The Alternative Legal Services Providers 2023 Report, published by the Thomson Reuters Institute, the Center on Ethics and the Legal Profession at Georgetown Law, and the Saïd Business School at the University of Oxford, reveals an evolving market in which the boundaries between alternative legal service providers (ALSPs), law firms, corporate law departments, and even technology and software firms, are rapidly blurring.
Since the report was first published in 2015, the market for ALSP services has grown 145%, reaching a size of approximately $20.6 billion by the end of FY 2021. The report’s geographic coverage is mainly focused on the US, with some additions from the UK, Canada, EU and Australia. It considers three different types of ALSPs:
- Independent ALSPs (which account for an estimated $18 billion in revenue or 87% of the total market).
- The Big Four, which have reached $1.5 billion in revenue from this part of their businesses.
- ALSPs created by and operating within law firms (law firm captives). While law firm captives are the smallest part of the ALSP market, they are also the fastest growing segment and now account for about $1 billion in revenues.
Trends in the use of ALSPs
Use of ALSPs is strongest in the US, when compared to other geographies. A few service categories (such as regulatory risk and compliance services, and legal research services) are widely popular but corporate law departments in the UK, Canada, EU and Australia often favour different use cases to their US counterparts. For example, the most popular service category in the UK is intellectual property management (used by 35% of corporate law departments), while legal drafting services are used by 27% of departments.
Global corporations: reasons for using ALSPs
For global corporations, ALSPs are all about increasing efficiency. Efficiency itself is the second most-popular reason for using ALSPs but it is also a thread running through other highly valued aspects of working with ALSPs, such as freeing up internal teams to work on higher-value or more strategic matters, and access to specialised expertise. ALSPs may also bring in project managers, analysts and other non-legal staff to help boost efficiency.
Remote work and relationships with ALSPs
The COVID-19 pandemic dramatically changed attitudes toward remote work, which benefited ALSPs. They were well-suited to flexible models of work because many already had the enabling technology and cultures in place. ALSP leaders have reported that clients have become more open to remote staff, partly because so many have now worked remotely themselves. Corporate law departments are less likely to be using ALSP staff on-site and are more likely to be offshoring work to professionals in another country.
US corporations: trends in anticipated use of ALSPs
US corporate law departments that currently use ALSPs expect to spend more with them in the future, with 21% saying they will increase spending, compared to 8% that say they will decrease it. Corporate law departments appear to be becoming more comfortable engaging directly with ALSPs themselves rather than asking law firms to manage ALSPs on their behalf. Some corporations are now creating discrete ALSP panels or bringing ALSPs into their law firm panels.
Global corporations: reasons for not using ALSPs
The top reason that corporations refrain from using ALSPs is that they’d prefer to handle the work in-house. However, the proportion of corporations saying this has dropped from 81% two years ago to just 52% this year. The second-most common reason corporate law departments choose not to use ALSPs was that they believe ALSPs would not necessarily reduce costs. Service quality concerns are becoming less of an issue for corporate law departments that use ALSPs, with only 29% saying this is a factor, down from 46% two years ago.
Corporations’ strategies to engage with ALSPs
Corporate law departments are using a mix of strategies to engage ALSPs. Some contract with ALSPs directly, but in most markets there is still some reliance on law firms to engage with and manage ALSPs. In the most-common use case for ALSPs, regulatory risk and compliance services, only 8% of corporate law departments use a law firm to manage their ALSPs. Similarly for legal research, law departments are quite likely to use ALSPs (61%) but unlikely to do so through law firms (11%).
