Why today’s Rio Tinto LPO deal spells bad news for ‘magic circle’ firms

The legal process outsourcing (LPO) market has taken a giant step forwards today, with the announcement that Anglo-Australian mining company Rio Tinto is to outsource its in-house legal work to India. The company is working with LPO specialists CPA Global to build a team of India-based lawyers in a move that it hopes will cut its annual £60 million legal bill by 20 per cent.

This is a major deal for a number of reasons. For one thing, while it’s not uncommon for the legal sector to outsource back-office jobs such as accounting and word processing to India, Rio Tinto is asking CPA to undertake substantive legal work on its behalf, including contract review, drafting, legal research and document review.

But more importantly, in this case, it’s the client that is outsourcing, rather than an external law firm. In fact, Rio Tinto, which works with ‘magic circle’ firms including Linklaters and Baker & McKenzie, is asking these firms to pass on some of the tasks their juniors would normally perform on its behalf to CPA, too.

In an article in The Times today, Richard Susskind, a visiting professor at the Oxford Internet Institute and author of The End of Lawyers?, says the deal will “trigger what is predicted to be an irreversible trend in the legal sector”.

“People often assume that outsourcing and the options are applicable only to high-volume, low-value legal work,” he writes. “The Rio Tinto deal confirms this is wrong. There is no legal job whose complexity and value elevates it entirely beyond market forces. The reality is that significant parts of even the biggest transactions and disputes are repetitive and routine; and in-house lawyers will be delighted that these can be packaged out to less costly providers.”

Rio Tinto estimates that its Indian team, which has operated since May 1, will be seven times cheaper than comparable lawyers in London. It said that it had already saved more than $1 million.

Other large multinationals, which can spend from £10 million to £100 million a year on legal costs, will no doubt be watching the progress of this contract carefully. 

Posted by on 06/18 at 09:39 AM

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