Alternative Legal Service Providers and the Law Firm: Friend or Foe? It Depends.
In 2017, Thomson Reuters, Georgetown Law Center for the Study of the Legal Profession, and the University of Oxford Said Business School partnered in a study on Alternative Legal Services Providers (ALSPs). They reported that 51% of law firms and 60% of corporate legal departments use ALSPs. That number is growing.
Alternative legal service providers are big news lately. Not necessarily new news: law firms have been outsourcing legal review services for years. But it is big news today because corporate clients are shifting work away from their law firms to ALSPs for specialized expertise and cost savings.
This is a serious problem for law firms if the lost work belongs to profitable practice areas like regulatory risk and compliance services and M&A due diligence services. Many corporations are funneling these high profit areas to the Big 4 accounting firms, who aggressively pursue these opportunities with corporate CFOs.
However, the ALSP phenomenon is as much an opportunity as a threat to law firms. Many law firms themselves use ALSPs to deliver more and better services at lower cost, which improves client outcomes and increases law firm profitability. They can even use ALSPs to pull back profitable practices from the Big 4.
Law Firms and ALSPs
Law firms partner with ALSPs so the firms can focus on their core competency of the law – and improve profitability, attorney work product, and client experience while they’re at it.
The best ALSPs provide the law firms with highly efficient services at lower cost, increased speed, and lower risk; enabling the firm to improve its efficiency and profitability.
Typical outsourced services include document review, legal marketing, middle and back office services, Records and Information Management (RIM), M&A due diligence, regulatory risk and compliance services, eDiscovery, contract management, litigation support, and more. When firms outsource these services to outside specialists, they expect to receive the services at reasonable cost and lower risk of inaccuracies and missed deadlines.
Note “reasonable cost” instead of “low cost”. Some of these services primarily exist to save money, but even then, the firm expects them to lower risk to the law firm. For example, lower cost is still the major driver behind outsourcing document review. Document review is expensive, and firms save a great deal of money by turning it over to specialist document review organizations that hire and manage review teams, provide up-to-date analysis and review technology, and track review accuracy and speed.
In another example, law firms can even take back valuable services they have lost to the Big 4. Let’s look at the example of a firm who is losing profitable M&A due diligence services to one of the accounting firms’ alternative legal service areas. The partners believe they can win the practice back if they offer the services at lower cost and higher efficiency.
They contract with an experienced outsourcer that offers expert M&A due diligence to their law firm clients. Because the M&A service is highly efficient, the law firm saves money and can pass lower costs to their M&A clients. And because the service is also highly accurate, the firm lowers the risk of inaccurate information and missed deadlines. Now the firm can offer its corporate clients M&A due diligence services at lower cost and higher quality.