Specialized Expertise, Not Cost, Drives Use of Alternative Legal Service Providers

Access to specialized expertise not available in-house is frequently cited as the primary reason for using alternative legal service providers (ALSPs), rather than cost, according to a study on the emerging and fast-growing market for ALSPs.

The study was released by Thomson Reuters Legal Executive Institute, The Center for the Study of the Legal Profession at Georgetown University Law Center and Saïd Business School at the University of Oxford.

“Alternative Legal Service Providers: Understanding the Growth and Benefits of These New Legal Providers” surveyed more than 800 law firms and corporations to determine who is using ALSPs, why and how they are using ALSPs, and the outlook for further growth of ALSPs in the legal market.

The study determined that ALSPs currently account for approximately $8.4 billion dollars in legal services spend globally – encompassing entities that provide alternatives to the traditional models of hiring an attorney at a law firm or using in-house counsel. This includes providers of legal process outsourcing, e-discovery and document review services, legal managed services, contract lawyers, and non-traditional providers, although not those involved in administrative services.

Fifty-one percent of law firms and 60 percent of corporations report that they are currently using ALSPs in at least one service category.

An additional 21 percent of law firms and 14 percent of corporations plan to use an alternative legal service provider in the next year.

Specialized expertise, not cost, is often the key driver

For law firms, access to specialized expertise not available in-house is the most commonly cited reason for ALSP use. For some uses, meeting peak demand without having to increase permanent headcount is also rated as more important than cost in driving ALSP use.

Similarly, for corporations, access to specialized expertise not available in-house is frequently cited as the primary reason for using ALSPs, rather than cost.

ALSPs are being used for a variety of legal tasks

Corporations are most likely to use ALSPs for regulatory & compliance services (29%) and specialized legal services not available in-house (21%).

Law firms most commonly use ALSPs for litigation-related projects, including e-discovery (34%), document review (31%) and investigative support (29%).

“The legal ecosystem is rapidly evolving to the point where alternative legal service providers are no longer the new kids on the block, they now play an accepted and expanding role for legal departments and for law firms,” said Eric Laughlin, managing director of Thomson Reuters Legal Managed Services.

“Our study highlights the change in narrative around ALSPs: clients are no longer driven by cost savings alone, they are looking to ALSPs to bring technology, process and legal expertise. The report shows there are tremendous opportunities for growth not only for ALSPs, but also for law firms, who can use – and are using – ALSPs as partners to expand their business.”  

“While alternative legal services providers still make up only a fraction of the global legal services market, their influence in reshaping the legal market is significant,” said Mari Sako, professor of Management Studies, Saïd Business School at the University of Oxford, and one of the co-authors of the report.

“ALSPs are not just about lower cost, but also about access to specialized expertise and alternative modes of delivery. Our study indicates that some corporate legal departments and law firms are responding by setting up, or considering setting up, ALSPs themselves."

“The long-standing monolithic model of how legal services are provided is being eroded by the emergence of ALSPs as a growing force in the market,” said James W. Jones, a senior fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center, and a co-author of the report.

“Client pressures and new technologies are opening new channels that deliver the right expertise at the right place and time and performed more efficiently. The report makes clear that use of ALSPs will continue to grow as law firms and corporations become more comfortable and experienced with how to best strategically apply ALSP resources.”

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