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A trend in which legal departments are cutting the number of law firms that handle outside legal work does not appear to be slowing, according to a new study.
The LexisNexis CounselLink Electronic Legal Management Trends report—which assesses billing data—showed 62 percent of the companies included in the study had 10 firms or fewer account for 80 percent or more of their outside counsel fees in 2016. The number of companies consolidating their outside legal work increased from 2015, according to the report.
LexisNexis began publishing trends reports in 2013 based on billing information processed by legal departments through the company’s CounselLink platform. The latest report, which spotlights data from last year, analyzed more than $26 billion in legal spend from companies—with a range of annual revenues—that operate across a variety of industries.
Kris Satkunas, director of strategic consulting at LexisNexis CounselLink, said in an email that the consolidation trend continues the growth seen in previous years, although the uptick between 2015 and 2016 data was especially high.
“I think the trend will likely plateau at some point, but I don’t see it reversing,” she said. “Once a law department has reached the level of operational maturity where they’ve done the work to establish a preferred set of law firms, they’re unlikely to go back.”
Consolidation was especially common in certain industries, according to the report, including retail and trade companies and information companies. The insurance industry did the least outside law firm consolidation in 2016.
The report, which also examined the use of alternative fee arrangements, found they were used in 9.9 percent of matters studied—a rate only half a percentage point higher than in 2015 data.
“It’s interesting that anecdotally I continue to hear more questions from customers about the best way to implement various AFAs, yet the numbers still don’t bear out an uptick,” Satkunas said. “I think it’s simply very hard to get this big ship to change course.”
Satkunas said another reason for minimal change in alternative fee arrangements could stem from the fact they are more common in new legal matters, which comprise only a small amount of the billing data that was included in the study. She also noted that law departments are asking law firms for discounts on hourly rates, but the study does not count those discounts as an alternative fee.
Here are some other takeaways from the report:
►Outside lawyers working on mergers and acquisitions made the most in 2016—an average of $634 per hour. The second most lucrative area was corporate, general and tax, at $575, followed by regulatory and compliance at $543.
►The largest 50 firms—those with 750 or more lawyers—charged median hourly rates last year that were 40 percent higher than those charged by the second-largest tier of firms with 501-750 attorneys.