Since the alternative legal service providers (“ALSPs”) disrupted the legal market approximately four years ago, its evolution has been viewed by the main legal market players with a mixture of skepticism and curiosity. However, in the last six months, the COVID-19 health crisis is acting as an accelerator of this phenomenon (that had already been brewing in recent years) that provides solutions to legal problems with more flexible and open structures comprising of not only human resources (lawyers) but also technology and other “non-legal” professionals. The predictions we anticipated in the 2019 edition have actually happened: thus, “traditional” firms have been quick to adopt many of the elements of ALSPs and have begun to invest in legal tech and form alliances with them; large auditing and consulting firms continue to increase their legal services; large legal editorials increase the portfolio of legal services; capital injections and investments in ALSP and legal techs continue; the transfer of human resources towards new models has increased; and large in-house legal departments have been forced to accelerate their transformation processes and their ways and choices in contracting external providers, now including ALSPs as available options.
Since the phenomenon of alternative legal providers entered into the legal market approximately four years ago, its evolution has been viewed by the market players with a mixture of skepticism and curiosity. Logically, the health crisis of COVID-19 acts as an accelerator of this event that had already been brewing in recent years due to the now urgent need to offer solutions to legal problems with more flexible and open structures in which, not only human capital (lawyers), but also technology and other professionals (non-lawyers) are the key pieces.
As Lord Kelvin’s version of the quote from Dr. H James Hurrington, a former IBM executive and influential business strategy development consultant, states: “Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it”.
In this sense, the Center for the Study of the Legal Profession at Georgetown University (with Thomson Reuters Legal Executive Institute) was one of the first institutions to define the “ALSPs” and the different business models that this term encompasses in the 2018 edition of its well-known Annual Report on the State of the Legal Market . Since then, this study has been defining and measuring this phenomenon, its last analysis was issued in the pre-pandemic in January 2020. Along the same lines, the renowned legal sector consultancy Acritas launched its Global Alternative Legal Brand Index 2019 .
Now, the fact that the prestigious Chambers & Partners legal directory, an indisputable reference in the «definition» and «measurement» of the legal market, has decided – in the already post-pandemic May 2020 – to evolve its old classification of providers of «LPO» (Legal Process Outsourcing) by creating a dedicated ALSP ranking , brings the study of this phenomenon to another level. Chambers has subdivided the ALPS’s into four categories: (i) flexible legal human capital solutions by projects – flexible legal staffing (ii) providers that assume the entire contractual process of the company – contract lifecycle management (iii) providers of accessory services and of support to big litigations – litigation services and, finally (iv) providers – in outsourcing regime – of the legal processes of their client companies – Law firm LPOs.
This article highlights the effects that alternative providers are having on the market in accordance with the classification we made in our 2019 analysis.
Perhaps we should stop referring to new ways of providing legal services, flexible fee arrangements and alternative legal service providers as «alternative» because they are already part of a «new normal». Curiously, this term of «new normal» that the above-mentioned Georgetown University report used in January 2020 has become, in just a few months, one of the most used in 2020 due to the transformation of all aspects of our life in response to the COVID-19 pandemic.
2. THE SIX MONTHS OF PANDEMIC THAT ACCELERATED EVERYTHING
In the last edition of this article, we made an analysis of the evolution of the business law market in Spain that went back to 1996 and analyzed the decades 1996-2006 (boom of the “large firm” model at “hourly rates”) and 2006-2016 (turning point in the “traditional” model in the face of the 2008 crisis), until the period that we call the “recent past” of the five-year period 2016-2019 in which the ALSP phenomenon begins to become a “label” and is identified, analyzed and quantified.
In those last months of 2019, just a year ago, there already existed an ecosystem of “legal tech” companies (a term under which we mean software solutions for specific legal processes, technology consultancies specialized in the legal sector, app developers and an endless number of start-ups of all kinds) that together with the implementation of the platform economy and the “uberization” of large sectors of the economy anticipated a “perfect storm”.
