Janvi Patel is co-founder of Halebury, and past VP of Elevated Lawyers, focusing on client management and business development as well as team building and management. She started her legal career as an employment solicitor at Charles Russell (now CRS) before moving in-house as a senior employment lawyer at Nortel for EMEA. In 2007, seeing that there was a gap in the market for flexible legal advice provided by experienced in-house lawyers, Ms. Patel decided to set up Halebury – one of the first alternative legal services providers at the time. She is a regular speaker at business and industry forums, Speakers for Schools, and an appointed board member on Thomson Reuters’ In-House Consultation Board. She is a strong supporter and advocate for women’s rights at all levels and is an advisory board member of Equality Now and the Children of War Foundation. She is also a founding committee member of the Cherie Blair Foundation for Women – Mentoring Programme.  

   Denise Nurse is co-founder of Halebury, and a past VP of Elevated Lawyers, focusing on strategy, management, and client service.  She co-founded Halebury as an opportunity to create the kind of firm that she would like to work for. Having started her career as an in-house commercial solicitor at Charles Russell (now CRS), she worked in-house as a commercial and technology lawyer for Sky before helping to develop and shape the Halebury offering. She mentors women in law and tech, as well as young entrepreneurs. She also speaks regularly on diversity and inclusion in business and is a supplier executive committee member for MSDUK, the supplier diversity organisation.

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 The Business of Law

For centuries, the provision of legal advice has been provided through one dominant option: practitioners of law. Like doctors, lawyers as a profession have focused on individual specialties and been licensed to practice or advise the public on legal issues. In order to create efficiencies, groups of individual practitioners formed partnerships to bring resources together, provide a wider selection of practice areas, and pool risk – businesses run by lawyers for lawyers. For recipients of this service, this has been the only option.

The dominant business model has been (and still is) “an organization or economic system where goods and services are exchanged for one another.” The early part of the 21^st century, however, has seen some of the most radical changes in business model options for the provision of legal services. Resourcing options play a major part in this significant evolution.

The last part of the 20^th century saw the steady growth of in-house law departments within businesses. The start of the 21^st century has seen the rise of flexible legal resourcing provided as a subset of services by law companies. These were named “Alternative Legal Service Providers,” or ALSPs, to denote the fact that they are not structured as law firm partnerships or even businesses owned and managed by lawyers. Businesses in this area offering a broader range of services now call themselves “law companies”; at times, the names are interchangeable.

For the purposes of this chapter, we will focus on the relatively new business model of providing flexible legal resourcing options for business legal departments and law firms by ALSPs and law companies, how this works, and its impact on the overall business of law.

Context

The UK legal market was valued at £35.1bn in 2018. The main legal spend is for business and commercial work, and nearly 47 percent of that revenue is with the largest law firms.[1] However, within this, the ALSP market has been growing at a rapid pace. In just two years, it has seen an increase in revenue from $8.4 billion in 2015 to about $10.7 billion in 2017.[2] ASLPs as a subsector are now making a considerable dent in the market, especially as there continues to be a drive for in-house legal teams to monitor and curb their external spend and look for greater efficiencies.

While traditional law firms service customers in industry, ALSPs often service two sets of customers: the in-house legal teams of industry customers and traditional law firms, partnering with both to provide strategic resourcing solutions. The fact that ALSPs support traditional law firms surprises many who might consider the two entities to be competitors, but it should not. Traditional law firms are built on talent and have resourcing requirements just like any other business. However, the way ALSPs deliver to each of those customers is aligned with each operating model.

Legal Services Resourcing Models for Business

In-Source

The first phenomenon in response to the growing needs of business and limited choice in legal service provision was to in-source. Hiring lawyers to work directly for and within a business gave cost certainty and more flexibility. Initially, lawyers were often hired on the basis of the particular practice area with which a business needed the most help at the time: M&A, employment, or commercial contracts, for example. This method has been a success. The continued growth of in-house legal teams over the last decade has been largely driven by cost pressures, as corporate executives look for ways to reduce external legal spend. In fact, in-house legal teams have more than doubled over the last 15 years from nearly 13,000 in 2002 to almost 28,000 in 2017.[3] The scale of growth is considerable.          

