In its “2017 Report on the State of the Legal Market,” Thomson Reuters Legal Executive Institute examines the decade that began with the dawn of the Great Recession in December 2007. For law firms, it is not a pretty picture: flat demand, declining productivity, growing expenses, dwindling leverage, slipping profit margins, diminishing realization, intense competition. Remember those law firm leaders who argued – strenuously – that this was a cyclical, not a structural, affair? “Things will bounce back,” they said. “They always do.”
Or do they?
“These changes are foundational and, in all likelihood, largely irreversible,” says James W. Jones, a senior fellow with the Georgetown Law Center for the Study of the Legal Profession and the report’s lead author. Jones, turning to a Darwinian analogy, concludes that the race through the next 10 years will go not to the swiftest, the strongest or the smartest. It will go, as Darwin discovered in his voyages aboard the HMS Beagle, to the most adaptable. And while he’s talking specifically about traditional law firms, it’s their corporate clients who are at the wheel driving the changes to which those firms must adapt.
“What is ultimately needed,” Jones says, “is a broader reimagining of the overall model for legal service delivery, one that includes paraprofessionals, technologists, information specialists, process managers, and others – in addition to lawyers – as part of an integrated system for the delivery of legal services.”
We get a fulsome look at such a reimagining in a separate, first-of-its-kind report also issued this year by the Legal Executive Institute. “Alternative Legal Service Providers: Understanding the Growth and Benefits of These New Legal Providers” is a collaborative effort with Georgetown and the University of Oxford’s Saïd Business School. This up-close view of the Alternative Legal Services Provider (ALSP) market dishes up important insight into nontraditional service providers that are changing the legal services game.
The ALSP report was a challenging undertaking. This emerging and fast-growing sector remains fuzzy and ill-defined. That’s why this report first takes a stab at defining the category by what it is not: the hiring of an attorney at a law firm for every aspect of a legal matter. It’s a service delivery model that departs from the traditional law firm delivery model.
What does this new market look like? It’s “quite widespread” for an emerging market, the report says, with 50 percent of law firms and 60 percent of corporate law departments now working with ALSPs. To be sure, most of those engagements are for commoditized work – low-risk and high-volume stuff such as document review and coding. Law firms current use ALSPs mostly for e-discovery and litigation/investigation support, while law departments are getting help managing high-volume processes such as corporate filings, contract management and compliance. There is continued reluctance, the report says, to entrust ALSPs with higher-end tasks involving legal strategy or judgment.
Just how big is the ALSP market? Including the Big 4, which is very active outside the U.S., the report pegs the market at a “not unsubstantial” $8.4 billion. That’s just a little more than 1 percent of the total worldwide market, which the report estimates at $700 billion. Here’s how it breaks down:
Independent LPOs, E-discovery and Document Review (e.g., Thomson Reuters Managed Legal Services, DTI, Mindcrest, QuisLex, Integreon, Consilio, LDiscovery) - $6.2 billon
Big 4 Legal Services Units (Deloitte, EY, PWC, KPMG) - $900 million
Contract Lawyers and Staffing Services (e.g., Axiom, Halebury, Special Counsel) - $900 million
Managed Legal Services (e.g., Thomson Reuters Managed Services, Axiom, Riverview Law, Elevate) - $250 million
Captive LPOs (e.g., WilmerHale, Clifford Chance, Eversheds, Allen & Overy, Orrick, Reed Smith - $150 million
“ALSPs have clearly not swamped the incumbent players,” the report says. “But at $8.4 billion and growing, ALSPs represent one of the most dynamic segments of the legal services industry and they are likely to play a role as competitors and disruptors for years to come.”
The report does a good job laying out the use cases for corporate law departments, which turn to alternatives for expertise they lack such as regulatory risk and compliance. They also use ALSPs to meet peak demand without ratcheting up permanent headcount, in conjunction with LPM initiatives, and because internal business partners are telling them to do so.
Despite this broad and growing usage, the market is replete with uncertainty regarding the range of vendors and their services. That’s why law firms and corporations cite quality of service as an ongoing concern. Still, there’s little doubt that as experience accumulates, the sector will grow and mature.
“While their use today is primarily centered around standardized tasks, increasing sophistication on the part of the ALSPs, as well as better technology and growing familiarity and comfort on the part of law firms and corporations, could lead to ALSPs playing a greater role in increasingly complex services and tasks,” the report concludes.
That sounds like good news for corporate law departments ready, willing and able to embrace alternative service delivery models. It’s not so good, however, for laws firm already reeling from a decade of dimming prospects. Still, the report holds out hope for firms willing to incorporate ALSPs into their delivery model, which could be a path to significant competitive advantage. Two options the report suggests for law firms are “supply chain management,” where they collaborate with law departments in coordinating service providers as a kind of general contractor, and create affiliated entities that function as ALSPs, which allow the firms to maintain control of the client relationships and, if all goes well, firm up those sagging profit margins.
“While the exact trajectory of the ALSP market remains impossible to predict,” the report concludes, “there is no doubt that it is and will remain a growing and competitive part of the legal marketplace.”
For the full report, go to Thomson Reuters Legal Executive Institute.
Published February 14, 2017.