At the same time, in the complex North American legal services market, those known as LPOs – providers of outsourcing of legal processes with centers located in low-cost jurisdictions such as India – were transforming into true legal service companies offering sophisticated services to which large corporations started to outsource all their legal work. These companies became the target of large capital investments as evidenced by CVC Capital Partners’ entry into UnitedLex or Permira’s entry into Axiom a year ago.
But nobody could imagine that the great accelerating effect of the ALSP phenomenon was going to come from the hands of the COVID-19 pandemic that, ruthlessly, is erasing the «rigid» and «daily commute” models and accelerating the flexible models with high technological load. As the ALSP Quislex analysis  included in the latest edition of the Chambers directory points out, the pandemic, like any crisis, has become an accelerator of trends and has led to cost reductions and the search for efficiencies that law firms and in-house legal departments have been seeking for years. They end up choosing ALSPs because today they are capable of performing more complex tasks in areas such as all accessory services to M&A, litigation or general contracting of a company.
The outburst of teleworking caused by the lockdown and restrictions of all kinds softened the apprehension towards ALSPs, that has been already largely working remotely and even from “offshore” jurisdictions. According to Quislex, the pandemic has also featured the importance of getting contracts – even of minor importance – duly controlled and reviewed, with adequate protection clauses, and of improving the remote execution of such contracts through electronic signature systems, of course, all this is cost-efficient.
In similar terms, different analysts such as Mark Cohen or David Morley  (Allen & Overy’s senior partner between 2008 and 2016) agree that the pandemic is accelerating models that are based on flexibility, technology and resilience.
3. EFFECTS OF ALSP ON THE LEGAL MARKET
Below, we offer a selection of some of the movements that occurred in the last year and the effects that are taking place in the market. We group them together, as we did in our 2019 article, from the standpoint of the current offer (traditional law firms), from the «alternative providers» and from the customers. Likewise, we will also refer to the changes in human, technological and financial capital that the ALSPs are provoking.
3.1. Effects on «traditional» offices
Over the last few months, interesting analyzes have been carried out on the effect that this crisis will have on law firms, among which it is worth highlighting the seminars organized in summer 2020 by the British community of legal tech start-ups Legal Geek and the analysis carried out by David Morley who, in addition to his aforementioned forecasts, in April 2020 surprised his audience with his article «The slaughter of innocence»  mainly focused on the measures to be adopted to resize firms to the «new normal». In addition to these forecasts, below, we highlight some effects caused by the influence of ALSPs on traditional firms and accelerated by the health crisis:
ALSPs arising from “traditional” firms
As the new Chambers ALSP ranking reckons, law firms have rushed – in most cases using «second brands» or subsidiaries – to proving some kind of the ALSP service. Many of these companies were recognized as “LPOs” but Chambers now recognizes that they have become other types of more sophisticated service providers.
Thus, in the subcategory of flexible solutions for lawyers by projects – (flexible legal staffing) the directory highlights Peerpoint (from Allen & Overy), VARIO (from Pinsent Masons), or FLEX (from Fenwick).
Regarding legal process outsourcing providers – legal process outsourcing units – Chambers also recognizes the new divisions of many law firms (some began offering services to their law firm of origin – the «captives» – and are now independent) and recognizes Advanced Delivery and Solutions (by Allen & Overy), Ashurst Advance (by Ashurst), BCLP Cubed (by Bryan Cave Leighton Paisner), Condor ALS (by Fieldfisher), DWF Mindcrest (by DWF), GravityStack (by Reed Smith), Konexo (by Eversheds Sutherland), Re: link (by Linklaters), Recurve (by Greenberg Traurig) and SixFifty (by Wilson Sonsini).
In the ancillary and support services for large litigation services – the directory highlights Herbert Smith Freehills and Allen & Overy.
From what we can see, these initiatives are taking place in the Anglo-Saxon markets characterized by the flexibility of their labor markets and labor standards, and, for the moment, none of the large firms In Continental Europe is ranked or have equitable entities.
The «traditional» law firms at the moment are not recognized by the directory among the providers that assume the contractual processes of the company – contract lifecycle management – where the “original” ALSPs continue to dominate, although it seems that it will only be a matter of time before law firms begin to offer these services expressly and professionally.