There are distinct skillsets that in-house legal teams bring to their internal stakeholders, such as the ability to work with commercial teams on the ground as well as the ability to work with businesses to provide operating and strategic advice. This commercial and operational experience is invaluable, and the training is hard to replicate within a traditional law firm. The benefit of a General Counsel (GC) working within and for a business directly is the added efficiency gained by having a trusted advisor available to support the business and understand the commercial drivers for decisions, the operational realities of a particular course of action or inaction, and the environment in which the business is operating. The GC can become preventative rather than reactive. Helping to organise and prepare business colleagues and navigate a way through the legal framework helps avoid the need for a specialist until absolutely necessary. In an added dimension, the GC can also add value by providing strategic advice on business decisions. The skills gained by in-house lawyers are invaluable, and the cost effectiveness of having a lawyer in the business is evident.

As a result, some in-house legal teams are now bigger than traditional law firms and run as a business unit themselves. The operating model of each in-house team is as varied as the businesses they serve, as most tailor their operating structure to align with their corporate entity and its business goals. This makes a diverse customer base to support from a legal resourcing perspective, each with its own requirements, opportunities, and challenges around recruitment and retention.

Outsourcing

An alternative or addition to the in-source model is to outsource legal services provisions. In its purest form, this is the original model: to instruct an external law firm how to manage legal matters. The last 30 years or so, however, have provided a variety of outsource options where the legal work is unbundled and separated out into its constituent parts. The main areas of growth have been to:

1.     Off-shore, on-shore, or near-shore low-value, low-risk, repetitive work to paralegals or lower-cost legal providers in a systemized process-heavy environment.

2.     Bring in secondees to cover team absences, growth, or gaps, or bring in temporary resources to work with the in-house team.

3.     Move work to a technology solution – for example, contract management and e-signature tools, document creation and automation tools, eDiscovery for document review, and more.

Flexible Legal Resourcing fits all of these categories. As an alternative to a traditional law firm, the ALSP model broadly provides contract lawyers who are able to work on temporary assignments or projects. Often they will also have in-house experience so they are more readily available to hit the ground running when joining a team and understand the commercial aspects of the legal advice to be provided. Costs are usually fixed on a day rate or fixed fee, providing price certainty for buyers. The lawyers will work either on- or off-site and as and when needed, so for short projects or part-time assignments. The overall relationship is managed by the ALSP, so the payment and business management of the flex lawyer is undertaken by the ALSP, reducing the burden on the customer and freeing the lawyer to focus on legal advice rather than admin. 

Managing the cost of resourcing – is in-sourcing the answer?

Cost pressures remain a driving force for the continued growth of the in-house legal team, but budgets for legal spend are still being reduced. However, many GCs have started to realise that in-sourcing is not the long-term solution. GCs looking at innovative ways to manage their resourcing gaps, especially at the mid- to senior-end of the market, have started to lock in deals with ALSPs to resource and manage a pool of senior talent to support their legal and commercial teams on an ad hoc basis. This model provides ongoing flexibility and bespoke outsourcing, which can be aligned with business goals.

No two in-house teams have the same operating model, so each one will generally require a bespoke solution. Here are a few examples of how it works for clients with different requirements.

Example 1: FTSE 250 company would like to reduce their headcount, especially their senior talent pool; currently the total in-house team >400. The company retains an ALSP to provide flexible senior in-house resource on a continuous flexible basis to scale up and down as and when deals come through. The ALSP is able to manage both the projects and junior members of the team. A project manager oversees work allocation / work undertaken by the external team to ensure the pipeline always fits with the business goals and that the external team is working with the customer to ensure efficiencies in delivery of service and, ultimately, cost savings.

