In what should serve as the latest wake up call to BigLaw firms and the clearest evidence of a change in buying habits among the largest corporates, the money spent by Fortune 100 law firms and their international equivalents on alternative legal service providers over the past year has increased by 24%, according to extensive research by legal procurement specialists the Buying Legal Council. However, with corporate legal spend on the rise after years of cuts, traditional law firms also saw a significant spike in demand, as for the first time the growth of the in-house legal team halted, raising questions as to whether growth in that sector of the market has for the time being come to an end.
The Buying Legal Market Intelligence Report, out last week, reveals that among Fortune 100 companies and their global counterparts the average spend on ALSPs went from $9.34m in 2018 to $11.2 million this year. “Alternative legal providers reduce spend per matter by leveraging people, process and technology. They are particularly cost effective for high volume, repetitive tasks, not bet-the-company events,” the report explains.
If you look at the overall average annual spend on ALSPs, you could be forgiven for assuming there is little change.
Dig a little deeper into the report and this is what that looks like broken down by the size of corporate:
However, according to the 2019 report clients spent over ten times more with traditional firms than other types of legal services provider, compared to 5x in last year’s report. The average global spend on traditional law firms went up from $112.65 to $140.19.
This is what that looks like by size of corporate:
The average annual spend on ‘ancillary legal service providers’ dropped from $15.06m to $8.22m.
The global market for legal services crossed $900bn for the first time. That legal spend is broken down as follows (courtesy of BTI Consulting Group):
With regard to the stall in growth of in-house departments, speaking to Legal IT Insider, CEO Sylvia Hodges Silverstein said: “The growth of the legal in-house department has come to an end and it’s the first time we’ve seen that. It is possible that people are unsure of what is happening in the economy and don’t want to commit to a bigger headcount, but the in-house sector has grown so much over the past decade arguably this had to happen at some point.”
Buying Legal Council’s mission is to introduce best practice for the procurement of legal services, and the report found that procurement is earning its seat at the table (at least from the CFO’s point of view), as the survey findings suggest that legal procurement professionals were able to save their employers 17.1% percent on average. (Last year saw an average of 14.6 percent in savings due to procurement’s involvement, and in 2017, it was 11.4 percent.) To put it in perspective, for a company spending $200 million on outside legal services, this translates into $34.2 million saved. The most successful legal procurement professionals saved their employers 24 percent on average.
However, procurement and legal operations specialists continue to step on one another’s toes.
The number of procurement professionals tasked with legal spend remains relatively low at an average of 2.9 FTE (full time equivalent) working in legal procurement. Legal operations teams tend to be larger with 6.9 FTE.
For legal procurement to be successful, the report says it is important to clearly stake out the grounds and clarify responsibilities.
We can see why there is a clash given some of their overlapping responsibilities, however, Hodges Silverstein says: “Procurement tend to have a quantitative, accounting background and the report to the CFO. Most legal operations have a legal background and report to the GC. In a recession it will always be procurement that is unleashed. It makes so much more sense if they stop this turf war and work together.”