This article describes how to find the right LPO provider. There are countless LPO providers in the market with very different delivery models, value propositions, and track records. Much like law firms, there is no single LPO provider who is the best choice for all law departments or all types of outsourcing. Instead, there are providers who fit specific corporate cultures and specific outsourcing objectives better than others. The steps laid out in this article will provide high-level guidance on how to narrow those hundreds of LPO providers to the few who merit in-person time from you and your team.
What Is Different About Choosing An LPO Provider
Choosing an LPO provider is a bit different from choosing a law firm, and it requires a bit more from the law department. Law firms generally pitch themselves relatively broadly, as being able to handle most or all of your outside counsel needs. They want to establish a trusted adviser relationship — someone who is ethically bound to protect your interests and brings their training and expertise to bear to anticipate and address the major risks in whatever regulatory-, transaction-, or dispute-related matter you bring them. By and large, they take pride in their ability to analyze a situation and come up with answers (or at least strategies to pursue on the path to those answers). When asked, most in-house counsel will say that they “hire lawyers, not firms” and that the personal and professional connection with key individuals at that firm is what drives their choices.
LPO providers, on the other hand, tend to make it clear that they are “not practicing law” but rather taking specific tasks that do not necessarily have to be carried out by someone admitted to practice and performing them more efficiently and with better quality control through the use of well-trained people, efficient processes, and leading-edge technology. They do want you to “hire the firm” and judge them on how well they meet specific, measurable expectations about their responsiveness and deliverable quality.
In some ways, selecting an LPO provider may have more in common with some of the things that your Sourcing & Procurement organization does for other parts of the company but with a couple of key differences. Legal services in general are different in some important ways from other kinds of services that Procurement may have more experience with, and LPO services in particular tend to require that the LPO provider work closely with both the law department and outside counsel. Both of these mean that there are critical nonprice-related components to the selection process; indeed, price may be a relatively small differentiator among LPO providers, even though the savings, when compared to outside counsel costs for the same services, may be huge.
Practical Tips For LPO Provider Selection
A good process for picking the right LPO provider to help you meet your objectives might include the following steps :
1. Taking what you have learned about the activities you are considering outsourcing during the creation of the business case and creating a “light” process map for each activity. This process map should show the major steps of the activity and the people who are potentially impacted by a change in that activity; “impacted” people are those who contribute information to the activity, those who access information impacted by the activity, and those who ask questions of someone in the law department who may be impacted by the activity.
2. There are many potential providers for common LPO activities, and it is likely impractical for you to contact all of them. Even if you were to try to do so, many providers likely would not engage with you due to a misalignment in project size, geographic or language requirements, or capacity. Thus, we recommend engaging in an initial exploration of the market to identify an initial list of providers who likely can meet your LPO requirements. There are multiple approaches to creating this list :
- Network with colleagues at other companies or through ACC to find out who your peers have had success with.
- Begin with a resource such as The Black Book of Outsourcing or India Business Law Journal, who each publish periodic lists of major providers and how they have ranked in surveys, and supplement this information with some web-based research to identify smaller providers who might also fit your requirements.
- Consult an outsourcing advisor who maintains a database of providers and their capabilities and can counsel you on the suitability of different providers for different potential LPO engagements.
3. Once you have a sense of the scope and nature of the potential outsourcing and have identified that there is a set of providers who might meet your needs, you should develop a clear set of criteria with which to measure the providers against your stated objectives and determine the relative importance of each criterion to your selection.
Criteria will likely vary for different objectives, often significantly. This is why it is important to clearly define the tasks you may outsource and think with your team about your objectives for outsourcing before you deeply engage with providers : Only by first gaining clarity on your objectives can you be sure what to evaluate providers on.
Many companies find that the criteria they use to evaluate providers fall into two categories :
- “Must have” capabilities that a provider must demonstrate in order to even be considered and which tend not to distinguish among “qualified” providers (often including items like IT and physical security, good confidentiality practices, and effective business continuity planning).
- Criteria that often do differentiate providers from each other (often around pricing model, experience with particular activities or substantive areas, and delivery quality).