Example 2: Company with <5 in-house lawyers use the ALSP as an extension of their in-house legal team.  The ALSP in-house lawyer trains on the company processes and is able to slot in as and when required both to help with the day to day, but also on projects operating as a flexible extension of the internal team.

Example 3: FTSE 500 company with an in-house team of >150 is looking to reduce their external legal spend but would like to continue to work with their existing law firm panel. The ALSP is able to provide consistent senior level support at a competitive AFA (alternative fee arrangement) and at partner / senior in-house lawyer level. They work directly with the law firm’s customers and their in-house legal teams. The ALSP lawyers work with the associates / junior lawyers either within the in-house legal teams or in the traditional law firms for support as required.  This is true collaboration between in-house legal teams, ALSPs and traditional law firms to provide an effective customer solution.

Managing external legal costs – look farther than your panel

The lack of transparency regarding costs is a key concern for in-house teams and a key driver for in-sourcing. 

According to recent statistics, legal budgets being reallocated internally has increased from 37 percent in 2013 to 43 percent in 2017[4], and that increase is expected to continue. This reflects the need for more cost certainty, better commerciality of the legal advice, and the ability to flex and manage resources when you control from within. The ALSP market has grown directly in response to this clear demand, for a type of lawyer and service not previously easily available and to allow the internal teams to manage head count costs at the same time.

Curbing the frustration:

As the table above shows, in-house legal teams are still frustrated by the lack of cost transparency and overall costs, as well as the billable hour system. By effectively managing their own resourcing, traditional law firms have the ability to manage the costs they transfer onto in-house legal teams. Using ALSPs as well as Legal Process Outsourcing (LPO) models has been invaluable for a number of law firms, as ALSPs and LPOs have the ability to offer alternative fee arrangements (AFAs). This enables traditional law firms to scale up and down and manage their bills to in-house legal teams. 

Are AFAs possible?

In that same Thompson Reuters study, 2018 State of Corporate Law Departments, it states that 76 percent of their customers state that controlling outside counsel costs are at the top of their priorities. It also states that implementing alternative fee arrangements are considered most effective to control external counsel costs. 

In-house legal teams have taken charge of this concern. A number of in-house legal teams have a program of legal invoice review to ensure that not only are invoices submitted by law firms in scope and budget, but also to provide visibility on spend. Many in-house legal teams have also implemented e-billing systems to help with spend management. Despite the cottage industry that has developed because of the complexities of billing, the hourly rate remains the predominant way of charging in the legal services industry. 

Providing cost transparency and certainty is core to many ALSPs’ operation model, and for most work is undertaken on fixed fees or day rates to ensure customers have control and transparency over budget.

Although new ways of pricing legal services are important, better integration and collaboration between traditional law firms, ALSPs, and in-house legal teams in general is essential to provide better customer solutions. Increasing collaboration throughout the external legal supply chain is fundamental to providing customers with efficiencies in how they buy their legal services. So how do we all play nicely together?

ALSPs and Traditional Law Firms

Flexible legal resourcing has provided a solution to a gap in the market, and traditional firms are creating their own bespoke versions whilst others are partnering with ALSPs to offer this service to clients. In addition, the ability to offer alumni an alternative pathway to working with the traditional firm has arisen. It is becoming increasingly common for ALSPs to work with traditional law firms’ own alumni to manage the firms’ resourcing challenges and assist in managing costs and profitability. 

How ALSPs work with traditional firms

The provision of flexible legal resourcing from ALSPs to traditional law firms generally works on three levels:

·       Backfilling the law firms own teams to support with gaps in resource for longer-term team absences or for spikes in workflow;

·       Provision of secondees to their clients in order to honour panel requirements in a more cost-effective way or as a way of added value/customer service; and

·       Working with the firm’s alumni to offer a flexible resourcing career option for former team members and an accessible pool of pre-vetted and known talent for the law firm.

