Corporate Spending on Law Firms Dropped 24 Percent Last Year

Corporate Spending on Law Firms Dropped 24 Percent Last Year

Corporate legal departments are in-housing more services and spending dramatically less on outside law firms. All told, large and mid-sized companies’ external spend declined by nearly one quarter, according to a new report by the Corporate Legal Operations Consortium, or CLOC.

Last year, CLOC’s 2019 State of the Industry Report reveals, in-house legal departments cut their external spending by 24 percent. In 2017, 62 percent of legal spend was directed externally. Last year, that was just 46 percent. That’s a decline of 16 percentage points year over year and, for large and medium-sized companies, a 24 percent reduction in external spend. To get these numbers, CLOC surveyed 213 companies across 32 industries, representing 12 percent of the Fortune 500 and a collective $6.3 billion in external legal spend.

Key Statistics from CLOC’s 2019 State of the Industry Report

  • $6.3 billion collective outside spend represented
  • 24% drop in external spend year over year
  • 50% reported increasing internal investment
  • 33% reported moving more work in house

While spending on outside law firms is down, investment in internal resources is up. Half of the respondents said they had increased internal legal expenditure from 2017 to 2018, while a third of respondents reported bringing more legal work in-house.

To help accomplish that work, in-house teams are bringing on more talent. Among the surveyed companies, 41 percent increased their attorney headcount, while 39 percent brought on more legal operations professionals.

But companies were also investing heavily in technology. Thirty-five percent of respondents had their own in-house engineering resources, while 37 percent said they spent more than $750,000 on legal technology last year.

How Corporate Legal Departments Are Reducing Costs by In-Housing Legal Work

Today’s leading corporate legal departments are aggressively reducing outside spend and growing their internal capabilities, as the CLOC survey shows. More and more, corporate in-house teams are determining that a dollar spent on outside services can go farther when invested internally.

This focus on in-house cost reduction and growing internal expertise is changing the way in-house teams work.

More companies are bringing in sophisticated subject matter experts and building out in-house litigation teams. When those teams work with outside counsel, they are increasingly empowered to act as partners in obtaining their objectives. While in-house attorneys rank outside counsel’s specialized expertise as the most significant factor in engaging outside lawyers, they are increasingly looking to take a more active role in accomplishing goals—and keeping costs in check. As Claire Dekar, Associate General Counsel at Maersk, explains in the video below, today’s in-house teams are “looking to be more partners, as opposed to advisees.”

That desire to drive legal processes and reduce costs has also led corporate legal teams to in-house more and more legal work, from contract management to early case assessment.

By bringing more of the discovery process in house, for example, corporate legal teams can employ simple, powerful technology to dramatically reduce the cost of document review—one of the largest contributors to litigation expense. One of the world's largest companies, for example, uses Logikcull to quickly process and cull through discovery data before sending them to outside counsel for review. With Logikcull, this company can reduce the number of documents requiring OC review by 98 percent. The result is a faster, more reliable process, and massive reductions in doc review costs.

How Law Firms Can Respond to Corporate Belt Tightening

For the law firms out there, the decline in outside counsel spend can be concerning. After all, the legal industry is already facing a decade of flat demand and stalled growth.

But cost-cutting by corporate clients also presents an opportunity for innovative law firms. Firms that can cut out inefficiencies and reduce costs can find themselves gaining a greater share of corporate business and building relationships that can last for decades.

How Top Boutique Firms Are Winning Big Clients From Big Law

With the right technology, law firms can provide superior client services, on shortened timelines and with greater accuracy. Because so much of today’s legal technology is cloud-based, it can be deployed almost instantly, democratizing access to tools that were once available to only the largest white-shoe law firms.

Today, disruptive legal technology doesn't require six-figure investments on on-premise infrastructure or a three-year MSA. And the best of this technology is not just powerful, it is powerfully simple, allowing teams to accomplish complicated tasks without overly-complicated technology.

Simple, effective legal technology is changing how legal work is done. Whether you’re a corporate legal team or a forward-looking law firm, the imperative to “do more with less” isn’t something to be feared. Rather, it can be a catalyst for true innovation. Corporate legal teams have caught on, as has a growing share of the law firm market.

Want to see how law firms and corporate legal teams can deploy technology to speed discovery, increase efficiency, and radically reduce the cost of discovery and investigations? Let us show you.

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