You should also consider weighting criteria based on their importance to your achieving your outsourcing objectives. While there is no “rule” on how to weight the very different kinds of criteria we often include, keep in mind that sometimes non-price criteria can be as important (or even more so) than cost.
4. Once you have established your evaluation criteria, you are ready to engage the potential providers directly. There are a number of approaches to doing so, depending on the scope and complexity of the outsourcing, your own resources, and whether you can obtain productive support from Procurement for the exploration. Three possible approaches are described below :
- For a very small scope or when you are uncertain even of what activities it makes sense to outsource, it may make sense to engage directly with a small number of providers to discuss the opportunity and obtain their feedback. Large providers are generally able to have a good discussion with you even early in the process, and though they will ultimately want to sell you services, they also have an interest in maturing the market for legal outsourcing; they often will share some basic information and practices with you.
- For complex or very large outsourcing, it may make sense to begin with a Request for Information (“RFI”). This can be done relatively early in the process and will allow you to begin to engage providers about the potential tasks, encourage them to share information and ideas with you, under a non-disclosure agreement and allow you to evolve your vision for the outsourcing before you commit to a Request for Proposal (“RFP”). An RFI can be fairly short and informal. It should, however, share enough information about your organization and your objectives such that providers can be responsive in ways that you will actually learn something from the exercise.
- For outsourcing that involves relatively standard types of tasks for an LPO provider (e.g., document review, data entry and management, contract management, due diligence support, some components of IP portfolio management, contract redlining, document coding, etc.) and is not exceptionally large, it may make sense to proceed directly to an RFP. Because an RFP typically asks for a firm commitment from the provider for a defined scope of work, it will tend to occur later in the maturation of your own thinking than an RFI might.
5. As you review information from providers and measure them against your criteria for each objective, you might end up with a table like the following that reflects the key evaluation criteria you have selected, the appropriate weights for each criterion, and your team’s evaluation of specific providers for each criterion. Note that the first column reflects a “must have” criterion (i.e., pass/fail) while the other criteria selected are all “differentiators.”
6. Once you have a sense of who are the strongest potential providers, perform some due diligence on those few providers. Good practice includes calling named reference accounts, conducting research on the ownership structure of your top candidates, and consulting ACC peers or an outsourcing advisor about the companies you are considering working with. Normally, LPO providers will visit you for an in-person meeting and give you an opportunity to meet or speak with some of the delivery staff and/or delivery supervisors. Visiting one or more finalists and conducting on-site due diligence prior to contracting is also important, especially if you are contracting with a smaller or less well-established provider.
In some cases, especially when you have a complex set of activities being outsourced or when you have multiple very strong providers, you may choose to have an additional exercise to help you decide among the final few providers. The form of this exercise will vary depending on your outsourcing objectives and the size of the outsourcing. We have worked with clients who have created daylong interactive sessions with providers to explore capabilities, learn what it would be like to work together, and assess cultural fit. Other clients have created a “virtual data room” and asked providers to review and / or provide a work plan and cost estimate for completing a task relating to the documents in the virtual data room. What kind of diligence is “due” depends in large part on what your objectives are and what activities are potentially in scope to be outsourced.
7. Based on your assessment of provider capabilities, their performance against your evaluation criteria, and their success during your due diligence activities, you should select a provider and begin negotiations. Sometimes it will make sense to begin parallel negotiations with two providers instead of just a single provider. We do not recommend negotiating with more than two providers; it is difficult to manage the negotiations effectively, and it is not entirely fair to the providers.
Once the negotiation of an agreement is completed, there can be a tendency to think the hard work is over and the provider will “do the rest.” In our experience, a great deal of value can be lost at this point if there is not a thoughtful transition process and a robust, fit-for-purpose approach taken to managing the provider relationship over time.
These materials are not intended and should not be used as legal advice or other recommendation. If you need a legal opinion on a specific issue or factual situation, please contact a lawyer. Anyone using these materials should not rely on them as a substitute for legal advice.
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