Underestimate the Legal Services Act at your peril. The effects in the commercial sector could be far-reaching, claims Derek Bedlow.

Much of the speculation around the forthcoming Legal Services Act has focused on the future of High Street firms, the number of which is predicted to be decimated as better-organised and resourced retail brand names, such as Halifax and the Co-operative Group, muscle in on their turf.

Many of the problems that the reforms set out to address – market fragmentation, poor service and lack of investment – it is said simply do not apply to commercial firms. By contrast, at a time when the profits of City law firms are hitting record levels, the temptation for commercial firms to retain the status quo is a strong one.

However, the freedoms and flexibilities soon to be available to law firms, and other organisations operating in the commercial field may entice some to start thinking differently about how to provide legal services. The proposed Legal Services Act could lead to some subtle changes in the modus operandi of City law firms that add up to a fundamental shift in the legal services landscape.

Nobody has yet declared their hand, and with the most radical parts of the reforms unlikely to be available until 2010 or 2011, to do so now would be premature. But this is the time that the preparation work needs to be done, and the evidence is that many commercial law firms are putting some serious thought into the opportunities, and threats, promised by the Legal Services Bill.

A raft of recent surveys have revealed significant levels of interest from law firms in accessing external capital, adopting alternative business structures (ABSs) and forming multi-disciplinary partnerships (MDPs) with other professionals or legal disciplinary partnerships (LDPs) with barristers. For example, a survey of commercial law firms published last November by Clearwater Corporate Finance found that 56% of commercial firms were considering adopting an ABS structure, while 50% were interested in getting external finance. Polls conducted by Smith & Williamson and PricewaterhouseCoopers around the same time recorded similar results, while a survey of senior lawyers carried out this spring by Intendance Research (to be published by Sweet & Maxwell in the summer) found that nearly half of respondents are interested in adopting an ABS and 37% expressed an interest in accessing external capital.