Alternative Legal Service Providers Signal Disruption in the Big Law Business Model

Alternative Legal Service Providers Signal Disruption in the Big Law Business Model

As first year associate salaries rise and top-end Big Law billing rates approach the $1,500-per-hour mark, companies are growing increasingly weary of paying full sticker price for legal services. As a result, companies are turning to legal procurement teams to cut costs and obtain cost-efficient legal services. Legal procurement experts have one main goal in mind: obtaining effective legal services at the best possible value to their business. Procurement officers go about this mostly by negotiating prices and alternative fee arrangements, running data analytics to set and monitor performance benchmarks for law firms, and strategizing legal service purchasing decisions. They often play an influential role in helping corporations select outside counsel, and the most successful legal procurement departments can reduce their company’s total legal spend by roughly a quarter.

Cost-reduction and procurement pressures are pushing more corporate clients away from traditional firms and towards alternative legal service providers for a growing range of services. ALSPs companies are not law firms, but provide comparable legal staffing and services at more competitive prices. This trend is becoming so pervasive that according to a study by the Buying Legal Council and Bloomberg Law, roughly 64 percent of legal procurement specialists currently use alternative providers, while roughly 26 percent more plan to use them. In total, that’s 90 percent of legal procurement professionals who have turned or are turning to ALSPs. That turn is forcing law firms to rethink and restructure the way they conduct business on a day-to-day basis.

ALSPs Are Changing the Legal Services Landscape

In the past, ALSPs were structured primarily to deal with routine tasks that firms and companies could cheaply outsource: third-party document review services overseeing a small army of contract doc review attorneys, for example. ALSPs today, however, cover a wide range of services, from compliance and consulting agencies to companies that both lend out ex-BigLaw muscle from various practice areas to corporate legal departments. Some even offer training and mentorship opportunities for early-career and more established associates.  

As a result, many of these ALSPs are attracting stellar legal talent who can provide services comparable in quality to those offered by the larger law firms. Axiom, for example, uses lawyers and business specialists to conduct legal and law-related tasks, and is currently used by Fortune 100 companies such as Yahoo! and UBS. Counsel on Call, a similar company that provides hired-gun attorneys to work under the direction of in-house departments or with outside counsel, serves one-third of companies in the Fortune 100 and is valued at nearly $50 million. Many of these ALSPs also use similar hiring standards as many of traditional BigLaw players: 80 percent of Counsel on Call’s attorneys, for example, participated on law review, whereas many of Axiom’s senior-level attorneys come from the ranks of high-profile corporate in-house departments.  

The draw for attorneys is a better work-life balance than grueling and often uncompromising Big Law careers. The draw for corporate clients, and their procurement officers, is the ability to reduce costs while maintaining comparable quality. Given that corporations are signing on to this more efficient model of legal services delivery, it’s no wonder that the Harvard Business Review—playing off of “Big Law” moniker—described this growing group of disruptive upstarts as “New Law.”

Legal Procurement Preferences Are Changing Law Firms

Given that ALSPs are starting to provide Big Law-level services at cost-effective prices, it is no surprise that legal procurement personnel and corporations are starting to warm up to New Law as a viable alternative to Big Law. In fact, one survey by Altman Weil found that roughly 46 percent of lawyers working in Big Law saw non-law firm service providers as a potential threat to the business, while about a quarter admitted they were already diverting away business.

Many large firms are starting to feel the pinch. According to the same Altman Weil survey, nearly 60 percent of lawyers at firms with over 250 lawyers felt that client use of new technology solutions was a  potential threat to their business, and  already beginning to take business away. The fact that these developments are corresponding with growing pressure by corporate clients on law firms to improve the value proposition of their services is no coincidence.

Increased demands by procurement teams are also creating opportunities for firms to gain a competitive edge through embracing technology. BakerHostetler, for example, became one of the first Big Law firms to embrace artificial intelligence, using AI to aid in its legal research. Other firms, such as Haynes Boone, have adopted innovative eDiscovery tools into their day-to-day workflow, allowing them to handle matters quickly and with technology that is powerfully simple. Some firms are even adjusting their business models to embrace ALSPs and legaltech solutions as cost-cutting measures, adopting general contractor-type roles by sourcing out ALSPs for client projects.  

These leaders are bringing efficiencies into the law firm itself, allowing their practices to stay competitive and satisfy cost-aware corporate clients, while still maintaining the highest levels of service. As legal procurement teams are increasingly making clear, the firms that adequately prepare around—or work with—alternative legal service providers and legal technology solutions may find themselves at the forefront of a changing legal market.

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