Clients Find New Money to Send to Outside Law Firms

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Follow the money. The money will always tell you the story.

This money is going back to outside counsel. Flying right into the face of conventional thinking after 7 years of watching clients bring work in house—it’s going right back out again to outside law firms. But, how it’s going and to whom, is as different as ever.

Where Will the Money Come From?

Top legal decision makers are able to keep balanced budgets despite using high-priced outside counsel by using new budget and buying strategies. Clients are able to buy more services for the same dollars with the help of their new Chief Legal Operating Officers. This new group is already helping to buy smarter and get more outside counsel for the buck.

In addition to CLOO savings, large clients continue to embrace AFAs—with fixed fees being the arrangement of choice. General Counsel are also using the savings from the large number of settlements they reached (litigation settlements hit a record in 2017) to fund their newfound spending with outside counsel. And clients have only started to push hard on these fronts.

Clients are picking and choosing their law firms based on their enthusiasm and prowess in these buying strategies. Any sign of law firm resistance, even if unintended, will make your firm look much less attractive than those embracing the new way of GC living.

Our research with top legal decision makers shows this shift has been in the making for the past 18 months.

Your success in winning some of the largest surge of new work to hit the market in 10 years is equally dependent on 3 factors: 1) the new buying strategies; 2) positioning your firm to grab this work before clients think about issuing RFPS; and 3) other law firms getting there first. This means targeting business plans to get to these clients fast to talk to about plans for 2018, challenges, and new ways of doing business. Here are some suggestions for moving forward:

Growth in 15 Practices

Growth returns to almost every major practice. Clients tell us the increased need for outside counsel is broad based with litigation, labor and employment issues, tax, trade, and regulatory issues all commanding significant and strategic attention—all due to more complexity and uncertainty. This translates into the following:

  • IP Litigation, Regulatory, and M&A which will enjoy between 7% and 10% growth
  • Class Actions and Private Equity are right behind with growth between 5% and 7%
  • 8 more practices are targeted for increases as well
  • Only 3 will decline

Big Legal Clients Leading the Charge

Clients in the largest spending industries are leading the move to use outside counsel more with 3 of the 4 largest industries planning growth for up to 11 practices. These include the following trendsetting industry sectors:

  • The Health Care industry plans to increase spending in 11 different practice areas—showing the broadest need
  • Pharmaceutical clients plan for increased need in 10 separate practice areas
  • Banking and Financial Services organizations plan to increase spending in 9 practices

The Flat Market for Outside Counsel Spending Is Officially Dead (At Least for Now)

Corporate counsel can’t scale their departments fast enough to meet the needs of the increasingly complex work coming in the door. They also want to tap a broader range of skills than they can keep on staff. This is a fundamental change in their approach from the last 6 years. Overall, clients plan to move $3 billion of in-house budget to outside law firms in 2018.

You can pinpoint where each and every practice will grow and command higher rates in the newly released BTI Practice Outlook 2018: Changes, Trends and Opportunities for Law Firms.

MBR