality and the preservation of privilege.  These issues require a robust discussion of operational data security, institutional / LPO governance, and employee security as well as quality control for processes and compliance verification.

By example of addressing security concerns, outsourcing contracts mitigate the disclosure of documents by mandating the LPO employees’ computers have Internet access limited.[4]  Note that in India anyone with access to customer records is free to sell the data, or use it for direct marketing.  However, pending legislation (the Personal Data Protection Bill, 2006) will if passed protect data provided to the Government and private entities from being sold or used for direct marketing.

Professional Indemnity

By example of addressing professional indemnity and security liability concerns for which the US contracting source firm will inevitably be liable to its clients, LPO contracts may mandate professional liability coverage written by US based insurers, with a certificate of coverage provided annually.[5]  Naturally, heightened insurance and compliance/verification will increases the LPO firm’s operational costs, pressuring its margin and pricing.

Functional Equivalency & Education / Training

While India may have four times the amount of law graduates, are these graduates the functional equivalent of a US associate?  One of my colleagues poses the question that if the Indian graduate attorney was the functional equivalent, then why doesn’t his and other firms, like the technology industry, import Indian trained lawyers?  While it is not uncommon for United Kingdom trained solicitors to be employed by US firms, the same cannot be said of Indian graduates. 

Is the equivalency up to par with US paralegal training?  How can a US firm verify professionalism and level of expertise?  More importantly for the LPO industry, if components are missing in India’s legal education that impact functional equivalency, what are these components and can these be effectively transferred? 

By example, many India law graduates do attend one-year Master of Laws in the United States.  Is the LL.M. necessary to rectify any (perceived) differences?  Will staff’s passage of the penultimate multistate bar examination, by example in Washington DC, New York or California, provide Indian LPO firms competitive advantage to obtaining work, or disadvantage because the (now US) attorney may command a higher wage?

Some LPO providers state that as long as a Indian based U.S.-trained lawyer oversees the Indian staff, the work product will be of equivalent quality.  Because of the recent recession in USA legal services, the US has an ample supply of attorneys willing to relocate to India to oversee such operations.  May a US firm consider this supervision sufficient for certain contracted skill sets, such as document review?

As a counterpoint to this equivalency issue, some LPO marketers state that Indian law graduates are better, rather than equivalent, to their US associate counterparts, by example, because of the competitive motivation of the number of Indian graduates and fewer high paying attorney positions.

In my next blogticle, I will examine some tax issues associated with LPO with India.

Professor William H Byrnes, IV (www.llmprogram.org)


[1] The Association of the Bar of the City of New York Committee on Professional and Judicial Ethics, Formal Opinion 2006-3, August 2006.

[2] The Association of the Bar of the City of New York Committee on Professional and Judicial Ethics, Formal Opinion 2006-3, August 2006.

[3] Professional Ethics Of The Florida Bar (Opinion 07-2); January 18, 2008

[4] Legal Outsourcing to India Is Growing, but Still Confronts Fundamental Issues, Anthony Lin, New York Law Journal, January 23, 2008.

[5] Legal Outsourcing to India Is Growing, but Still Confronts Fundamental Issues, Anthony Lin, New York Law Journal, January 23, 2008.

2 Responses to “Risk Management of Important Issues of LPO”

  1. Patrick said

    Don’t forget that the American Bar Association gave an even more enthusiastic endorsement of legal process outsourcing last year, though again reiterating the supervisory and ethical considerations that must be considered.
    http://www.abanet.org/cpr/08-451.pdf

    And as far as risk management, the security concerns are usually addressed by site visits and an extremely high level of security in place for major Indian LPOs (generally more so than US law firms). The trickier and more subtle risk management issue to be aware of is that a primary concern/hesitations of outside counsel is their duty to oversee the legal work of the LPO, even though the LPO is usually hired directly by the client, rather than the firm.

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  2. […] important considerations concerning avoiding the sinkholes in the road to outsourcing. …Read more about this Related Legal infos …Legal Outsourcing (LPO) is Big BusinessIndian LPO shinesGuest article: Legal […]

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