Why firms should embrace ALSPs and the legal tech boom

Alternative legal service providers (ALSPs) have seen accelerated growth in the past five years. A Thomson Reuters study reveals the global ALSP market grew 30 per cent in two years to reach a value of $13.9bn at the end of 2019, up from $10.7bn in 2017.

ALSPs are businesses that provide legal solutions, often driven by technology but are generally law firms themselves (with one important exception mentioned below). These can range from small technology start-ups to the ‘big four’ accountancy firms.

Historically, law firms have been apprehensive in the face of the rapid growth of ALSPs, having viewed them as a threat to their market share. However, many now see them as collaborators rather than direct competitors.

In fact, many law firms are now creating ALSP subsidiaries within their own firms. As a result, law firms have increasingly turned to ALSPs to carry out specialised tasks, freeing up their own fee-earners’ time. ALSPs are now used by 79 per cent of law firms and 71 per cent of corporate law departments globally.

The Thomson Reuters study shows that UK law firms that use ALSPs primarily use them for electronic discovery in litigation, document review and coding, legal research, factual research and intellectual property management.

The study also notes that UK law firms are not making as much use of ALSPs as US firms, so why do UK firms lag behind their US counterparts?

Despite a growing number of law firms using ALSPs, UK firms have been among the slowest to make use of these businesses compared to US firms. In addition to using ALSPs for tech solutions, US firms are also using ALSPs to advise them on legal technology.

In addition to the geographic differences in ALSP use, the size of a firm also plays a role in how it engages with ALSPs. Small firms are significantly less likely than mid to large firms to use ALSPs for assistance in electronic discovery, litigation and investigation support, document review and coding, regulatory risk and compliance and non-legal research.

Does this mean smaller law firms are missing out? As the pandemic has led to reduced demand across various practice areas, some firms have chosen to retain work that could otherwise have been outsourced because they have excess capacity.

So, why do many firms still not use ALSPs? Some claim they do not use them as their clients have not requested they do so.

Despite lower costs being a significant driver for the use of ALSPs among many law firms, a large proportion of firms said they did not believe using an ALSP would necessarily help them to save money.

Law firms should make greater use of ALSPs. Although they are increasing their use of them, the report shows some, particularly smaller firms, remain slightly apprehensive.

Concerns include doubts about the quality of work and information security, although many of those fears are diminishing. Also, many firms simply prefer to keep as much work inhouse as possible.

Firms that make use of ALSPs for outsourcing niche services can free up resources among fee earners. This has the benefit of enabling lawyers to devote their time to higher value and more complex work.

Allocating resources in a more efficient and strategic manner will help firms boost revenue and offer their clients the best value for money.

ALSPs have thrived as they provide technology-driven smart solutions at competitive prices. The normalisation of remote working due to covid-19 has made law firms and corporate counsel more open to the idea of outsourcing work.

Lawyers have become familiar with new technology since the beginning of the pandemic, leading to a general willingness to embrace new ways of working.

Although the pandemic has had a short-term impact on market growth, as lower demand for legal services has impacted referrals, the business model of ALSPs leave them well-positioned. Their growth is expected to accelerate in the years ahead.

Firms and corporates that move quickly to avail themselves of the benefits of working with ALSPs may also find themselves improving their competitive standing.

Lisa Hart Shepherd is Vice President at Thomson Reuters thomsonreuters.com