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Need help? Alternative legal services providers are an option

By Danielle Braff

July 11, 2024, 1:44 pm CDT

As artificial intelligence continues to dominate the legal field, many law firms are finding relief through alternative legal services providers.

Just after the pandemic began, Benson Varghese began experimenting with ways to improve his law firm, Varghese Summersett.

The 50-person Texas firm brought in ALSPs to focus on legal technology, legal research and routine tasks. Instantly, Varghese says, the firm noticed that they were saving money. “Their focus on legal tech and improving processes has shown us areas we can enhance too,” he says. “It’s like having a constant adviser on ideas.”

Now a $20.6 billion market segment, according to a 2023 Reuters study, ALSPs have experienced a compounded annual growth rate of 20% from 2019 to 2021. Instead of hiding their use of law firm-owned captive ALSPs, which are a fast-growing segment, firms are now embracing these models.

“It is a combination of getting pressure from clients to be more cost-effective, innovative and efficient, but also a reflection of the fact that firms now have a better understanding of the true value that partnerships with ALSPs can bring,” says Nicole Nehama Auerbach, the Chicago-based vice-president and co-founder of the integrated law firm at Elevate, which has locations across the globe.

Before bringing the alternatives into the firm, however, it’s important to understand exactly what they encompass and how they can work for you.

Alternative legal services providers and captive ALSPs

Alternative legal services providers offer legal services to law firms, dispensing everything from technology to project management to litigation support.

“Why send a team of associates into a warehouse when you can send a company to digitize the documents, and then you can search them for evidence that is useful to the case,” says John Dzienkowski, law professor at the University of Texas at Austin.

Captive ALSPs, on the other hand, are law firm subsidiaries. The majority of these offer software, product development or innovative and consulting legal services, according to the Reuters report. Approximately 22% of global law firms have an affiliate providing legal software plus other services, an increase of 7% from two years ago. Another 17% offer interdisciplinary ALSP with many different services, an increase from 8% in 2020. The captive ALSPs tend to originate from larger law firms.

Troutman Pepper, a national law firm with more than 1,100 attorneys, created eMerge, a multidisciplinary team providing help for legal electronically stored information in 2012. The ALSP team, which includes software engineers, attorneys and database analysts, focuses on AI to reduce review costs by 40% and the time to completion by more than half. For example, the team took about 40 hours to conduct a first-level document review which included quality control excluded privilege review. By contrast, eMerge estimates a manual review would have taken 140 to 170 billable hours over 10 to 15 days, according to its website.

The hourly savings may be extraordinary, but there are some downsides, attorneys report.

“The bang for the buck there is that the law firm retains all the revenue for the work that’s being done both by the firm and their captive ALSP,” Auerbach says. “But this is an enormous undertaking, and we’ve found that most law firms using ALSPs are not building captive ones, but rather, are entering into strategic partnerships with noncaptive ALSPs who have the expertise to build, manage and run the ALSP business on their own, while providing the necessary services at a much lower cost than the law firm itself could.”

Running a captive ALSP is equivalent to the cost, effort and energy of running a separate legal business, which is something that many firms don’t have the time or the zeal to do, Auerbach says.

But enormous undertaking withstanding, we can expect to see more captive ALSPs in the near future, as law firms continue to shift to try to keep up with technology. A new ALSP report by Reuters finds that 42% of firms are somewhat likely to create a captive ALSP. This number was 33% in 2020. This is especially true for the larger law firms: 75% of these large firms say they are using captives or a mix of direct ALSPs and captives to handle e-discovery, compared with 30% of smaller firms.

“Law firms weren’t thinking about how to do things faster and more efficiently in the past, and now we are, and we’re excited by it,” Alison Grounds, eMerge’s founder and managing partner told Reuters.

Accepting the ALSP

Ron Bockstahler, the CEO of Amata, which provides ALSPs, says he’s seeing a seismic change in the legal industry that’s never been seen before—possibly the biggest shift since the billable hour, as attorneys are starting to say, “‘It’s OK to use outside support,’” he says. ALSPs offer firms more flexibility, Bockstahler says, comparing the use of ALSPs to outsourcing other services, such as the mail room.

Bockstahler, who works with small to midsize firms, says if you’re going to trial five times a year, it’s not worth it to spend the money on a full-time paralegal when you can just hire an ASLP and use their paralegals when you’re on trial. He estimates that doing this would have a 40% to 50% savings.

In the past, outsourcing to an ALSP was looked down upon, as many firms viewed them as competitors. But once the firm adjusts to consider the ALSPs as an additional resource to support clients and strengthen the delivery of the legal service, then it becomes a must-have, says Raghu Ramanathan, president of the Legal Professionals segment of Reuters.

But there are times when using an ASLP isn’t worth it, Bockstahler says. When you have an ongoing program, then it’s usually better financially to use your own staff. Plus, ALSPs are fantastic for work that doesn’t require highly specialized subject matter experts, or even for augmenting your pace by including more technology, he adds.