In recent years, as ALSPs have gained market share and become an established part of legal procurement, there has been an increased diversification in the services offered by these providers – which have reportedly evolved rapidly as legal technology advances.

“ALSPs are demonstrating value in helping law firms identify and implement the right technology solutions as well as providing training and support,” Michael Abbott, head of the Thomson Reuters Institute, said.

“The ALSP market increasingly includes software companies and providers of comprehensive legal technologies.”

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Alternative legal services providers growing

ALSPs have, Thomson Reuters’ Alternative Legal Services Providers 2023 Report confirmed earlier this year, grown at an increasing rate and are now serving traditional law firms – or becoming part of them.

According to the biennial report, ALSPs now comprise a $20.6 billion segment of the legal market, experiencing a compounded annual growth rate (CAGR) of 20 per cent from 2019–21. This reveals an evolving legal market in which the boundaries between alternative legal services providers, law firms, corporate law departments, and technology and software firms are blurring.

While a number of larger global law firms have created ALSP offerings, these can also be housed within firms as practice areas, as demonstrated by Herbert Smith Freehills ALT practice.

Herbert Smith Freehills’ alternative legal services (ALT) practice was established within the firm in 2011 and is now a fully integrated and integral part of Herbert Smith Freehills’ international network, with a team comprising more than 350 lawyers, technologists, and legal analysts, located across 10 hubs: Beijing, Belfast, Brisbane, Johannesburg, London, Melbourne, New York, Perth, Shanghai, and Sydney.

The ALT team provides a wide range of services – harnessing deep expertise in both contentious work covering claims management and assessment; document review; e-discovery and non-contentious work covering commercial contracting; due diligence; verification; asset management/stream leasing; and transaction support. The practice, HSF alternative legal services Australia director Emily Coghlan said: “[C]ombines cutting-edge technology with legal expertise to deliver innovative services for the high-volume, document-intensive and routinised elements of legal work.

“ALT was initially borne out of the firm’s desire to efficiently deliver services to its disputes’ clients – primarily in relation to the significant document review exercises often required by large-scale litigation or investigations. From here, the practice was developed substantially, offering services across corporate transactions, projects and commercial contracting, legal technology and data management, in addition to where the offering began with disputes, regulatory and investigations.

“One of the misconceptions we hear is that ALSPs can only help with the heavy lifting on document-heavy litigations. But ALT offers services across the remit of clients’ legal needs.

“Increasingly, clients are coming directly to ALT. We have seen a significant increase in both the number of clients who have ALSP panels and who are engaging our ALT team as a standalone service. Clients are seeking our specialist expertise, our access to and use of technology, better allocation of resources and innovative ways of legal service delivery.”

According to the Thomson Reuters report, captive ALSPs – those owned by law firms – are a smaller segment of the market but also the fastest-growing, posting a sixfold increase since 2015.

International law firm Allen & Overy provides these services via Allen & Overy Advanced Delivery Services and Peerpoint. The latter is the firm’s global flexible resourcing business that “connects bespoke talent with in-house teams for interim needs”, Peerpoint Australia interim head Luke Wilson told Lawyers Weekly.

“Clients experience the full wrap-around backing that only comes with a top-tier global law firm, while lawyers enjoy more choice and flexibility in their careers. We have offices in Australia, Hong Kong, Singapore, the UAE, the UK and the US and have over 350 experienced lawyers on our panel,” he explained.

“As a global business, Peerpoint is celebrating 10 years this year, which is a real milestone. It’s been fascinating seeing the evolution of legal consulting and clients using interim talent. A significant and exciting change has been the openness to cross-jurisdictional working. This has been hugely beneficial on both the client and consultant side. We have increasingly seen that clients who are struggling to find the right capability in the market have been open to taking on remote interim support – and Australian-trained legal talent continues to be in high demand across global markets. An added benefit of being across time zones is that support stretches beyond the normal working day.”

The firm’s Advanced Delivery & Solutions (AD&S) team provides technology, alternative resourcing, and end-to-end solutions to clients, which Advanced Delivery – Legal Services head Derek Chia said enable “them to work smarter, reduce risk, save money, and adapt to change”.

“Top-tier clients and their legal teams are becoming increasingly sophisticated in their expectations of how law firms provide legal services in a non-traditional technology-enabled way. We are also seeing clients use our AD&S teams to enable them to access new markets and opportunities quickly. A&O AD&S were pioneers and continue to be market leaders in this space, and our clients are benefiting from the breadth and range of options across our AD&S teams,” he said.

“Clients want more bang for their buck and are expecting more than traditional legal services delivered by the partner law firms. Our AD&S teams work [with] our lawyers to deliver the full breadth of value to clients – not only legal expertise but [also] process and program implementation advice, resourcing support and technology-enabled efficiencies.”

Firms expanding offerings amid economic turbulence

With a potential recession on the horizon and in periods of economic uncertainty, ALSPs may be the way forward for a number of reasons, including costs, efficiency, scalability, flexibility, and the driving demand from clients for innovative solutions.

“During a period of uncertainty, budgets always feel squeezed, and teams are put under strain to remain productive and profitable. Working in partnership with Peerpoint has been critical for many clients who have been stretched from a resourcing perspective, especially in recent years where the legal talent market has remained tight,” Mr Wilson added.

“As well as providing ‘more hands-on deck’ where work volumes are high, we can also help identify specialist skill sets to support the broader business in reducing legal risk, or where the legal team are responsible for delivering one or more business-critical projects and require capacity and/or capability.”

An ALSP can also help clients address their environmental, social, and governance (ESG) concerns, cyber and data risk, adapt to the energy transition, and look to private capital increasingly to support these transformations.

“Clients continue to look to their law firms to push the boundaries of service delivery in pursuit of greater efficiency and quality. Clients are also looking to their service providers to collaborate with them in a true partnership to solve their increasingly complex and multidimensional needs,” Ms Coghlan added.

“In an uncertain economy, there are both opportunities and challenges for our clients. Clients need us to offer efficiencies to respond to both. A technology-enabled, multidisciplinary team who is nimble and able to quickly adapt to changing business needs, such as ALT, is well-placed to support clients through uncertain and changing times.”

A trend likely to continue

According to the Thomson Reuters report, the growth of ALSPs is unsurprising – and is likely to continue as an increasing percentage of law firms expect to either maintain or increase their outside spending on ALSP services. Twenty-six per cent of larger law firms planned to increase spending on ALSPs, while only 3 per cent said spending would decline on these providers. More than one-third (37 per cent) of mid-sized law firms and 31 per cent of small law firms also use ALSPs for legal tech consulting.

HSF’s ALT practice started with a team of just 26 and, in the last financial year, there were over 550 clients using ALT’s services, up from 400 five years ago. Further, an increasing number of lawyers are also interested in building a career within the ALT practice, Ms Coghlan said.

“As technology providers expand their offerings, we are working in partnership to continually expand our client services through ALT. There is no indication that this trend looks set to slow, and in fact, the indicators point to the contrary,” she added.

“The talent that is coming towards our ALT team is also exceptional. More and more, we are finding that emerging talent are looking for a different career or style of working. We are finding that lawyers are hungry to diversify their skill set by working in a multidisciplinary team and to be at the vanguard of legal transformation.

“We are also seeing that lawyers are increasingly moving between practice areas. ALSPs offer a viable and exciting career pathway outside of a traditional legal career. We have an ALT graduate program where our ALT graduates join the broader Herbert Smith Freehills graduate program and rotate in other practice groups. We also have structured career pathways and progression opportunities, as in other practice groups of the firm.”

Further, as client demands grow and change, more firms are likely to invest in alternative services, Mr Chia predicted.

“Clients are demanding more from professional services firms to do things differently, and rightly so. There are firms [that] have established certain aspects of ALS or are starting to invest in the ALS space. A&O’s long-term investment and commitment with AD&S means that we have the infrastructure and experience that we think differentiates us,” he added.

“Growth in this space means rapid evolution and identifying the technology of the future that will challenge current-day processes and resourcing. The work that our markets innovation group and various teams are doing with Harvey and AI reflects this transformation.”

Mr Wilson echoed a similar sentiment and concluded that BigLaw firms are increasingly adding flexible resourcing or secondary offerings to the market.

“The legal industry has evolved over the last 10 years, and each year, new and exciting services are coming to market at an increasingly rapid pace. Interim resourcing is firmly established, and we look forward to seeing it continuing to grow among not only clients but also lawyers looking for a new way to shape their careers,” he said.

“Although the term alternative legal service provider is popular, we believe that in our market interim resourcing is no longer ‘alternative’, but a crucial part of the in-house talent toolkit for clients and a now embedded third career pathway for lawyers.”