[Editorial Note: We apologize for the error in our last post Innovation Part 2: Insights from the Experts. We mistakenly referred to Bill Deckelman as John. ]
The most recent Alternative Legal Service Providers 2019 Report* was released in January. In the two years since the survey was conducted last, the ALSP market has grown another $2.3 billion from $8.4 billion in 2016 to $10.7 billion in 2018, a CAGR of $12.9%. Most large law firms are now using ALSPs in their service delivery to clients. The most recent news in this space is that EY will purchase Thompson Reuter’s Pangea 3, the managed legal services arm that has 1,000 employees and a history of success (see more about EY below.)
As described in his article, “There is Nothing ‘Alternative’ About New Model Providers – Especially the Big Four,” Mark Cohen describes ALSPs as “agile, proactive, fluid, able to scale, aligned with consumers, and constructed to deliver at the speed of business.” Technology and process, a well-capitalized and corporate business model and a focus on client delivery has transformed the landscape for more efficient and data driven options and the willingness of clients to use alternative legal solutions providers.
The advent of ALSPs and Legal Ops came about for similar reasons: most managed services and legal process outsourcing companies focus on lower value, routine tasks that can be enabled or completed by technology, data analytics, better processes and lower cost employees. This helps control costs, improve accuracy and outcomes and enables high-cost lawyers, including in-house counsel, to concentrate their time and energy on higher value, business critical matters.
*This report was conducted jointly by the Legal Executive Institute, Georgetown Law and Acritas and was published by Thompson Reutters. It can be viewed here.
Categories of ALSPs
The Alternative Legal Services Report 2019 breaks the ALSP market into five categories, but in reality, there is a fair amount of overlap between them all. The lines are blurring as each provider diversifies and expands offerings.
|Big 4||Captive LPOs||Independent LPOs||Legal Managed Services||Contract and Staffing Services||Total|
|What ALSPs Do||Provide managed services to law firms and corporations||Law firm-owned service centers in low cost locations||Matter/project- based engagements for law firms and corporations||Perform all or part of in-house team functions, usually ongoing work||Temporary lawyers provided to corporations and law firms|
|Examples of Leading ALSPs||Deloitte
|Allen & Overy
EY with Pangea3 and RiverviewLaw
Halebury (now Elevate)
Lawyers On Demand
Corporations exceeded their actual use of ALSPs over their 2016 projections:
- 38% use ALSPs for litigation and investigative support
- 34% for legal research services
- 32% for each regulatory risk/compliance services and document review
- 28% for eDiscovery
Law firms also exceeded their projections. 65% of law firms use ALSPs for eDiscovery (likely why the corporate number for this is lower since law firms usually incorporate eDiscovery work into their litigation services) – this has grown 23% just in two years. 50% are using ALSPs for legal research compared to 21% in 2016 and 54% are using them for non-factual research. Litigation and investigative support increased from 33% to 52% and document review increased from 38 to 52%. Fifty-percent of law firms used ALSPs for 5 or more functions.
Concurrent and perhaps as a result of the trend toward clients demanding better, faster more cost-effective delivery solutions, investment in legal technology has grown from $233 million in 2017 to $1.66 billion in 2018. This rapid escalation of investment in new tools and platforms will continue to fuel ALSP capacity.
ALSPs Aren’t Alternative – They Are an Integral Part of the Legal Ecosystem
Corporations increasing are contracting directly with ALSPs and ALSPs are moving upstream into higher value work. It is more accurate to describe these growing and expanding service providers as “Law Companies.” At the end of the day, they offer many of the services that law firms traditionally offered that were more routine or conducive to automated processes, knowledge management and process improvement and they do so with the use of technology as well as different types of experts including contract lawyers, data analysts, technologists and project managers.
On EY’s Riverview Law website, it cites the advantages its technology platform delivers to in-house legal departments: “Until recently legal departments have had no access to comparable platforms. Only point solutions such as matter management, e-billing, and document review were available. As a result neither comprehensive operational data nor structured work management were in sight. Legal departments typically do not know all the work they have, how complex it is, where it is coming from, who is handling it, how long it takes, or why it closed. On a cross-department, global basis their leaders lack the real-time and trend data to allocate work effectively (internally or externally), manage risk, improve processes, pre-empt issues, reduce costs, and improve customer experience. We help our customers solve these problems and enable their functions.” This clearly is positioning their solution as a fundamental component of legal operations framework, not as an alternative. With their recent acquisition of TR Pangea3, EY has now scaled significantly its legal managed service offering.
Are the Big 4 Acting as ALSPs or (Unauthorized) Law Firms?
As we described in a prior blog post “Who Are Law Firms Really Competing with and Why?”, the Big 4 often pose substantial competition to law firms outside the U.S. Having retrenched after Sarbanes-Oxley fallout, they have now rebounded into some of the largest law firms in the world. A visit to their legal services websites would certainly convince buyers of legal services that except in the US and Canada, they offer a full range of services traditionally offered by law firms. In addition to many other business model advantages, key benefits the Big 4 offer over law firms include are that they:
- Take a multi-disciplinary approach and collaborate across service lines; combine law with industry expertise, data analytics and risk management
- Bring diverse skills and experiences to the table; look at legal problems very differently than traditional lawyers do
- Are global in size and scale
- Have globally recognized brands, invest substantially in original research and thought-leadership, e.g., surveys, white papers.
When it comes to the services the Big 4 are providing in the ALSP space context, however, the competition the Big 4 encounter is with other ALSPs, not always directly with the law firms (unless law firms try to conduct diligence, eDiscovery, compliance assessments etc. with expensive lawyers instead of AI and tech-enabled tools.)
EY, as an example, has a Managed Services offering that they believe is “applicable to 60-70% of legal work that large businesses do week-in, week-out, month-in, month-out, that can be packaged into long term managed service agreements.“ According to their web site, their fuller solutions include:
- eDiscovery and TAR (technology-assisted document review)
- internal and government investigations
- contract analytics and management
- risk, compliance and merger control
- fact-based inquiry
- data analytics
- company secretarial
- law department spend and optimization
Whether the Big 4 pursue legal services work from companies that are not their audit clients, are non-clients or law firms, they won’t pose a direct threat to Big Law as long as law firms follow the approach the Big 4 have taken that the legal function in a company is there to enable and accelerate business and that providers supporting them are there to do the same.
Build, Buy, Rent or Partner?
At the end of the day, companies and law firms are considering the same options when it comes to the services and capabilities that Law Companies have to offer. There are many law firms that have gotten a head start on building their own KM platforms, AI enabled processes using IBM Ross, Neota Logic and other platforms, eDiscovery centers, project management tools and certainly lower cost service centers of contract lawyers, legal technologists and analysts in low cost markets. [Note: Not surprisingly, some of the early law firm adopters who used ALSPs, developed their own eDiscovery services and contract lawyers still used these as opportunities to add extra costs/mark-ups to clients and profits to the law firm. Companies have caught onto this and now buy directly from providers.] For smaller and mid-size law firms unable to make the significant investments required to build or buy, they often have contracts to “rent” systems and services from established ALSPs and in some cases, have formed consortia to share tools and platforms at a shared cost.
The title Alternative Legal Service Providers implies that law firms are still the preferred and predominant players in providing the legal solutions that businesses need and that all others are alternative. In the next five years, we are likely to see continued and dramatic growth of Law Companies and a reduction in the number of traditional law firms in which lawyers practice law rather than provide solutions that accelerate business.