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US GCs favor midsized firms for outside work

Posted by: Clare Butler 25/01/17
The trend of reducing reliance on BigLaw firms has been growing in recent years, and according to a recent report, midsized firms are now accounting for a significantly larger proportion of external counsel work than their Wall Street counterparts. According to the research by CEB Inc., corporate legal departments devoted 40% of their outside counsel budgets to midsized law firms in 2016, up from 3% in 2014.

Meanwhile, dependence on large firms decreased from 25.2% in 2012 to 23.9% in 2016. According to CEB legal practice leader Aaron Kotok, “there has been a reduced reliance on large law firms over the past several years. Based on the data and ongoing conversations we’ve had with GCs, the message is clear: They are consciously trying to reduce reliance where they can on large law firms.”

While overall spending on the legal function has remained relativity flat at around 0.43% of total company revenue, Kotok indicated that respondents have begun to realize that they can obtain the same services at a lower cost from smaller law firms, or from alternative legal services providers.

Though cost pressures are no doubt a challenge for in-house legal professionals, few are actually decreasing the amount of work outsourced; instead, they are continually searching for the best value for money, especially when it comes to less intricate work. Midsized firms have been able to step in and offer lower costs than larger names, due to lower overhead costs and less pressure to ensure that profits per partner continue growing.

Legal buyers are no longer only looking for outstanding reputations when reviewing their panel of external counsel, but are also taking into consideration flexibility with regard to pricing structures. The lack of flexibility within BigLaw firms and their historic reluctance regarding AFAs is where midsized firms are able to make up ground. Though they might not be home to widely recognized rainmakers, they are far more likely to embrace innovate pricing structures.
While this might not be particularly great news for BigLaw associates, for those looking to establish their career at midsized practices, it is certainly a promising sign.
Tagged In: General counsel, USA
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