ALSPs in 2023: are they as disruptive as you think?

For some years now, the legal sector has been talking about Alternative Legal Services Providers (ALSPS) and their impact on the way in which legal services are provided. In the context of this discussion, it is recurrent to question whether or not these providers have been as disruptive as they are believed to be. Spoiler: yes, they have.

History of ALSPS and their evolution in the Legal Sector

Although ALSPs begin to take their first steps in the world of law around 2000, it is until the last few years that they begin to gain ground, mainly in the United States and Europe. This is due to a global context in which companies are seeking greater efficiency and cost rationalization. Today more than ever, clients are demanding a different way of doing things from lawyers. They demand proposals that give them more for less, and, above all, that allow them to have visibility and control of their legal budgets.

Although ALSPs have been very well received around the world, it is in consolidated markets such as the United States and the United Kingdom where they have experienced the greatest growth, while in other latitudes, such as Latin America, they are still in the process of consolidating themselves as a valid option among players in the legal sector. Proof of this is that some of the most important law firms in New York such as Cleary Gottlieb Steen & Hamilton and the “Magic Circle” in London, such as Allen & Overy and Eversheds, decided to venture into the world of Alternative Legal Service Providers with proposals such as Cleary X, Peer Point and Konexo.

We also see how recognized rankings such as “Chambers” have lists in which they classify ALSPs mainly from the US and UK, and recently from Spain. Unfortunately, there are still no Latin American ALSPs in the ranking.

What are they and what do they do differently?

ALSPs are firms that provide legal services for which they resort to methods that, as their name says, are considered alternative or unconventional, compared to those used by traditional law firms. For example:

1. They are horizontal, non-pyramidal organizations. Unlike ALSPs, traditional firms generally have structures with several hierarchical levels, in which there are different categories of lawyers such as junior associates, senior associates and partners.

2. They shy away from the billable hour, thus favoring alternative billing schemes, generally at a fixed cost.

3. Technology plays a predominant role in ALSPs, who use it to automate and streamline their workflows. Alternative Legal Service Providers, being dynamic and flexible organizations, have demonstrated great resilience and capacity to adapt to the change generated by technology, instead of resisting it.

4. They are not only dedicated to providing strictly legal advice, as they also guide clients on issues related to the provision of legal services such as automation and process management.

How are they classified?

Alternative Legal Service Providers are classified depending mainly on the type of organization they are or to which they belong. There are those that operate independently, which are the majority; the “captives”, which are those that belong to a traditional law firm, or those that are part of the so-called “Big Four”, i.e. audit firms.
ALSPs focus on the provision of legal services at a certain level, especially in operational or routine matters, being an ideal complement to specialized services such as those provided by traditional firms. As ALSPs have been gaining ground in the legal sector, there are certain services that have become recognized as characteristic of them, including:

1. On Demand Talent. Flexible Legal Staffing, also known as on-demand talent, offers the option of hiring lawyers for specific projects, such as transactions, preparation of evidence for litigation, etc. Being short term projects, companies can choose to use one of these providers and have them provide the services of a lawyer under the on-demand talent model, in addition to a robust platform that allows the professional to work efficiently. Some call this model the “Uberization” of law, in reference to the mobility platform, as certain providers offer lawyers the flexibility to choose the projects they want to be involved in, with the possibility of defining their schedules, and, in certain markets where rates are not regulated, even their fees.

2. “Contract Lifecycle Mangement”. These providers optimize, through CLM platforms, the process of drafting, modifying and signing contracts. They also keep custody of the documents and keep track of relevant dates such as signature or expiration dates. CLMs are strategic allies for companies that handle large volumes of contracts.

3. Project Outsourcing. LPOs (Legal Project Outsourcing) provide legal process design and management services, in order to operationalize repetitive tasks, such as a company’s due diligence process. Another recurrent service under this modality is that of compliance, by virtue of which hundreds of companies around the world are administered, such as those that some transnational companies usually have. The LPOs that provide this service verify compliance, which consists of periodic follow-up to ensure that the companies comply with all their obligations under local legislation. Large transnationals have thousands of subsidiaries around the world, which are clearly subject to compliance with certain local regulations.

The ALSP Revolution – Its Impact Today

Alternative Legal Service Providers altered the status quo in the legal sector and there is data to prove it. Thomson Reuters’ biannual survey, together with Georgetown Law Center of Ethics and the Legal Profession and Saïd Business School of Oxford University, analyses market trends in relation to alternative legal service providers. This report contains very positive data, reflecting the great momentum ALSPs are experiencing:

1. Alternative Legal Service Providers have expanded by 145% since the first report was launched in 2015.

2. The ALSP market reached a size of approximately $20.6 billion by the end of FY2021.

3. Law firms and in-house legal departments alike are realizing the value of ALSPs, citing their specialized expertise, cost-effectiveness and ability to help manage staff.

4. Independent ALSPs remain the most common, while captives, or those born within a traditional firm, are the fastest growing.

5. Legal technology consulting is gaining ground as a solid area of business for ALSPs.

6. Both law firms and corporate law departments foresee greater use of ALSPs in the future.

Challenges for ALSPs

But not everything is positive for ALSPs, as there are voices that still doubt them. Those who question them point out that their impact on the sector has been minimal, considering that the global legal services market is estimated at $1 trillion. However, $20.6 billion seems to be a not inconsiderable sum, especially considering that the legal industry has little openness to change.
Also, there are those who wonder whether they will be able to guarantee the same level of service, so they prefer to continue working with traditional firms, rather than exploring innovative solutions such as ALSPs. This last question has become less and less relevant as Alternative Legal Service Providers have proven to be a value-added solution. As a result, today, law firms and in-house legal departments are more open to using them.
However, in my opinion the biggest challenge for ALSPs is the one that affects all players in the legal sector equally: traditional law firms, in-house legal departments and law schools, is to stay ahead of the advancement of technology. Just a few months ago ALSPs were the ideal solution for some of the repetitive and low value-added tasks that exist in the legal services stream. Today, many of them can be done by Chat GPT in seconds. It is clear that whoever is not able to adapt to change is destined to disappear.
Now, a point that plays in favor of ALSPs is that, being horizontal and more flexible organizations than, for example, traditional firms, provides them a greater capacity for reaction and resilience.

ALSPs in Latin America

Although ALSPs in Latin America are gaining strength, they are still a maturing phenomenon. The sector has yet to consolidate its proposal and thus position itself as an alternative option to the traditional law firm model. However, it seems that this is an easy challenge to overcome, thanks to the great talent that exists in the region. Today it is possible to find alternative legal providers with very interesting projects in jurisdictions such as Colombia, Chile, Peru, Mexico, Panama, among others.

My experience with PredictaBill since we formally started operations two years ago has been absolutely positive. Although we have not been unaffected by the questions I mentioned earlier, we have managed to make our proposal of day-to-day legal services at a fixed cost and with a strong technology component, to gain ground in the legal services market.

I believe that the alternative legal services provider model will grow rapidly in Latin America, as it has been doing in the rest of the world. However, the union of the sector and the collaboration between ALSPs will be key to guarantee the success of the model in the region.

It is understandable that phenomena such as ALSPs generate a certain jealousy or opposition. It is difficult for human beings, and even more so for lawyers, to digest change. Nevertheless, we should view these providers, and in general, any effort to change the profession, in a positive light. Undoubtedly, any proposal that generates impact and innovation in the law should be welcomed with open arms.

Originally published by Latin Counsel at https://www.latincounsel.com/?Noticias=ALSPs%20in%202023_are_they_as_disruptive_as_you_think&lang=English