UK outsourcing challenges offshoring as firms’ favourite

Reluctance by clients to send work overseas makes firms look at alternatives closer to home

Domestic outsourcing looks set to eclipse offshoring as a means of cutting legal costs, with firms’ reticence over sending work abroad proving a key driver.

Data from outsourcing consultancy Fronterion reveals that 44 per cent of legal process outsourcing (LPO) vendors aim to increase the number of onshore personnel and qualified lawyers they employ over the next three to five years, with 56 per cent claiming they are receiving increased interest from qualified candidates.

At the same time a majority of LPO vendors report that clients are initially more comfortable with onshore delivery over sending work abroad, despite the fact that the cost savings generated from the ­latter are typically twice as great.

Michael Bell, managing principal at Fronterion, said: “Legal offshoring is fundamentally different to offshoring in other sectors and the comfort factor [for firms] is a big one. These engagements are usually transparent to the end client, who asks, ’are they ethical locations, can you demonstrate oversight and project management?’”

Around 300 full-time lawyers and legal professionals are currently working in delivery centres in the UK. And 10 per cent of legal staff in the 16 largest global vendors are based in the UK.

“This proportion could increase over time. Onshore will potentially be a career alternative for legal professionals in the UK,” said Bell.

Using non-City cost ­centres is not a new ­phenomenon in itself. National firms, including Addleshaw Goddard, Pinsent Masons and Wragge & Co, have long made use of offices in the Midlands and the North with lower overheads in what is dubbed ’northshoring’. But it has generally been thought that, for major efficiencies to be made, the work needs to not only be delivered by a third party, but go further afield.

The research, though, indicates that 19 per cent of vendors report that their clients are interested in onshore delivery. Start-up Laureate Legal Services recently received £25m from private equity house Lyceum to ­specifically target what it believes is a growing market.

Chief executive of legal services at Laureate Hugh Morris said: “An onshore offering can increase ­comfort and confidence. If someone wanted to be able to jump on a train and see the work being done, they could.”

Morris pointed out that cost savings could be gained in the UK too. “Cost savings are generated through taking existing people and moving them higher up the pyramid, increasing the use of technology and savings on fixed assets,” he said. “It’s amazing how small a distance you need to go to find savings. You just need to be outside the M25 corridor to generate a 25-30 per cent saving on central London rates.”

But head of dispute ­resolution at Pinsents Nigel Kissack, whose firm broke ground by becoming the first UK firm to outsource legal work offshore, was sceptical.
“I looked at it before we opened offshore because it makes sense to have it ­nearby and under control,” he said. “[But unlike the US, the UK doesn’t currently have] the culture of lawyers aspiring towards a career as a contract attorney. You need a surplus supply in order to keep the price down. You can’t get the savings just through process.”

However, he believes that structural changes in the legal sector could see this happen over the coming years. “With the combination of the number of people qualifying and the number of jobs likely to be available it might change,” he said.