The Legal Ecosystem: Alternative Providers are not Alternative Anymore (Part 5)

Topics: Alternative Legal Service Providers, Business Development & Marketing Blog Posts, Client Relations, Government, Justice Ecosystem, Law Firm Profitability, Legal Innovation, Midsize Law Firms Blog Posts

legal ecosystem

This is the fifth part of a series exploring the key players in the legal industry ecosystem and the pressure they are exerting and enduring. The author, Lucy Endel Bassli, was assistant general counsel at Microsoft and recently founded InnoLegal Services and serves as Chief Legal Strategist for LawGeex.

Part 5

There are plenty of legal press and trade publications that review the status of alternative legal service providers, their growing revenues, and the evolution of the legal services they provide. In this installment of my series, we will review the tensions these entities are creating across the ecosystem, both positive and negative.

Let’s begin with some definitions to make sure everyone is on the same page. What is an “Alternative Legal Service Provider” or ALSP? It is a more recent name for what has been for decades called Legal Process Outsourcer (LPO). Since it was no longer just basic processes that were being outsourced — even if legal contract review is technically still a process… yes, sorry, transaction lawyers, it is a process — and the connotation was too simplistic and underserving, a new name was conceived that focused on a broader set of services. So, what makes it “alternative”? Since law firms were the main and only provider of legal services for centuries, it made sense to call these LPOs “alternative” providers of legal services.

Recent evolution in this taxonomy game has given birth to “Law Company” and “Legal Services Company” as these providers move up the value chain and compete with law firms directly in many cases. To enable further debate on the right taxonomy, I’ll add another variation: “Legal Services Providers” or LSPs. They can compete with law firms because much of what law firms do is not technically the practice of law as defined by state courts and bar associations. Therefore, there are plenty of other players coming in to grab that work. Particularly, as corporate legal departments look for more ways to be efficient and cut costs, these providers are becoming more mainstream and certainly less “alternative.” So, who are they and what do they really do in the legal ecosystem?

Legal Services Providers or LSPs can compete with law firms because much of what law firms do is not technically the practice of law as defined by state courts and bar associations.

Since tension implies some less-than-positive sentiment, I’ll begin with a look at the impact that LSPs have on law firms, legal tech companies, and bar regulators. For some it is not clear how these providers are creating any pressure on law firms. Those people are still convinced that only law firms can do what they have done for decades, and that these newer market entrants are focused on a different type of service. Specifically, they are focused on law-value work that law firms don’t touch anyway. The law firm leaders may look down at this work or not look at it all, which is a costly oversight in either case. The truth is that while much of the work that LSPs initially did was in fact high-volume, lower complexity work; however, now they are actively moving up the value chain.

Tension with Law Firms

Law firms should be concerned about the LSPs for several reasons, because LSPs are: i) redefining what falls outside of the practice of law; ii) are hiring experienced lawyers and other experts; and (iii) are offering more holistic service to clients. As legal services are being disaggregated and unbundled, more steps in the process are falling clearly outside of how regulators define the “practice of law”, which in turn allows for more entrants into legal service delivery.

For example, the state of Washington created a new licensed profession for limited practice areas in family law (the Limited License Technician); and, more informally, LSPs are taking over more attorney tasks across the United States.

So much corporate law department work does not actually require a license, and LSPs are testing the willingness of clients to see just how far they’ll be allowed to go before they reach the threshold of providing legal advice or practicing law. In fact, one way in which the LSPs are finding more willing clients, is because the bench of people behind LSPs is becoming increasingly sophisticated. Mired in the old perception that LSPs hire 4th-tier lawyers from unknown law schools, LSPs are emerging as destination employers for successful attorneys looking for a different path or for new ways of delivering legal services. The talent pool within LSPs is impressive and continues to expand in the right direction.

Finally, LSPs provide a whole host of other benefits that law firms traditionally have not been equipped to provide, such as tracking data, monitoring performance, and embracing new technology. They also use expert project management and have business operations running through their DNA. This is some work currently done by law firms — or could be done by law firms if they were not missing this revenue opportunity — that is simply being done better by LSPs.

Tension with Legal Tech Companies

Not surprisingly, the legal tech community is perceiving LSPs in a very different light than law firms. While they are not threatened by the LSPs — since the tech companies are generally newer entrants into the market (especially when it comes to automation of legal tasks rather than back-office tasks) — LSPs do present a unique challenge to the tech companies.

So much corporate law department work does not actually require a license, and LSPs are testing the willingness of clients to see just how far they’ll be allowed to go before they reach the threshold of providing legal advice or practicing law.

To wit, if LSPs are providing a lower-cost service to corporate clients, then what is the benefit of automation? Of course, legal tech will list a huge number of valid benefits: consistency, speed, data collection, among others. However, the reality is that it was hard enough to convince in-house lawyers to outsource work to LSPs in the first place. If they are happy with the price and outputs, why would they seek out new technology? So, the pressure these LSPs are creating on legal tech companies is twofold: they need to show greater value than using humans for certain work and they need to come up with the pricing that makes it worthwhile to switch.

Tension with Regulators

I’ve already alluded to the tension that LSPs are having with regulators. It is very clear that the definition of the practice of law is being tested by LSPs. In all honesty, as an in-house, commercial-transactions lawyer, I could easily argue that 90% of my job did not require me to be a licensed attorney. In fact, my favorite clients were those experienced contract negotiators that could get on the phone with an attorney on the other side and negotiate most of the contract without my involvement. When was I called in, for the last 10% perhaps, it was for the most nuanced legal concepts. Yet, most legal departments still have highly-paid lawyers handling the contract negotiation from start to finish.

LSPs have brilliantly disaggregated contract review, for example, and are able to run the negotiation process through most of its journey, and then engage the in-house lawyer only as necessary. To be safe, all that work is done by LSPs “under the direction and control” of the in-house lawyer, so as not to get into trouble with the regulators. I challenge just how much actual direction and control the in-house team provides beyond the playbook.

If the whole point of outsourcing is to be able to step out of that work, a good playbook is the secret key to not being accused of “practicing law” and staying on the right side of the regulating bodies. But how long will that last?

In summary, LSPs are not to be underestimated or ignored as significant players in the ecosystem. They could be great partners for those law firms who want to provide holistic solutions to clients, even for the work that they traditionally have not done. Guess what? That work needs to be done, and why should corporate legal teams have the burden of managing different providers?

Law firms can embrace LSPs and learn from them about process efficiencies and project management. Or LSPs can continue to climb the value chain on their own and reach into work that had been squarely entrenched in law firms. If that doesn’t convince law firms to move, then consider that LSPs have strong experienced leaders who understand the business of law and can take the client (aka customer) experience to a whole new level, because they know how to treat clients like customers.

Delighting customers is a new concept for legal, but if we watch other evolving industries, they all eventually figured out that the customer is king!