Traditional law firms tend to have more similar structures than in-house teams; the implementation of flexible legal resourcing can still vary. Here are a few examples of how it works for law firms with different requirements.

Example 1: Magic Circle law firm, implemented own flexible resourcing programme. Branded service managed by bespoke internal team.

Example 2: Leading global law firm with a multibillion-dollar revenue instructed Law Company to provide flexible legal resourcing programme presenting as a joint solution to clients demonstrating range of services and transparency.

Example 3: New entrant regional law firm, working with Law Company to provide flexible work force as part of overall strategy of main law firm and to provide wider range of services to end clients by providing legal operations and project managers alongside generalist in-house and specialist private practice lawyers in curated teams.

Managed Services

The trend toward outsourcing complete tranches of end-to-end legal work has been growing. In the flex legal resourcing sector, the latest iteration of this solution is for entire legal teams or departments to be taken over by the service provider and managed to achieve cost reductions.  Some recent examples include:

ElevateNext and Univar

ElevateNext, using data analytics and consulting from Elevate Services Inc. (its partner), assessed the performance of outside counsel, their efficiency, and adherence to sound budgeting and decision-making processes. They identified ways to streamline efforts, lower costs, and improve outcomes. ElevateNext now handles legal matters directly for Univar, acts as coordinating counsel for certain matters that remained with other law firms, and serves as “chief of staff” to the law department.

DXC Technology and United Lex

In December 2017, DXC Technology, a technology conglomerate of Computer Sciences Corp. (CSC) and Hewlett Packard Enterprise’s Services business (HPES), engaged United Lex to restructure its in-house department and manage its team and services.

Thames Water and Eversheds Sutherland

Thames Water has worked with BCLP since 2010 as the main provider of legal services and transferred this to Eversheds Sutherland as a complete managed service of its legal team in April 2018. Eversheds’ supports on operational activity under its managed legal services agreement and the existing legal team from BCLP transferred across to their team.

Unbundling Legal Services and Working Together

Whilst in-house legal teams have the ability to unbundle services, traditional law firms are well placed to unbundle the entire legal services delivery supply chain. Innovative law firms are doing just this, and some of the most progressive have fully engaged with ALSPs to partner with them on this unbundling. 

A large part of the unbundling ensures that projects are led by the most cost-effective provider, which ensures it is the right person or tool for the job, creates efficiencies, and drives down spend. Some in-house legal teams have requested their panel firms partner with ALSPs to manage their secondments and further resourcing requests. ALSPs can provide a white labeled service for this, so that in-house legal teams have one point of contact and also the contracting entity has the ability to manage quality control. 

The unpacking allows for a total mix of legal process outsourcing of low-cost repetitive work, automation, flex legal resources, and traditional lawyers working with in-house teams to create a seamless blend and providing the most efficient and effective advice.

The Future

The business of providing legal services to industry has evolved significantly from where it was, even at the start of this decade. Where will we be in another ten years? With the changes that have taken place within the profession and in particular the focus on the “business of law,” we are lining up for greater value for our end customers as costs are more transparent and better managed, and legal services are approached increasingly like a business rather than a legal practice.

The pace of change is only going to increase. Looking at the wider economy, 43 of the companies in the Fortune top 100 globally were new entrants since 2008, and some of those included established names like Apple, who rose from a position of #33 in 2008 to #11 in 2018 – a phenomenal rate of change. 

The legal industry, whilst notably slower to evolve, is having to keep up. Even its slow pace will ensure more radical changes appear. The need to evolve will be highlighted by the potential for disruption, as has been seen in other industries such as hotels (Airbnb), taxis (Uber), and food service (Deliveroo). Law companies are being seen as disruptors in the legal industry as they aggregate the disaggregation that has occurred over the last decade. Expect the continuation of outside investments and law companies going public to further accelerate the pace of change.