Cutting BigLaw Down to Size: New Alternatives for Legal Services Procurement (Part 3)

renaschild/Adobe Stock

The dramatically changing legal services industry discussed in Part 1 and Part 2 of this series ultimately provides both challenges and exciting opportunities within legal services procurement. Alternative legal services providers (ALSPs), a main focus of this series, are just one component of these changes and still an emerging one in legal services procurement strategies and practice priorities. Growth in the corporate use of ALSPs, however, is expected.

According to Thomson Reuters’ study, “Alternative Legal Service Providers: Understanding the Growth and Benefits of These New Legal Providers,” large corporations surveyed indicated increasing use of ALSPs. Depending on the service category (usage is highly category specific), there is a range of current and expected usage. For example, on the low end, for legal drafting, 10% are already using, 3% plan to in the next year and 11% will likely use in the next five years. At the other end of the range, for regulatory risk and compliance, the numbers are 29%, 13% and 14%. There may also be conservative bias in these numbers, since ALSPs represent a relatively new universe of suppliers (i.e., procurement awareness and understanding may still be growing).

Moreover, some BigLaw firms are trying to adapt to the new market and industry environment by incorporating ALSPs into their own supply chains. As such, corporate procurement will also indirectly encounter ALSPs within some BigLaw firms, but on a lesser scale. Only 15% of law firms plan to be using ALSPs for specific purposes over the next five years, while 46% of corporations plan to do the same.

In any case, while ALSPs will be only one component of corporate legal services procurement strategies, they will likely be an increasingly prominent and important one.

Legal Services Procurement: A New Frontier?

According to the Bloomberg Law/Buying Legal Council 2017 Legal Procurement Survey, “Legal procurement continues to increase its reach and influence: The majority of legal spend is now under review. A [law firm to legal department] relationship-only business approach to buying (and selling) legal services is now a thin minority among the largest spenders. It is replaced by a professional, business-driven approach to sourcing. Legal procurement is no longer an unproven pioneers’ land.”

Still, at this time, the priorities of legal services procurement are skewed toward the more fundamental practices. When asked about priorities for the next 12 months, the survey respondents cited the following at the top of the list:

  1. Consolidated preferred provider list (respondents on average had 362 traditional legal suppliers, with one having 1,500)
  2. Manage legal work
  3. Capture and analyze spend data
  4. Build relationship with legal department
  5. Implement formal strategies and processes

Achieving cost savings was No. 6 on the list. (Indeed, savings as a percentage of total spend was already running in double digits.)

When respondents were asked which tactics were used to drive and receive value from legal services providers, there was a range. At the high end, 91% used negotiation of discounted hourly rates (followed by preferred provider list, billing guidelines and RFPs), while at the low end, only 15% used e-auctions. Notably, 64% used alternative fee arrangements (AFAs) or project-based budgets, and 51% used alternatives to traditional law firms.

Clearly, basic procurement approaches currently drive the highest value (not surprising given the large supply bases of traditional law firms with traditional hourly billing models). The use of AFAs and ALSPs, however, is by no means negligible; they just don’t represent the low-hanging fruit — which, of course, will eventually be harvested.

Still, even at this time, the survey found that 64% of procurement professionals are already using AFAs and 26% planned to. Correspondingly, with respect to the use of ALSPs, the study found that legal procurement professionals “see [ALSPs] as an effective way to drive value (6.89 out of 10 points).” Additionally, “63.8% of legal procurement professionals use them [ALSPs], and 25.9% are planning to.”

The study also reports that the number of ALSPs a given company uses is now relatively small. Companies tended to work with one legal process outsourcer (LPO) — three was the maximum in the survey sample. The average company worked with four e-discovery companies (with a range from 0–20). Altogether, companies worked on average with four “alternatives to traditional law firms,” ranging from zero to 50 such providers, “with a (low) median of two alternative firms.”

It is noteworthy that the sourcing and engagement of these types of providers appears to be much more disciplined and more tightly managed. The study speculated that this may be due to legal procurement’s increasing involvement in managing these type of services and/or because these providers are “newer phenomena” for companies and more attention and caution is directed to them.

While still not the top priority for legal services procurement — and a relatively small portion of legal services spend — the use of ALSPs is important, and that importance can be expected to increase over time. So, while we have clarified that legal services procurement, generally speaking, is no longer the “next frontier,” the use of ALSPs may very well be.

The Future of Legal Services Procurement and ALSPs

We noted at the outset that the dramatic changes in the legal services industry promise to provide both challenges and exciting opportunities to legal services procurement professionals. And it appears ALSPs could be a critical part of that picture.

The use of ALSPs is already recognized as a valuable component of an overall procurement strategy — although ALSPs and how these service providers could be used still represent a “newer phenomenon” for legal procurement organizations.

In pursuing an ASLP strategy, legal services procurement practitioners will face a complex, broad-ranging set of supplier options, which will include traditional firms (including those that are upgrading themselves with technology and an ALSP supply chain). It will include MLS and LPO providers, highly specialized service providers, legal firm marketplaces/networks and providers of flexible contract attorneys. Last but not least, Big Four accounting firms are likely to play an outsized role.

As the rationalization of the traditional supply base is accomplished, procurement focus will have to shift to harnessing this highly diverse, complex and evolving population of alternative legal services providers. This is uncharted territory for procurement that will necessitate new approaches and processes.

In Part 1 of this series, we discussed a trend toward unbundling service requirements, work and externally provided services — the tendency to “disaggregate work and allocate responsibilities for different aspects of a single matter to different law firms, in-house lawyers and nontraditional vendors.” Accordingly, we can expect a shift from satisfying corporate needs with bundled services provided by a homogenous supply base of traditional full-service suppliers to satisfying more granular (possibly more frequently changing) business end-user needs with highly specific services provided by an expansive landscape of diverse, often specialized legal services providers.

This has many significant implications for procurement. Not only will procurement source from and manage a very different kind of supply base, it will also have to move closer to the actual work of legal departments and other users of legal services in the organization in order to optimize the matching of requirements and supply channels. This will require a high level of partnership with the legal departments, which fortunately is, in addition to managing legal work, one of the top priorities of legal services procurement organizations at this time.

Conclusion

This discussion of the future of legal services procurement and ALSPs — in the context of this brief three-part series — only scratches the surface of what is happening and what lies ahead for legal services procurement — which is now in a unique position because it is such a young discipline that is not anchored by legacy perspectives, approaches and technology solutions, as it the case in other procurement areas. The ongoing evolution from BigLaw to NewLaw, from bundled services of a traditional, homogenous, low-tech supply base to specialized services of an innovative, diverse, high-tech service provider population offers a unique set of exciting and fascinating challenges and opportunities for a new generation of procurement professionals.

BigLaw is dead. Long live NewLaw, ALSPs and NewLegalServicesProcurement.

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *