PANGEA3 LLC

In a recent Legal Intelligencer article, “Law Firms Feel Pressure From New Breed of Competitors,” Gina Passarella, with the help of some legal consultants and Pangea3 co-CEO David Perla, paints a picture of a changing legal industry. Passarella writes that “…the industry is moving away from a monolithic provider of legal services—the law firm—to a fragmented service platform where the competition isn’t just a broadening array of law firms, but legal process outsourcers and other non-law firm legal service providers….” If the article is to be believed, the legal industry is becoming efficient, innovative, adaptive and competitive.

And not everyone believes. When words like efficient are applied to legal, it can be hard to swallow. To Peter Kalis, chairman of K&L Gates, LPOs are better compared to a “gnat in an elephant’s ear” than true predators of law firm business. Kalis maintains that while firms need to continually change their value propositions, it’s only to be more competitive with each other.

Passarella disagrees. She counters, “The LPOs are increasingly capitalizing on the void left by firms that haven’t adapted their value propositions.” Pangea3 is on track to grow 250% this fiscal year, getting increased business from both corporate legal departments and law firms. According to Perla, some of the more forward thinking partners at law firms are showing interest and getting educated, and Edge International consultant Jordan Furlong describes LPO as “permanent…driven…by the marketplace.” Janet Stanton, partner at consultancy Adam Smith Esq., also describes the change in legal work distribution as permanent, comparing the imminent rejection of the notion of law firm associates doing document review to the abandonment of tape decks in luxury cars—a permanent innovation driven change.

In times of recession it’s hard to ignore that legal departments are costly, and it’s easy for boards to question legal spend. As the UK construction industry struggles to avoid the “R”-word assignation for the second time in as many years, legal departments in big construction firms have the opportunity to proactively prove their worth, showing flexibility and innovation in cutting costs. In an article that appeared in Building Magazine, Pangea3 co-CEO David Perla explores this topic and proposes LPO as a solution. When he breaks down the numbers, the value provided by legal outsourcing is significant. Document review consumes over half of a large construction firm’s litigation budget, which itself is typically 80% of the overall legal budget. The hundreds of “top-tier career lawyers” employed by leading LPOs, like Pangea3, in India have the numbers to take on large-scale document review projects, and they blow onshore paralegals and contract attorneys out of the water in terms of skills. Considering the staggering amount of electronic discovery that goes along with litigation, LPO saves substantial time and money, which allows a more extensive, higher-quality document review.

The number of professional negligence claims in the construction sector tends to rise in opposite and direct relation to the economy. For example, in 2008 the number of these cases in the commercial court increased by 150%. Until the economy betters, the cases will continue to increase, and the construction firms that win them will also win the diminishing number of contracts. The smart legal departments will prove their worth by simultaneously cutting costs and strengthening their litigation strategies. Those looking at the future will look to LPO.

Read the “Outsourcing abroad: Indian takeaway” as it appears in Building Magazine.

Anthony Lin wrote an intelligent, well-rounded article about LPOs that appears in this month’s American Lawyer. “The Global Issue: Inside the Revolution” is both thoughtfully balanced and solidly optimistic about the future of LPOs. Lin’s stats show LPO providers’ rapid growth, for example citing that Pangea3 “has gone from 350 lawyers at the beginning of the year to 450 lawyers at press time, and hopes to double that number within the next year.”

He also makes a necessary distinction between the end-of-the-world-as-we-know-it predictions often tossed around prophesying the eminent demise of law firms, and reality, and his equilibrium of approach is evidenced by his numbers. The volume of legal outsourcing business is estimated to be $1.1 billion by 2014—impressive for a new industry, and catching up to the $1.5 billion U.S. temp lawyer business—but small change when looked at against the $230 billion billed by U.S. law firms in 2007. Pangea3 co-CEO Sanjay Kamlani also puts growth predictions into perspective, comparing LPO to business process outsourcing (BPO), rather to other legal service providers or law firms. “Large BPOs are used to selling a hundred [full time equivalents] at a time. I don’t know that you could sell a hundred FTEs to an in-house legal department for lawyer work.”

“The tsunami is yet to come,” but the LPO tide is definitely rising.

Read Full Article.

The 7th Annual Litigation Trends Survey Report, recently released by Fulbright and Jaworski leaves no doubt: the economy is changing the way corporations approach litigation. Of the 403 respondents to the survey (a statistically significant number), nearly half blame the drab economy of recent years for anticipated increases in litigation. Along with that comes the belief harbored by 50% of the U.S. respondents that the legal industry will permanently change because of the economy. Legal spend is under attack, over half of U.S. respondents expecting alternative fee arrangements to remain prevalent, and a quarter believing stringent cost control is a permanent trend. At the same time, electronic discovery is more important than ever, with over 40% of companies bringing in $1 billion or more in revenue planning to increase spending on e-discovery in the next year.

This particular combination, an atmosphere of increased litigation and increased e-discovery spend, but decreased legal budgets and general acceptance that change is gonna come, is the perfect environment for legal process outsourcing. It’s not a surprise that litigation services outsourcing is currently exploding. So no wonder ValueNotes DatabasePrivate Limited expects LPO to grow from what it currently estimates is a $440 million industry to a $1.1 billion industry by 2014. The decks are stacked in LPO’s favor, and litigation is just the beginning.