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Engagement Models for LPO's in India
“LPO Industry Drives 49% Revenue Growth in 2009”


Forrester Research has tipped “the Indian LPO market to reach $4 billion by 2015. The industry has witnessed growth from approximately $60 million in 2005 to $146 million in 2006, cites Forrester Research. The country is coming up with new offerings of LPO to bring the outsourcing advantages in the form of value addition, cost reduction and time operations”

The unclear and extraordinary pricing structure and delivery time of project is always been a major concern of the law firms clients in US. After a long time period the firms came up with defined price structures in the form of different pricing models like alternate billing, per hour billings etc.

The trend of outsourcing has defined this billing structure in much more elaborative manner. Low cost and time saving is the major reason for outsourcing.

Legal Process Outsourcing in India

REQUIREMENTS OF ENGAGMENT MODEL:

The Prime requirements of pricing models are Flexibility, Transparency, Fairness, Inclusiveness, Predictability and Sustainability and based on model that can negotiate.

The pricing model should encourage both parties to promote the business objectives of each party. Balance your objectives with your supplier´s legitimate business outcomes of being paid a reasonable margin and receiving a payment commensurate to the risks associated with the outsourcing project. Do this by requiring explicit assumptions, and agree and document from the outset that all functions and services required for performance and delivery are explicitly included in the price, unless stated in a definitive agreed list. Review and catch any “price points” early. Collate them in one place and prioritize them. “Purge” as many as you can by providing as much information as your supplier needs to price the deal properly. Consider liquidated damages if anticipated business outcomes are not achieved on time, hold back on pricing incentives if milestones are not hit or, better still, include provisions that ensure that you will get the benefit of the pricing corresponding to the “transformed” environment, as of a specified date, even if your supplier fails to achieve full transformation by that date. On the flip side, consider incentivising the supplier by sharing on an agreed basis the proceeds of any efficiency savings made by the supplier over the lifetime of the deal. (Article by Andrew Giverin was published on Complinet, 10 June 2009)

ENGAGEMENT MODELS:

Pricing for outsourcing services depend upon various factors like complexity, verticals, volume, duration, etc.

In a broader prospective the Engagement Models can be categorized into TWO categories Input-Based Scheme and Output-Based Scheme.

lpo artcle

INPUT- BASED SCHEMES

Per hour basis: The LPO vendor company offers the services, quoting rates on hourly bases for all kinds of work outsourced. For example, charging fee of USD 40 per hour for legal research made online for the clients for X number of hours.

Manpower basis (FTE): This is the pricing model whereby the vendor company deploys the equivalent number of legal experts as the client would have/had in his country to suit the project needs of the client company/firm. The vendor charges the client on the basis of number of people deployed for that particular client.

Virtual Captive Center: This is a model that Aeren LPO has transformed with years of experience to its credit. This model offers ultimate control to the client over the resources deployed by the vendor. It offers all advantages of Captive Service Center and Third Party Vendor. The price is charged on the basis of number of work station used by the client.

LPO services

OUTPUT- BASED SCHEMES

Transaction Fees: A Transaction based pricing model for outsourcing is one where payments to the vendor are based on the number of transactions executed. This model is emerging quite a popular especially in a scenario when the process to be outsourced is a standardized process, repeatable transactions, clearly defined beginning & end. This model makes it easier to alien the incentives of the client & vendor. This model can be used with various variations.

Pay per Unit: In this method the vendor offers a unit-based set rate and the client company pays depending on the amount of usage. An example would be maintenance services, where the client pays for the number of units that avail the maintenance service.

  • Project Based/Flat fee: The service provider charges one lump sum fee for the case, at the beginning or end of the project outsourced. For example, charging USD 5000 for the entire project of research/survey irrespective of the number of hours involved.
  • Retainer ship fee: In this case, the client company pays a monthly or yearly fixed sum of money to the LPO vendor. This way, it can gain access to legal services when the need arises. Big corporations who are highly vulnerable to legal issues and risks predominantly opt for this model.
Legal Process Outsourcing Company

“The fact is that ONE BILLING MODEL does not fit all.” This understanding is borne out in the practice of most LPO providers, which offer a large range of alternative billing models to accommodate the particular needs or concerns of each client.(Bespoke billing Solutions, page 51)

Most billing methods conceptualize and measure work in two basic ways: Time Spent and Items produced. 
(India Business Law Journal, June 2009, Page 50)


 
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