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It’s nearing 15 years since the government passed the Legal Services Act 2007 in a bid to create a more competitive legal landscape. The growing number of technology-driven alternative legal providers is obvious – but their penetration of the legal market is less so.

In-house legal teams have a number of challenges on their plates at present, from tightening budgets to resource constraints, to being bogged down with routine work – and the overwhelming pressure to do more with less. To drive their departments forward and free up time to focus on more strategic work, legal leaders must invest in innovation and digital transformation initiatives.

That’s where alternative providers or ALSPs come into play – they’re agile, tech-centric and eager to prove their worth and they have a host of legal technology and high-performing talent at their disposal.

But alternative legal providers often get placed in a separate room from their law firm counterparts and are forced to compete against each other rather than all providers, says Dana Denis-Smith, Founder and CEO of alternative supplier Obelisk Support.

“This approach creates an information barrier that doesn’t work in their favour. To get the most from a legal services provider, you really have to create competition across the market and recognise that not every supplier covers every single service line you need, but you need to give them access to the same level of information and knowledge to be able to help you.”

So, what exactly is stopping in-house legal teams from putting alternative providers in the same room as law firms? And should in-house legal teams bother to increase the competition?

Are in-house legal teams afraid to break away from their law firm partners?

Denis-Smith believes many in-house legal teams are reluctant to consider alternative suppliers because they are reliant on their long-standing relationships with law firms.

“In-house lawyers need to break away from this idea of dependency – they really have options now,” she says, pointing out than many in-house teams operate on a sort of unofficial bartering relationship with their law firms.

Read: Are the Big Four reshaping the future of legal services?

These relationships make it difficult for in-house teams to challenge or break away from their law firms, says Denis-Smith.

“A balanced ecosystem is where you have the option of saying, “I don't like what you're proposing, and I know another supplier who has a solution that’s more relevant to my problem”,” she says.

Nigel Rea, Service Development Director at legal services provider LoD (Lawyers On Demand), also agrees on the depth of solutions that a balanced ecosystem can provide.

“If you engage newer providers, you’ll most likely find people move twice as fast, and you're more likely to get some interesting outcomes because we are coming to things with fresh eyes.”

“There's no easy win for us because we haven't got the traditional 20-year panel relationship. But that means, to be successful, we have to move twice as fast, be twice as creative and bring fresh thinking.”    

Will the demand for Legal Tech increase business for alternative suppliers?

In-house legal teams are eager to embrace digital transformation. Moving forward, technology will play a huge role in enabling legal departments to advance beyond routine, highly-repetitive work and instead focus more on strategic work that has a real impact on the organisation. But to achieve this, they’ll need suppliers that share their appetite for technology and innovation.

A survey of 900 law firms published in August 2021 found that many have invested and increased their use of legal technology. Roughly a third had invested in new legal technology in the previous 12 months, while a further 48% had increased their use of existing legal tech over the same time period.

However, the majority of alternative providers or ALSPs are digitally-native, says Denis-Smith, and they’ve invested quite a lot of money being digitally advanced.

“Many law firms are going around preaching digital transformation when they’re still on an outdated Microsoft package and everybody in the firm is struggling. It's a little bit funny that they don't see the irony of it,” she says.

The tech-centric mixed delivery models offered by alternative legal service providers allows in-house teams to get more work done and cut costs, says Denis-Smith.

“The volume of work that is floating around at the moment is huge. I think traditional law firms couldn't cope with it, especially with their structure and infrastructure.”

Anup Kollanethu, UK Head of Legal Managed Services at Big Four accounting firm EY, believes many in-house teams will start looking to alternative providers going forward.

“Most in-house teams have traditionally been used to working in a certain way; you either do the work yourself or you ask your panel firms to support you. Whereas, if you are in any other business function, you’re used to doing it a bit differently; you’re used to outsourcing scale stuff. More in-house teams are now starting to see how their peers within the business are operating and there is almost an acceptance they have to adapt and use a different approach.”

While the top law firms still dominate the legal market, a new ������Ƶ report revealed how the Big Four are slowly muscling in on their business. The report found PwC Legal UK has doubled its revenue in the last five years, having won international business reorganisation work with gas and oil company BP Plc and Japanese cosmetics company Shiseido, and tax litigation work with British Airways, Sky, Virgin Media, Marks and Spencer Group and RBS. KPMG Law, which has tripled its revenue streams in the UK in the past five years, worked with Sainsbury’s on an international reorganisation project. Competitor Deloitte Legal is working with Fujitsu, BT, EE and Ikea, while EY Law has partnerships with Nokia, Tesco and pharmaceutical company Merck Sharp & Dohme.

Download the Big Four report for more information

Should in-house legal teams increase the competition?

Having different options around the table is a good thing for in-house teams, says Rea.

“Competition is a good thing. We compete with the Big Four and law firms and other legal service providers,” he says. “That competition drives innovation in a really pragmatic way, and it drives really great solutions for clients.”

He also said many forward-thinking General Counsels or businesses are constructing diverse panels. “You want diversity of organisations across those panels and, by doing so, you get diversity of solutions.”

Denis-Smith says many large organisations are also having a conversation about their suppliers from a diversity and inclusion standpoint. “They want to know how a legal services supplier is structured, and if they care about the same values the organisation cares about, before determining if they are a match.”

“I would like to see in-house teams create longlists of suppliers based on their capabilities and shortlists based on values. This will definitely send the right messages back to law firms to change from a cultural point of view.”

Rea says he would like to see more collaboration between the newer service providers and the more traditional parts of the legal industry.

“Right now you've got lots of law firms spinning up innovation centres and I think all of that is brilliant for the industry, but the reality is not every law firm is capable of driving a really successful innovation programme.”

“So, it would be nice to see some more collaborative partnerships where everyone can focus on what they're really good at, while the service provided to the client is top notch.”