Dive Brief:

• The market for alternative legal services providers (ALSPs) has risen to more than $20 billion, as in-house legal teams and law firms seek out specialized expertise and cost-efficiencies, according to a report.
• Corporate legal departments in the U.S. most commonly use ALSPs for regulatory risk and compliance, legal research and e-discovery services, the Alternative Legal Services Providers 2023 Report found.
• Meanwhile, law firms are increasingly using alternative providers for consulting on legal technology, with more than half of firms reporting that. Law firms have also been creating their own ALSPs, said the report from Thomson Reuters Institute, Georgetown Law and the University of Oxford’s Saïd Business School.

Dive Insight:

The $20.6 billion market for alternative legal services providers at the end of fiscal year 2021 is a 45% increase since the last ALSP report of this kind two years ago.

The compound annual growth rate (CAGR) of 20% for the past two fiscal years tracked is up from the 15% CAGR during the preceding two years, a trend which the report says “gives clear evidence of the acceleration in adoption” of ALSP services. 

“Both law firms and in-house counsel are increasingly seeing the value of alternative legal services providers,” said James Jones, a senior fellow at Georgetown Law’s Center on Ethics and the Legal Profession. “Meanwhile, ALSPs are expanding the services they offer to law firms and legal departments by providing specialized services, improving cost efficiency, and delivering greater flexibility in headcount.”

For corporate legal departments in the U.S., the top two ALSP use cases of regulatory risk and compliance services and legal research services saw strong growth in the last two years.

Half of U.S. in-house respondents said they use ALSPs for regulatory risk and compliance services, which is up from 45%. Meanwhile, the percentage that use alternative providers for legal research rose from 39% in 2020 to 48% in 2022.

However, the remainder of the top five reported U.S. corporate use cases are new compared to the last report.

For example, the use of ALSPs for e-discovery services has grown from 16% to 28%, the third-highest percentage. 

“Within e-discovery, we can see many of the issues that corporate law departments — like other parts of large enterprises—contend with as digital transformation becomes more widespread,” the report said. “Of those corporate law departments using ALSPs for e-discovery, the primary functions are e-discovery hosting services and data processing.”

Among U.S. in-house teams, contract management and abstraction was the fourth most common use case at 26% followed by intellectual property management at 24%.

The percentage of in-house teams using ALSPs for litigation & investigation support dropped from 30% to 20%, even though these use cases saw increases among law firms. 

Meanwhile, 21% of U.S. legal departments already using ALSPs said they will increase their spending, compared to 8% that said they will decrease it.

Nearly 60% reported their ALSP spending will stay the same, with the remaining 14% saying they didn’t know what their spending will be.

“Corporate usage is a more mature market, and legal departments are now optimizing how they can best strategically deploy ALSPs,” said Mari Sako, a professor of management studies at the University of Oxford.

As for those in-house legal departments who do not currently use ALSPs, there is strong interest among many of them in retaining the services of alternative providers in the future, the report said.

For example, 34% of those departments that don’t already use ALSPs plan to use such providers for specialized legal services; for document review and coding services; and for litigation and investigation support. 

The ALSP research report was based on an online survey that was conducted June 1 through July 18, 2022 of contacts in decision-making roles at corporate legal departments and law firms based in the U.S., U.K., Canada, E.U. and Australia. 

Overall, respondents from 242 corporations and 407 law firms participated.