In addition to the prominent providers, many other firms have begun to offer lawyers for projects with their own or linked human capital – for example, some firms are offering their former employees or «alumni» to work by projects.
Others create their complimentary services divisions including some features of the ALSPs and there are many who have created their consulting divisions to try to provide integrated solutions in areas that require not only lawyers but technicians (cybersecurity, criminal compliance, data protection, etc.) or software management of brand portfolios and other industrial property, etc.
Likewise, many firms begin to create their own platforms and software solutions, acquire «legal tech» start-ups, offer «managed services» (i.e., append in-house lawyers and take on the functions of the legal departments), etc.
However, and as we underlined in the previous edition of this article, the «traditional» model continues to bet on «closed» solutions in most cases (i.e., tends to use only its own human resources or develop solutions for its own exclusive use).
In this sense, for traditional large law firms, it is important to preserve the purity of their brand and maintain a certain distance from its “LPO”. For example, the Chairman of the American giant Greenberg Traurig Richard Rosenbaum stated the following when asked about his LPO Recurve  “It is not Greenberg Traurig. The idea with Recurve is that you have a team of innovation experts, people who are familiar with the traditional model and who know what’s new in the market, and who come together to work for clients. It’s almost like one of those car sharing or space sharing platforms. It’s an environment for innovation which will help clients and law firms and providers come together in one place.” Recurve, launched in June 2019, does not yet have its own website and will be run out of Warsaw, Poland.
The prospects that the firms are putting into their alternative subsidiaries or LPOs  are quite optimistic: thus, Eversheds expects that Konexo will eventually generate 127 million annually.
It is interesting that the renowned experts Richard Susskind and Mark Cohen , agreed in their appreciation that during the pandemic in Europe and the United Kingdom, traditional law firms have been more successful in maintaining relationships with their clients, while in the United States the situation has been the reverse and it is the ALSPs that have proven to be more proactive and attentive and point out that perhaps this happens because in the old continent the traditional ties and long-term relationships are even stronger, which anticipates that European firms will be more resilient to adapt to new market challenges.
Changes in human capital: transfer of human resources to new models and flexibility of existing structures in the traditional model
The effect that we already anticipated of staff resizing has been accelerated by the crisis caused by the pandemic. Many traditional law firms – until now highly intensive in hiring human capital – have already restructured their workforces and are increasingly receptive to having resources «on demand» (the «of counsel» positions and the drastic reductions in working time have grown exponentially in the last six months).
Increase in technological investments
Although to date investment in human capital (mainly lawyers) was the fundamental investment item, recent months have shown an increase in investments in technology to allow teleworking and virtual meetings.
Some firms are already creating their own predictive models and software solutions. In our own experience, the implementation of Big data Analytics techniques allows these models to be used in law firms by implementing predictive tools – which can become crucial when they count with large quantities of quality information.
3.2. The «ALSP» market
Large auditing firms and large legal publishing groups are consolidated as leaders in the ALSP market
Following the analysis of Georgetown, Acritas or Chambers, it is evident that large global audit groups (Grant Thornton, BDO, Crowe Horwath, RSM, etc.) continue to increase the portfolio of their legal services and, as highlighted by the Chambers ranking, EY, Deloitte and PwC appear as leaders.
The latest analysis by the Acritas  consultancy – from late 2019 – points to EY Law, PwC and Thomson Reuters as clear leaders for its ALSP brand index. It is not surprising that organizations such as EY Law (after the purchase of Riverview Law in 2018 and Pangea3 Legal Managed Services in 2019 -which had previously acquired a major legal publishing group-) or Elevate (with the purchase of Congatio in 2019 and agreements with Ashurst and Hogan Lovells) have risen a lot in the rankings and in their market shares thanks to these acquisitions and the heavy investments (including in marketing) they are undertaking.
These large professional service providers today go far beyond their traditional areas of labor, tax and related services and litigation support (forensics) and have proven capable of providing more complete solutions in areas such as cybersecurity and privacy where having technical profiles and not just legal ones is essential.
The pandemic has shown that their hybrid structures and financial capacity will continue to allow them to invest in the purchase of ALSPs and other legal tech start-ups, artificial intelligence solutions and, last but not least, in attracting talent from traditional law firms.
