TyMetrix (part of Wolters Kluwer Corporate Legal Services and Huron Legal have co-published a new report on how corporate law departments are choosing to source legal matters, in terms of the number and mix of firms used. The categories of study include an analysis by practice area, industry, corporate revenue range, and outside counsel spend. Some of the key findings include the following:

• Corporations allocated 80% of their outside counsel spend to a relatively small number of firms, as compared to the whole

• Annual revenue of a corporation had a direct correlation to the number of firms sourced for legal services work

• Outside counsel spend corresponded to the number of firms sourced

• Overall, firms with between 100 and 500 attorneys received the greatest share of outside counsel spend

To provide some background, in recent years there has been a call within the industry for corporations to send the majority of their legal work to a core group of outside law firms. Based on the report findings, it appears that corporations have been doing this. The data reflects that corporations allocated 80% of their outside counsel spend to a relatively small number of firms as compared to the whole. For example, in 2011 corporations used a median of 15 firms per corporation to handle 80% of their outside counsel spend. As for the remaining 20% of outside counsel spend, it was spread among many more law firms: for example, in 2011, a median of 82 firms per corporation accounted for 100% of outside counsel spend. Overall, these numbers remained fairly constant over the five years encompassed in the study.

As might be expected, the larger the corporation (by annual revenue), the more firms used. Similarly, higher amounts of outside counsel spend corresponded to the use of more law firms.

By practice area, corporations used an even more limited number of firms to handle the bulk of their work. For example, in 2011 corporations each used a median of two to four law firms per corporation to handle 80% of each practice area’s spend, for all practice areas except Litigation. (Companies used a median of 10 firms per corporation for Litigation work.)

The Report also analyzed the mix of law firms by size. Perhaps surprisingly, the largest firms were not the most commonly used. Rather, firms with 101-500 attorneys received the greatest share of 80% of corporations’ work, both in terms of their average share of the number of firms and their share of outside counsel spend. That share remained stable across many data cuts, and even grew a bit over the five years when reviewed by Practice Area. The preference toward firms with 101-500 attorneys is consistent for most corporation sizes, although the smallest companies and those with the least outside counsel spend were more likely to give work to smaller firms and the largest companies were more likely to give work to the biggest firms. For all practice areas, corporations showed a preference for mid-size and larger firms with 101-500 and 501-1,000 attorneys, but also spread the remaining work among other sizes to varying degrees. Corporations with matters traditionally handled by “big law” such as Mergers, Acquisitions and Divestiture, and Finance, Securities and Banking used the larger firms, while corporations with matters that may be more localized or require specialty counsel, such as Litigation and Intellectual Property, used more small firms.

“This report—and the series as a whole—offers a unique combination of data and partnering that is crucial  to the corporate legal community, as it relates to legal spend on sourcing,” said Julie Peck, general manager, TyMetrix. “Using TyMetrix LegalVIEW data warehouse allows Huron Legal to analyze an aggregate of data that includes billions of legal dollars spanning from 2007-2011 to identify insights and trends nationwide that can help corporate law departments formulate or update their sourcing strategies.”

“The 2012 IMPACT Analysis Series combines the granularity and volume of data in TyMetrix’s LegalVIEW warehouse with the strength of Huron Legal’s IMPACT methodology, tools and experience,” said Joy Saphla, managing director,Huron Legal. “The reports resulting from this collaboration contain impactful, data-driven cost control benchmarks that can help law departments and law firms improve their operational effectiveness and efficiencies in a systematic way.”

The first report in the series, Staffing Allocation, analyzed law firm staffing models and trends, also based on actual billing records drawn from the TyMetrix Legal Analytics LegalVIEW data warehouse. The IMPACT Analysis Series reports are available for purchase online at www.tymetrix.com/products/legal-analytics/2/legalview