Mallesons Stephen Jaques will be using 200 trained lawyers in India for legal work after signing a legal process outsourcing (LPO) contract.

The firm has signed an agreement with the American-based LPO provider Integreon to outsource much of its low-level legal tasks such as document review, document processing, due diligence and discovery. Mallesons is the first large law firm in Australia to sign a formal agreement with an international LPO provider, with managing partner Tony O’Malley describing it as a “watershed moment” for the Australian legal sector.

“In certain respects the conditions are very ripe for change within the sector,” said O’Malley. “The intense cost pressures that many of our clients are under and the broader consolidation and globalisation within the legal services sector means the demand for LPO as a solution is stronger then it has been for some time.” Integreon is the largest global LPO provider, with 17 international offices. It has nine of the top 10 global law firms as clients and the 10 largest investment banks. Its arrangement with Mallesons means it will have 200 legally qualified staff spread across three offices in Mumbai and Delhi available to the Australian firm.

Local rules in India mean that lawyers who join an LPO provider must surrender their law license. “There is a lot of pressure from general counsels around the world to lower cost and improve efficiency,” said Bob Gogel, the CEO of Integreon who was in Australia this week for the formal contract signing. “The US and UK markets have been reactive and waited until the last minute under pressure from general counsels, and I think what makes this a significant event in the Australian market is that we believe Mallesons has taken the initiative before a lot of general counsels put the pressure on.”

Gogel said that by outsourcing routine, process-driven work, law firms can “focus on what they are supposed to do – which is to practice and advise clients”. He estimates that Mallesons would be able to offer cost savings to clients of between 30 to 50 per cent on large-scale litigation matters through outsourcing. An agreement such as this between a major law firm and an LPO provider has been brewing in the Australian legal market for some time.

Blake Dawson has previously said it was in discussions with LPO provider CPA Global while Advent Lawyers has a strategic alliance with Pangea3. Rio Tinto, one of Allens Arthur Robinson’s major clients, also uses CPA Global to outsource much of its in-house legal work, bringing an estimated cost saving of around 20 per cent.

“This wont appeal to all clients,” said O’Malley. “If you are a major Australian corporate and you tend to have a portfolio of litigation, and many of our major corporates do … this will be very relevant to them, because not all of those cases are strategically relevant. Some of them are just sitting there and they really want to keep the cost down and get rid of them.” O’Malley added that Mallesons first began negotiations with Integreon around 18 months ago on the back of client concerns about cost.

No cut in recruitment: Mallesons doesn’t plan to cut its graduate recruitment intake as a result of the agreement with Integreon. Although paralegal staff and junior lawyers traditionally do the lower-level legal work now being outsourced to India, O’Malley said it doesn’t signal that the firm is seeking to move to a model with a lower leverage ratio. “What we are hoping to do here is turn this into a growth story,” he said. “It is about being more relevant to our core clients rather than being less relevant, and the response that we have had to date has been that being able to provide an integrated solution across a broad range of services that clients need means they are more likely, rather than less likely, to use you, so it is a growth question.”

Senior litigation partner Peter Stockdale believes that by outsourcing process-driven litigation work such as discovery, Mallesons will be able to retain more of its junior lawyers, as they will have the opportunity to act on more senior levels of work earlier on in their careers. “As a litigator we have been struggling with the undesirable discovery process for many, many years, trying to retain very bright graduates who get bored stiff by doing it,” he said. “The problem for us is not one of retention. This will be a blessing to the people there because they no longer have to do something they didn’t like doing very much.”

As costs have reduced and processing power has increased, we have gorged ourselves upon them and their power hungry software companions. Count up the number of PC’s you have, the number of software packages on each; how many hours a day each package is used; the number of functions in Microsoft Excel that are used; the quantity of RAM you require thought the use of the PCs or workstations and the total memory across all the PC’s in your business.

What % utilisation do you think you have, 10%, 5% or less? The simple fact is that we use these highly expensive IT resources inefficiently. If you work out the cost per email, the cost per word document created, the cost per use of a software package or the cost per use for storage then you will start to see that, how we use these systems in managing customers puts a tremendous burden upon the cost to acquire, serve and retain customers. Let’s not forget they are the sole reason we are in business and as such we should maximise the value we create for them from the assets we invest in. Consider this, the hard drives of your PC’s are like enormous empty warehouses.

Ask your CEO next time you see him whether you can buy a large warehouse, just in case you need it. Then put a small box in one corner. Ask the CEO to visit the warehouse with you and give him the guided tour. You have just walked him around your current IT strategy. Since the industrial revolution, inefficiencies have created opportunities for economic change, some positive and some negative. SaaS and Cloud Computing will change the economic make up of the companies that embrace this technology.

Their cost to serve will decrease, their profit margins will increase, they will be more competitive, they will be able to offer better salaries, more people will want to work for them (reducing salary and recruitment costs) and they will be able to pay higher dividends, and thus attract investors. And so the cycle continues. The question all CEO’s and MD’s should be asking is not whether they should move to Cloud and SaaS but when. Don’t miss the revolution, be part of it.