Similarly, the three major global publishing groups (Wolters Kluwer, Thomson Reuters and RELX) continue to acquire legal tech companies and consolidate their portfolio of services. The acquisitions of CLM Matrix by Wolters Kluwer or that of HighQ by Thomson Reuters have been followed by ID Analytics, acquired by RELX in January 2020.
Large strategic and technological consulting firms enter the legal sector
Although the «legal sector» as such was not one of the pillars of the large strategic or technological consultancies, the pandemic makes them offer their services to law firms and legal departments of large corporations that «reinvent» and transform themselves, and also create strategies similar to those of the Big Four auditing. For example, in May 2019 Boston Consulting Group acquired Kernel Analytics to expand its Data Analytics and Artificial Intelligence offering .
Changes in human capital: The transfer of human resources to new models continues and existing structures of the traditional model become more flexible
The other consequence of the phenomena is that ALPS and Big Four attract more and more lawyers from all levels of the pyramid as evidenced by the news on new appointments in the legal sector during the last few months.
- ALSPs gain market presence and attract capital and investment
At the beginning of 2020, one of the pioneering and leading companies in global “flexible legal staffing” solutions (Axiom Law) began its journey in the Spanish market by opting for an alliance with a local partner (Ambar Partners – driven by lawyers from of Latham & Watkins) which has announced ambitious growth plans in Spain and Latin America and has contributed to the dissemination of the services of ALSP providers in Spain and had important media coverage.
International ALSPs continue to be investment targets and attract capital. CVC Capital Partners’ investment in UnitedLex mentioned above and Permira’s investment in Axiom at the end of 2019 attest to this.
Likewise, start-ups focused on legal tech, especially those that provide Artificial Intelligence solutions, represent a huge investment attraction on the part of large legal publishing groups and the Big Four that continue to make acquisitions in this segment.
According to analysts, independent providers remain the preferred choice for clients, with Integreon, Elevate, and UnitedLex leading the way thanks to their strong reputation in legal services. It is especially interesting to analyze the new ALSPs that are strongly positioned in the market (such as Consilio Managed Services or LawGeex, for example), some of them full-service (the majority), others more specific (for instance, DRS and Kalexius focused on the financial sector, or CPA Global focused on intellectual property).
The health crisis has highlighted the critical importance of technology for the legal sector. ALSPs offer the advantage of knowing how to choose and test the technologies that exist in the market before offering them to the client. It is true that some companies buy legal tech solutions without intermediaries, but usually these are only large corporations with their own efficient IT team that is able to install and adapt the technology to their specific needs. Chris DeConti , head of strategy for the law company Factor, argues that “clients have evolved to the point where they want to buy an outcome instead of a technology” and this is where it is advisable to hire an ALSP that already have the experience in using that technology.
In this sense, the progress that ALSPs are making in the field of conflict resolution is of great interest. Today ALSPs offer tools that go beyond the eDiscovery and document review in which they began to develop their services and that go through the evaluation of the positive outcome of a case or the preparation of witnesses. There exists a very high-quality translation software, tools that can automatically identify and hide sensitive, privileged or confidential information, and so on. The jurisprudential analytical tool Jurímetria de Wolters Kluwer, for example, allows defining the most suitable procedural strategy for the success of the case, through interactive graphical indicators, based on the cognitive analysis of millions of judicial decisions. The QuisLex report  also highlights the need for the ALPS to adapt their services to new forms of conflict resolution.
3.3. Effects on clients
Restructuring of legal «panels»
As we anticipated, it is becoming common for ALSPs to be considered in the sophisticated processes of selection of legal suppliers of large corporations that, until just a few years ago, included only a limited number of large firms among their suppliers.
For example, in the article on ALSP published by Iberian Lawyer magazine in April 2020, the Secretary-General of the Spanish Ibex-35 Indra (Carlos González Soria) confirmed that, although they have not used them to date, ALSPs do offer savings in costs and efficiency improvement, so they are “analysing whether they would fit into Indra’s legal advisory model and have held some meetings with suppliers to this end” . As the European representatives of the ACC (Association of Corporate Counsel) – the largest international association of in-house lawyers – also point out, in Europe (Applus), Jorge Muñoz (Gilead) and Javier Ramirez (HP) , Spanish companies look at ALSPs with interest, although like all innovative trends these arrive in Spain later than in the US or Great Britain.
