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.


Top 5 Practice and Industry Trends for 2017: Where the Growth Is

The legal market finally is getting exciting again. Clients have premium rate worthy needs. Complex work is one of the few growing segments. In addition, corporate counsel have truly new needs which are siphoning precious dollars from the low priority needs. The only challenge is how you can get to the new work. This new work is being awarded on a select basis and the lower priority needs are being put out to RFP—or heading to procurement at larger companies.

We have discussed the Litigation Market Outlook in detail. Today’s post will focus on the other $80 Billion large companies spend on their legal needs. The top 5 trends and changes in client legal spending for 2017 are:

4 of the 5 Largest Practices Getting More Legal Budget in 2017

While Litigation shrinks, Employment, Securities, IP and M&A will receive a bigger portion of the budget. Much of the new work will be advisory and counseling in nature—this means the law firms in conversation with their clients are best positioned to capture this rare incremental spending coming into the market.

Cybersecurity and Data Privacy Demand Outstrips Supply

As hard as law firms try, they just can’t keep up with demand. Breaches and risk are growing and outpacing the ability to find the attorneys. Law firms are bringing in high-powered laterals from government which helps the brand, but can’t make a dent in demand. Top legal decision makers are becoming more receptive to using consultants and non-attorneys to help—which may also be a source of talent for law firms.

Corporate Legal Spending Hits Record

Large clients are now spending more, on a per company basis, than ever—beating the last record by an average of $200,000 to $1 million per company. The record is a direct result of clients bringing work in house. This proves clients have increasing needs and are changing the way they operate to accommodate their frozen budgets.

Banking, Financial Services, and Pharma Show Most Need for Complex Work

3 of the biggest legal spending industries are driving the new demand for complex work. Top legal decision makers in the Banking, Financial Services, and Pharmaceutical industries are facing widespread public, government, and investor scrutiny and all manner of public attention. These industries are also undergoing change and trying to stay in compliance while charting new strategies—including a few monster-sized mergers and transactions.

Flat Markets Mask Legal Crosscurrents and Enormous Opportunity

The action in the legal market is under the surface. Overall spending is up a fraction which may sound bleak. But, new needs and a surging market for complex work offer substantial opportunity for law firms willing to swim under the surface. Clients are moving money around to accommodate the higher risk work.

Any movement in the legal budget is opportunity for someone. Don’t look for the RFPs, as clients are awarding this work on a selective basis. The top decision makers are talking to their law firms about the new issues to test commitment and interest—some law firms take the bait, others don’t. If you are not talking to your clients about these issues start seeking them out—now.


To Boldly Grow Where No Legal Market Has Grown Before

You can find opportunity in every market—up, down or flat—the only question is which of the many strategies will work. The legal market has reached the point where each market opportunity demands a different strategy. BTI’s new research, based on 330 interviews with corporate counsel, reveals corporate counsel have hit the reset button. New spending is now popping up as new priorities and new trends (the good and the bad) take hold.

  1. To Grow Where No Legal Market Has Grown Before
    After shrinking in 2013, the US market for outside counsel services grows in 2014. And the good news continues: this is expected to last through 2015. Expect growth for all but 2 practice areas. Corporate counsel tell us they are planning to increase spending in 15 of 17 practice areas; sparking growth (admittedly some will grow imperceptibly) in 2015. The 2 noted exceptions: real estate and litigation will see declines. However, 8 practices are considered to offer above-average market growth and access to premium rates.

    Cybersecurity/Data Privacy emerges as a major market opportunity with spending on cybersecurity-related issues crossing the billion-dollar threshold. This quickly growing area promises 2 to 4 mega-cases each year and an abundance of large, complex matters.

    Strategy impact: The gateway for law firms looking to capture clients’ big-ticket spending is through smaller assignments focused on assessing risk and compliance. Be prepared to provide a side of counseling while you work for the larger matter.

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