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The Rise of ALSPs

J.B. Ruhl

The Rise of ALSPs
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In March 2018, the General Electric Company (GE) contracted to have UnitedLex deploy its technologies and professionals to serve GE in 180 countries across several realms including legal operations, litigation support, investigations, e-discovery, forensics, and document review. The companies reported that the arrangement will reduce GE’s legal spend by 30 percent—about $40–$50 million annually—and will allow GE to redeploy up to 75 lawyers, some of whom will be transitioning to become UnitedLex employees.

Heard of UnitedLex? How about Integreon, Axiom, or Pangea3? They are all examples of the new breed of alternative legal services providers (ALSPs), competing not only with law firms but also with other more established consulting companies that are moving increasingly into the legal services market.

This trend is not to be ignored—it speaks volumes about how the legal industry is navigating the post-normal times. Let’s examine what these ALSP entities do, why they are gaining traction, how they are operating, and where this trend is headed.

What Do ALSPs Do?

The first aspect of this form of ALSP to pay close attention to is that they are not merely outsourcing solutions, such as e-discovery operations or contract attorney and “secondment” firms. These ALSPs are providing a far broader range of services, including legal project and process management, contract portfolio risk analysis, intellectual property asset analysis, and internal document investigation. They have developed proprietary technologies to leverage their professional expertise at those functions. They employ licensed attorneys, technologists, risk management specialists, and other professionals. They are growing in the number of employees, revenue, geographic reach, and lines of services offered. But they are not law firms and are not practicing law.

Why Are ALSPs Gaining Traction?

In his book Tomorrow’s Lawyers, Richard Susskind perceptively and concisely assesses many of the transformative forces at play in the legal industry. One of his core revelations is that many of the tasks traditionally lumped into the realms of “litigation” and “transactions” do not require a license to practice law. The same is true for compliance counseling.

Document gathering and review, basic legal research, transactional due diligence, and form preparation do not require a licensed attorney. Providing legal advice and appearing in court generally do. But law firms have traditionally charged the same hourly rate regardless of this distinction, adjusting for complexity of the task by assigning work to junior or senior attorneys. The new ALSPs are providing those functions for clients more economically.

But there is more to it than that—ALSPs also are profitably offering functions law firms traditionally have never provided, or for which clients would not have paid at sticker price, and which in-house legal departments could not efficiently take on internally.

For example, using natural language processing, machine learning, and other technological applications, ALSPs can gather, compare, analyze, and report back on huge document databases, such as large contract portfolios. They can deploy teams of legal project management experts to work alongside in-house attorneys to run more efficiently large litigation programs, such as same-kind contract litigation or insurance claim defense litigation. In short, these ALSP innovations allow clients to economically scale up and expand in-house legal management capacity on an as-needed or longer-term basis.

How Are ALSPs Operating?

The simple answer to how ALSPs can do this is that they are not law firms. More specifically, they are not partnerships owned by the equity partners, which is how most US jurisdictions require licensed attorneys to organize their business model. A law firm’s investment in technology development and non-partner professional employees thus is funded by the partners, who must be licensed attorneys, and sourced either out of partnership profits or loans to the partnership. By contrast, ALSPs can take outside investment in the form of equity or debt from a broad variety of investors, allowing them to fund research and non-attorney resources at levels law firms generally cannot, or will not, match.

Whether to relax this ownership restriction has been a long-standing debate within the legal industry. The United Kingdom recently relaxed the restriction in 2007, allowing legal practices using “alternative business structures,” but the United States has seen little in the way of departure from the historic partnership model. Until recently, restrictions on the unauthorized practice of law also worked to tamp down the rise of alternative business models, but the new breed of ALSPs is not practicing law. This should not be seen as a loophole but rather as an innovation that may lead to reexamination of the way we structure legal services businesses more broadly.

Are ALSPs Here to Stay?

Given their explosive growth and the buy-in from major corporate clients, ALSPs are likely here to stay and to expand.

Lawyers in traditional practice settings will increasingly be asked to work alongside, or even take marching orders from, ALSPs. And as their economies of scale grow, ALSPs will begin providing services to government agencies, medium-sized businesses, and nongovernmental organizations.

Eventually, though, traditional law practices may also begin to bring this suite of services into their reach as well, either by forming, teaming with, or investing in independent ALSP entities or expanding and innovating (including on price) to provide the same services internally.

In fact, while I was writing this column, the law firm of LeClairRyan announced it had agreed to outsource 300 of its employees to UnitedLex to provide non-attorney services from secretarial work to project management back to the firm.

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