The Alternative Legal Service Provider Facts & Findings – Q3 2019 Issue

Legal services have traditionally been provided to the public by attorneys working as sole practitioners or in partnerships or law firms. In recent years, the traditional legal industry has seen a dramatic increase in the provision of legal services by accounting firms, outsourcers, legal staffing companies, and other alternative legal service providers (ALSPs). 

Paralegals working at law firms or in-house are increasingly called on to incorporate ALSPs into their delivery of legal services. In some cases, ALSPs draw lucrative legal work away from law firms and paralegals. In other instances, paralegals may find employment opportunities at ALSPs or may even form ALSPs themselves. Although it is impossible to know exactly what effect the growth of ALSPs will have on the paralegal profession, one recent study has provided valuable information on how much the ALSPs industry has developed in recent years and whether we can expect it to continue to expand in the foreseeable future.

In early 2019, the Alternative Legal Service Providers 2019 Report (Report) was released. (Alternative Legal Service Providers 2019, Fast Growth, Expanding Use and Increasing Opportunity Industry). The Report contained the results of a study performed by Georgetown Law Center on Ethics and the Legal Profession, the Thomson Reuter Legal Executive Institute, The Professional Service Firms Group at Said Business School, University of Oxford, and Acritas. Because this study was an update of one conducted two years previously by the same parties, it provided both a snapshot of the current state of the ALSP industry as well as a measure of its recent growth.

Types of ALSPs

The Report covered the following types of ALSPs:

• Big Four. These are the four largest accounting and auditing firms in the world that earn a significant percentage of their income from the provision of legal services.
• Legal Process Outsourcers (LPOs). LPOs provide legal services to companies and law firms, often on a project basis. Independent LPOs are public companies, privately held partnerships, or other independent entities. Captive LPOs are owned by law firms.
• Managed Service Providers. These providers are engaged by in-house legal departments to perform all or a portion of a function of the department, such as compliance or risk-management, on an ongoing basis.
• Contract and Staffing Services. These agencies provide attorneys to staff projects for in-house legal teams or law firms on a temporary basis.

Uses of ALSPs

According to the Report, the number of areas of law in which ALSPs provide services is expanding. These include litigation services such as investigation support, eDiscovery, legal research, and factual research. ALSPs also engage in transactional and corporate work such as regulatory risk and compliance, document review, mergers and acquisitions, and intellectual property services.

Growth in the ALSP Industry

In comparing the results of the studies conducted in 2016 and 2018, the authors of the Report concluded that there was impressive growth in the ALSP industry during those two years. They had an annual compound growth rate of 12.9% during that period. Not only are corporate legal departments engaging them and requiring their outside legal counsel to do the same, law firms are voluntarily choosing to utilize their services. Historically, ALSPs were used primarily for cost control. However, the Report suggests that law firms and in-house legal units are increasingly using ALSPs to access their specialized expertise, and for other strategic reasons. This broadening of their use is expected to continue. According to the Report, as of 2018 approximately 25% of U.S. corporations expect to increase their use, while 58% expect to maintain their current level. Only 5% anticipate decreasing their use. Likewise, large and midsized U.S. law firms expect to increase or maintain their use of ALSPs, with only small percentages foreseeing a decrease in use.

Advantages of ALSPs

During a recent webinar, representatives of the groups that conducted the studies detailed in the Report provided insight into why the ALSP industry is expanding at such a substantial rate. As noted above, ALSPs often provide legal services in specialized areas of expertise at a lower cost than traditional law firms. As discussed in the webinar, one reason they can is because ALSPs are able to assemble a wider variety of talent than is available to law firms. For instance, one may provide accounting services, legal services, and staffing for the client’s human resources department. ALSPs are also known for utilizing cutting edge technology. The Report states, for example, that about a quarter of the ones interviewed in the study currently use artificial intelligence in their software and another third are evaluating doing so.

