Alternative legal service providers’ growth rate has accelerated over the past two years as law firms and corporate legal departments increasingly seek ways to become more efficient, according to a joint study by the Thomson Reuters Institute, Georgetown Law and the Saïd Business School.

The Alternative Legal Services Providers 2023 Report shows that ALSPs accounted for a $20.6bn slice of the legal market at the end of 2021, a 45% increase since 2019, equivalent of a compound annual growth rate (CAGR) of 20% – up from 15% in the previous two year period. The growth over the past two years has been fuelled by ALSPs finding new ways to serve law firms and corporate legal departments, with the boundaries between all three becoming increasingly blurred, the report noted.

James Jones, a senior fellow at Georgetown Law’s Center on Ethics and the Legal Profession, said: “Both law firms and in-house counsel are increasingly seeing the value of alternative legal services providers. Meanwhile, ALSPs are expanding the services they offer to law firms and legal departments by providing specialised services, improving cost efficiency and delivering greater flexibility in headcount.”

Independent ALSPs account for the bulk of the market (87%), though so-called captive ALSPs – those owned by law firms – are the fastest growing segment, up nearly six-fold since 2015, equivalent to a CAGR of 47%. The Big Four consulting firms are the slowest growing segment of the ALSP market, with a CAGR of 5%.

As well as creating their own ALSPs, law firms of all sizes said they expect to either maintain or increase their ALSP spend over the next two years, with more than a quarter (26%) of the largest law firms anticipating spending to increase. Only 3% are forecasting lower spend.

However, more corporate legal departments could rein in ALSP spend over the next two years, with 22% saying they plan to decrease spend or are unsure of their spending plans compared to 21% who plan to increase ALSP spend.

Technology consulting is the fastest-growing use case, with more than half of large law firms turning to ALSPs for help with legaltech, such as outsourcing tech support, tech training and guidance on what legaltech is available.

Michael Abbott, head of the Thomson Reuters Institute, said: “The ALSP market increasingly includes software companies and providers of comprehensive legal technologies. Law firms – both large and small – view this specialised tech expertise as a means to help them more rapidly adopt technologies that can enable them to provide quality legal work with greater scale and efficiency.”

Corporate legal departments are more likely to use ALSPs for regulatory risk and compliance and legal research issues, followed by e-discovery, the study found.

Recent examples of leading law firms investing in captive ALSPs include Shearman & Sterling's launch of Legal Operations by Shearman, a dedicated legal operations consulting service aimed at corporate law departments, and the opening by Ashurst of a risk advisory unit in the UK.