Corporate legal departments are delivering more services in house while exploring ways to control costs, according to the Corporate Legal Operations Consortium’s (CLOC) 2019 State of the Industry Survey.
The survey, which was released on July 18, compared internal to external expenditure, legal operations headcount, technology and innovation, and law firm evaluations across 200-plus companies of different sizes in over 30 industries and 18 countries. CLOC members were polled in early 2019 about their 2018 results.
This is CLOC’s second state of the industry survey. The results of the first were published in 2017.
Moving in house
In 2018, the collective external expenditures submitted by respondents totaled over $6 billion. More than 50% reported that their external expenditure on law firms decreased or stayed the same from 2017 to 2018.
In comparison, internal legal expenditure increased for 50% of respondents from 2017 to 2018. This is in line with efforts to control costs and increase the size of internal departments, said CLOC.
While more than 40% of respondents reported that the balance in spending between in house and outside counsel was similar between 2017 and 2018, 33% moved more work in house and 22% increased work sent to outside counsel.
In 2018, for every $1 spent in house, large companies ($10 billion-plus revenue) spent an average of $.92 on external legal services (vs. $1.79 spent in 2017), mid-size companies ($1 billion – $9.9 billion revenue) spent $1.24 (vs. $1.67 in 2017) and small companies (less than $1 billion revenue) spent 82 cents (vs. $1.50 in 2017).
Large companies reported an average of 306 full-time employees[i] in their legal departments in 2018, compared to 296 in 2017. Thirty-nine percent of all respondents said the size of their full-time legal operations team increased in 2018.
Controlling costs
Companies continue to explore techniques to control costs, including leveraging alternative fee arrangements (AFAs), preferred provider panels and alternative legal service providers.
Fifty-five percent of respondents said they use AFAs to decrease external costs. Thirty-four percent indicated increased use of alternative legal services providers over the past year.
This can be compared to 2017, when nearly two out of three respondents reported not utilizing alternative service providers.
Investing in technology
As in year’s past, technology represents a tremendous area of opportunity in legal services. Companies are investing in technology to improve efficiency, quality and speed of work. Almost 40% of companies spent more than $750,000 on legal technology in 2018.
However, most still rely on third-party technology providers rather than in-house support. Only 35% of respondents have dedicated in-house engineering resources. Large companies that don’t have in-house engineering teams spent an average of $977,000 on legal technology.
eBilling systems are the most common form of technology used, followed by contracts management systems. Surprisingly, 45% of respondents are exploring how best to leverage artificial intelligence to improve performance.
“This year’s data shows that the role and function of legal operations continues to grow,” Mary O’Carroll, President of CLOC and Director of Legal Operations at Google, said in a press release. “Technology is changing quickly and more legal operations departments are embracing solutions to improve productivity and results.”
Learn more about CLOC here: CLOC Releases Corporate Legal Department Diversity Report.
[i] Legal department full-time employees include attorneys, paralegals, Legal Operations professionals, administrators and all other members of the legal department.