By Michael Duffy
A recently released study by the Thomson Reuters Legal Executive Institute entitled Alternative Legal Service Providers: Understanding the Growth and Benefits of These New Legal Providers presents a timely examination of the development and maturation of what used to be called the legal process outsourcing industry. Thompson Reuters partnered with the Georgetown University Law Center for the Study of the Legal Professions and the University of Oxford Saïd Business School in gathering data from more than 800 law firms and corporate legal departments to support its findings. The authors of the study defined an alternative legal service provider (ALSP) as an entity, usually other than a law firm, that provides a service typically provided by a law firm, using a methodology not ordinarily employed by law firms; for example, the use of project based contract lawyers with a heavy emphasis on technology and process.
Many of the conclusions and findings of this study resonate with the Mindcrest founders who sixteen years ago foresaw an increased role for outsourced services in the legal profession. In 2001, two former McGuire Woods partners started Mindcrest, modeling it after the many other businesses that were exploring outsourced alternatives to the previously accepted strategy of performing every task in-house, no matter how small or routine. Accounting, engineering and client service operations were being moved outside, many times offshore, to take advantage of lower labor costs and increased use of technology and process.
Among other things the Thompson Reuter’s study points out that the growth of the ALSP market is currently being driven by corporate legal departments with law firms lagging behind. According to the study, 60% of corporate legal departments but only 51% of the responding law firms are using ALSPs for at least one type of service. The authors state that “Law firms are utilizing ALSPs primarily in a reactive manner as a way to provide more cost effective service models. Absent client pressures, it is unlikely that law firms alone would be driving the use of alternative providers (Thompson Reuters Legal Executive Institute. Alternative Legal Service Providers: Understanding the Growth and Benefits of These New Legal Providers, 4)".
Mindcrest founder and CEO, Ganesh Natarajan, agrees with that finding, saying that “We recognized almost immediately that law firms were not going to embrace alternatives to the traditional ways they provided legal services unless forced to by their clients; and why would they? They were comfortable with the sole provider model they had been using forever and they were making a lot of money with it. It was not until the mid-2000s when a combination of factors including the huge increase in electronic documents, the advent of technologies to process and review those documents combined with high hourly rates for even the youngest lawyers and the Great Recession, forced a re-examination of the old ways of doing business.”
Although there will be a need for a cost efficient method of document review as long as there is litigation, Natarajan agrees that the real growth in the ALSP market will be driven by the need for corporate legal departments to develop efficient solutions to meet their regulatory, compliance and contract management obligations. He says that “businesses that have bottom line obligations to their shareholders are more likely to be focused on the most efficient but responsible method of addressing a problem. The increased opportunities for ALSPs will most likely be in those areas in the future.”