Mini Series: Business of Law Firms​

Alternative Legal Services (pt 2)​

By Jake Rickman​

What do you need to know this week?

This is our twelfth article in TCLA’s series on the Business of Law firms.

In last week’s article, we examined the function of alternative legal service providers (ALSPs). To recap, ALSPs generally provide “high-volume, low-value” legal tasks to clients at a competitive price by outsourcing work to back and mid-office workers rather than employing lawyers or skilled paralegals.

This week, we will look at two firms — Herbert Smith Freehills and Allen & Overy — both of which have pioneered the incorporation of ALSPs into their client offerings. We will analyse in more detail the business case for launching their own ALSPs and evaluate subsequent developments.

Alternative Legal Services and North-Shoring

In the immediate aftermath of the 2007-08 recession, corporations sought to trim down the fees they paid private practice law firms by beefing up their in-house legal offerings and hiring more in-house lawyers and support staff. However, following the shift in corporate financial management strategy which increasingly favoured lean operational budgets, senior management began outsourcing non-core service delivery to third parties where possible, including certain legal services.

Independent legal process outsourcers (LPOs) quickly cornered a large share of legal services associated with high-volume work, thereby depriving traditional law firms of the revenue streams they once enjoyed. LPOs like QuisLex, which tended to offshore their service centres to countries like India, were able to develop efficient service products because their labour costs were cheaper and their service operations were honed to provide a narrow set of services.

It was in this context when, in 2011, two of the UK’s most respected law firms, Herbert Smith Freehills and Allen & Overy, opted to open offices in Belfast, Northern Ireland rather than offshore their support centres to other countries. In what has since been dubbed “north-shoring”, the two firms made use of various tax credits and other government incentives when they moved their support services to Belfast to take advantage of a cheaper labour market.

The Belfast offices also served as the new hub for their in-house ALSPs. In so doing, both firms began to develop highly cost-efficient service centres which would allow them to re-corner a portion of the legal services market that private practice firms had lost in the preceding decade. Their ALSPs hubs had the added advantage of being in the same country as their headquarters, which enabled more practical coordination between the two divisions.

Subsequent Developments

In the ensuing years, both firms’ endeavours have proved to be largely successful.

HSF’s alternative legal service operations, branded ALT, has since opened offices in Melbourne, Shanghai, Johannesburg, Perth, and New York. Chambers and Partners recognise HSF as the only traditional law firm with a Band 1 alternative litigation support service (the rest being LPOs). HSF’s sustained eminence as a global leader in litigation no doubt stems from ALT, which it leverages for its complex disputes and investigations matters.

Similarly, off the back of its Belfast Legal Support Centre, Allen & Overy have launched other “law-adjacent” developments in flexible legal staffing, technology solutions, and contract management.

The competition has followed suit: for instance, Freshfields later launched its Legal Services Centre (“The Freshfields Hub”, as it is informally known) in Manchester and elsewhere around the world, and Ashurst initiated a similar venture with the launch of Ashurst Advance.

As Thomson Reuters reports, in 2021, 79% of law firms and 71% of corporations now use ALSPs, and the in-housing of alternative legal services is the fastest growing segment of the ALSPs market.