Unlike law firms, ALSPs are not limited in their type of organizational structure since they are not required to be owned by licensed attorneys. This flexibility permits them to be owned, managed, and staffed by a diverse mixture of investors, professionals, and experts. As a result, ALSPs often fuel their growth through venture capital, traditional financing, or public investment. For example, Axiom, a contract and staffing service, recently announced its plans for an initial public offering (Goodnow, James, “Axiom’s War on Biglaw” Above The Law, online, March 8, 2019).

Impact on Paralegals

While the Report and other resources provide us with information on the state of the ALSP industry, they cannot predict what this means for U.S. law firms and in-house legal departments or the paralegals they employ. However, the following are some possible effects the anticipated continued growth of ALSPs may have on working paralegals.

New Roles. Unlike law firms, ALSPs may be owned and managed by paralegals themselves. Paralegals may also find employment at ALSPs such as accounting firms or other legal service providers. As ALSPs continue to grow, they may increase the number of paralegals they employ. While some of these jobs may involve more routine types of work and have lower pay and benefits than traditional law firm or in-house positions, they may be valuable entry-level positions for less experienced paralegals. In addition, these jobs may provide paralegals with opportunities for advancement that paralegals in traditional legal environments do not have, including managerial or supervisory roles. In some cases, paralegals working at ALSPs may be supervised by attorneys employed by the ALSPs. In others, paralegals may utilize their legal skills and education in areas such as project management with little to no attorney supervision. As a result, paralegals owning, managing, or employed by ALSPs should be particularly vigilant in avoiding conduct that may constitute the unauthorized practice of law.

Losing Billable Work. Paralegals who work in traditional legal environments may find themselves increasingly competing with ALSPs for billable work. Indeed, some specifically advertise their services to attorneys as an alternative to hiring paralegals. Others strive to form relationship with paralegals in order to secure work assigned to those paralegals.

Managing ALSPs. One way to oppose the threat of losing work to ALSPs is to develop an expertise in their management. Many paralegals already coordinate with litigation technology providers or corporate service providers for specific tasks. As law firms and in-house legal groups engage ALSPs for more projects or on-going legal services, paralegals may find an expanded role in managing those providers. Just as paralegals provide value by performing legal services that would otherwise be delivered by attorneys, they can also provide value by taking on the role of intermediary among the client, law firm, in-house legal department, and ALSP.

Advanced Level Work. Although ALSPs are expected to take on more specialized legal work as the industry matures, many continue to provide lower level work at a lower price than can be charged by law firms. When paralegals find that they are no longer called upon to perform this level of service, they may respond by developing a higher level of skills that can be marketed to clients at law firm prices. For instance, corporate paralegals experiencing less demand for forming and maintaining business entities may develop proficiency in the more challenging area of mergers and acquisitions. Other paralegals may become more efficient in their delivery of legal services by increasing their use of technology or by delegating more work to legal administrative assistants and other internal non-timekeepers. Finally, some paralegals may focus on providing value to their law firm or company by demonstrating their institutional knowledge or enhancing their relationships with external or internal clients in ways that may not be available to ALSPs.

Looking Forward

As the Report indicates, the ALSPs industry is likely to continue to flourish in the foreseeable future. Law firms, in-house counsel, and ALSPs will develop new ways of coordinating their efforts to effectively deliver legal services to clients. Paralegals are apt to find that these changes provide them with both challenges and opportunities. By being flexible, professional, and skilled, paralegals will remain a vital element in the evolving legal profession.

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About the Author: Eva M Merrell

Eva M. Merrell, ACP, is a senior paralegal at the St. Louis firm of Spencer Fane LLP. She authored the Real Estate chapter in NALA’sCertified Paralegal Exam Fundamentals, published in 2019, and has presented various NALA webinars as well as written several articles for Facts & Findings. Eva received her B.S. degree in Public Administration from the University of Missouri-St. Louis and her Paralegal Certificate from The American Institute for Paralegal Studies.