It is curious that according to several ALSP analysts, that at the end of the day in the eyes of the client the lines that separate a classic but innovative office and an ALSP become increasingly blurred. As Richard Susskind  says, clients, do not care how a contracted law firm is called: «People don’t want doctors or neurosurgeons, they want health. That is the outcome they are after.» and they are not interested in the name of the technology used: «AI and innovation may well be of help but they are not ends in themselves.»
Increased demand for ALSPs.
According to the aforementioned Acritas report , in 2014, 31% of companies used ALSP while in 2019 they are almost half of large corporations. In addition, ALSPs are increasing their share of the legal services market, which in 2019, according to this consultancy, was 9% of total spending with providers, which means 80% growth in the last five years. The trend with customer spending on ASLPs is difficult to track – it seems that there is a growth of 10%, but only large customers increase this expense, the others decrease it (it may happen because ALSP services are cheaper in general).
On the other hand, the ACC report published in January 2020 «2020 ACC Chief Legal Officers Survey»  indicates that of its surveyed members (more than a thousand in almost 50 countries) who already know ALSPs, 20% plan to increase their work with them and 70 % will maintain the same level in the next year.
Regarding “staffing” solutions and LIMS (Legal interim managers), it is also observed that the pandemic is forcing companies to respond to certain needs (large commercial operations, restructuring, business crises, complex litigation, etc.) with flexible options that are going through the hiring of “lawyers for projects” which, as Chambers’ ranking of ALSP indicates, is a segment in which some of the ALSPs and human services companies and legal talent have specialized.
Restructuring and transformation or “outsourcing” of in-house legal departments
As a result of the pressures that the COVID-19 crisis has caused, the ALSP segment, which in Anglo-Saxon terminology is called “managed services” is one of the fastest-growing.
Thus, providers such as UnitedLex or Integreon are involved in processes in which entire legal departments – with all or a large part of their staff and lawyers – or some divisions of these are appended by the ALSPs specialized in «managed services».
Within this trend, we observe that important corporations and financial entities – notably, Banco Santander in Spain – are creating «transformation» units within their legal teams that will eventually complete the transformation of the entire department.
The crisis caused by COVID-19 has become the great driver of the phenomenon of alternative legal providers that emerged in the legal market approximately four years ago. The ALSPs, in their turn, are established as mechanisms of change from the “traditional models” given the now urgent need to provide solutions to legal problems with more flexible and open structures.
In the “new normal” it may no longer make sense to speak of “alternative” – as stated in the latest edition of the Georgetown University Report on the Legal Market – because it seems clear that all the players in the business law will have to adopt many of the elements that are the essence of the ALSP model with less dependence on the “provider” and “its tools” and more focus on the client and its needs.
Together before a common foe
It is clear that, like any crisis, COVID-19 has been a catalyst for change, and ALSPs being innovative formations themselves can hope that their concept will be better understood and more accepted. The advantages they always offered – investment in technology, cost savings, flexible and remote work, focus on contract management, investments in long-term strategies, etc. – are now much clearer when companies are forced to rethink everything. According to Ganesh Natarajan, President of DWF Mindcrest  the nature of work and professional relationships will also undergo changes: «The walls that exist between these legal departments, law firms, and ALSPs will become porous with work flowing between and among these groups in a seamless manner.»
The companies that are being heavily affected by the pandemic trust that their legal advisers can protect their businesses from the consequences of this crisis and future threats, so the pressure on lawyers and their work overload and responsibilities will grow. To face this challenge, all the actors in the legal market will need to work very closely and collaboratively and forget about all the barriers that previously separated them, since what is at stake, after all, is the good of our economies.
19 January 2021
© Javier Fernández-Samaniego and Manuel Esteban Caballero
Originally published in Spanish by Wolters Kluwer as a chapter in the report “Innovation and Trends in the legal sector 2021”, Nov 2020.
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