Out-Law Analysis 3 min. read

Alternative legal services becoming integral to service delivery

Alternative legal services (ALSs) are becoming a ‘must-have’ component for traditional law firms as the legal sector continues to evolve and embrace new technologies, processes, and resources.

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ALS solutions, especially managed legal services, are becoming increasingly common, with rapid growth across the sector. The ‘alternative’ services use technology and other ‘non-traditional’ processes structured in a way very different from a traditional law firm approach.

ALSs are fast becoming an integral part of the legal landscape, offering a new approach to legal support and the evolving needs of clients. These services deploy professionals with specialised legal, operational, or project management skills across a range of sectors and jurisdictions. They can also allow for more flexibility for clients as well as professionals with wider skills, while maximising the use of technology in the fast-paced digital age.

The use of managed legal services has accelerated in the last few years, with the global market estimated to top £16 billion, according to research in 2021. We have only seen the market grow rapidly since then, driven in part by the post-pandemic acceptance among clients and their advisers of new ways of working.

The shift towards an increased us of managed legal services is driven by clients who require cost-effectiveness and scalability. However, ALSs do not have to stand alone and instead can be used in conjunction with more ‘traditional’ methods.

While independent ALS providers are the largest part of the market, representing around 87% of all revenue, captive ALS teams – those owned by law firms – are the fastest growing segment. This smaller section of the market has posted a six-fold increase in revenue since 2015, according to a Thomson Reuters Institute report (41 pages / 4.3 MB).

This hybrid approach is fast becoming the client-accepted ‘norm’ in the market of large-scale projects and for legal work that does not require specialist legal skills.

For instance, ALS approaches can support traditional firms in large-scale due diligence exercises and document discovery for investigations and litigation where flexibility in terms of resourcing is required. It is now hard to imagine that a law firm using its lawyer teams onshore to perform these functions – clients know that this would lead to unnecessarily high costs.

Similarly, ALSs can be the delivery engine where hundreds or even thousands of contacts require amendment, mainly prompted by regulatory change. Recent examples include the introduction of the Digital Operational Resilience Act aimed at strengthening the resilience of financial firms and third-party IT providers against cyber-attacks. Legislation such as the General Data Protection Regulation also required similar large-scale contract amendments, as will the Corporate Sustainability Reporting Directive.

With businesses showing symptoms of regulatory fatigue, the cost-effective ALS model is becoming more of a requirement than an alternative. Some clients are looking for more than simply a standalone ALS provider’s capability, as they no longer meet the new market expectations. Captive ALS teams offer frictionless access to specialist law firm lawyers where required, a better solution to standalone ALSPs where such expertise is not often readily available, and clients end up having to instruct multiple advisers for the same project.  Such hybrid services also improve long-term risk management and can significantly reduce the cost of legal services whilst bringing the broader skillsets usually associated with the Big 4 and other professional services firms. 

But ALS disciplines do not apply just to large-scale projects, they are also playing an increasingly important role in day-to-day legal work. Repetitive and low-to-mid complexity work can be standardised where there is no need for expert-level knowledge. A captive ALS team has an important role to play here, ensuring easy access to the specialist lawyers when required by the client, while offering cost-effective services for business-as-usual tasks.  Blending ALS and specialist lawyers on the same matter means that the right skills are deployed for the right task, giving the clients the best of both worlds - expert advice with the benefits of a professional services approach.

The rapid growth of the sector is pushing more law firms to adopt similar approaches or risk being uncompetitive. This may be done by partnering with a standalone ALS provider or by developing their own captive. Further growth of the captive market is expected as this model is where clients get the cost-effectiveness of the ALS model hand in hand with specialist oversight and relationship management of a law firm and its expert lawyers.

Co-written by Janusz Klich of Pinsent Masons.

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