Bangalore: Thomas Babington Macaulay sees India as a breeding ground for Legal Process Outsourcing (LPO). The laws of most former British colonies have similar foundations and in India, Macaulay set up an educational and legal framework that would in his words create "a class of persons, Indian in blood and colour, but English in taste, in opinions, in morals, and in intellect."

"We feel India has a unique advantage of having its own legal system in English," says Jonathan Kelly, partner at Simmons & Simmons, a UK law firm, according to Economic Times. "Thus, there is no language barrier for Indian lawyers when they wade through legal documents of the U.S. and British companies."

The nascent LPO industry is expected to grow 30 percent in the next two years, forecasts Pune-based research firm ValueNotes, which tracks the sector. The size of the LPO business in India has increased to $250 million in March 2009 from $146 million two years ago.

The recent recession in the developed nations is helping the legal services companies grow, unlike their technology counterparts which saw orders slide, as companies such as Citigroup and Bank of America cut technology spending. Clifford Chance, Eversheds, Simmons & Simmons and Osborne Clarke, some of the top global legal firms, are outsourcing some work to Indian companies such as Integreon, MindCrest, and Pangea3 as their clients cut fees as part of their overall cost reduction, although legal costs are a just a fraction of their overall expenses. In the U.S., companies used to pay an average $400 an hour for legal services and in India, it is getting less than a third of it.

"Large corporates in the West have been outsourcing other processes for quite some time," says Neeraja Kandala, an Analyst with ValueNotes. "Legal processes are the latest addition, given that firms are facing pressure to cut law budgets."

The scope of LPO work includes reviewing and drafting legal contracts, reviewing claims, discovery procedures that complement litigation processes, and monitoring compliance by clients. Legal costs run into $100 million per annum on an average for the Fortune 500 companies. In case of companies in sectors such as technology and pharmaceuticals that deal with intellectual property, these can be as much as $200 million.

Outsourcing to Indian companies can reduce these costs by more than half, say experts. "Due to the slowdown, our clients had to either squeeze more (value) out of the same legal budget or cut the spends. This made us think about ways to improve client servicing at lower costs," says Simmons and Simmons' Kelly. "There was a need to innovate servicing without sacrificing quality."

With 250 million pound in revenue, Simmons & Simmons (S&S) is among the top 10 law firms in the UK. It recently outsourced back-end legal processes to the Mumbai-based LPO Integreon for one year. The scope of work includes litigation reviews, due diligence exercise, and financial transaction analysis. With this, Kelly expects to bring down costs by 30-50 percent.

The familiarity of the English legal systems gives an advantage to Indian companies in as much that they just don't perform the clerical function given to them, but also end up doing more than what they are just paid for. Pangea3's staff helped a U.S. logistics company avoid multi-million dollar law suits for corrupt practices as it studied millions of documents to avoid price-fixing charges. "The team reviewed over a million complex pricing and purchase order documents spanning over a period of eight years," says Sanjay Kamlani, Co-CEO at Pangea3. "The client was exposed to the hidden danger of violating the U.S. Foreign Corrupt Practices Act."

Thanks to the expertise, the orders are flowing in and new jobs are created. "We have seen a two-fold rise in contract value in the past two years. The tenure of work has also increased from a few months to 3-5 years," says MindCrest's Managing Director Rohan Dalal. Chicago headquartered MindCrest has delivery centres in Mumbai and Pune. Its headcount has also seen a reciprocal rise from 400 lawyers in 2008 to 700. This is expected to cross 1,000 next year.