The use of retainers to pay for outside legal work jumped 21% over the past year, according to data from the 2022 Law Department Management Benchmarking report released today by the Association of Corporate Counsel and Major, Lindsey & Africa.
Most uses of alternative fee arrangements for in-house legal departments to pay outside counsel didn’t statistically change much or declined between 2021 and this year, but in addition to the increase in the use of retainers, paying a blended hourly rate rose by about 9%.
About 36% of in-house legal departments this year say they use retainers, up from about 29% last year. The use of retainers includes periodic fees for a portfolio of services.
Market power
As with alternative fee arrangements generally, the bigger the company, the greater the use of retainers: 52% of legal departments in big organizations, defined as those generating at least $20 billion in revenue, use retainers, compared to just 28% of legal departments in organizations generating less than $1 billion in revenue.
Virtually all types of alternative fee arrangements are used in greater numbers as the size of the organization increases, suggesting bigger organizations are wielding more market power to get law firms to agree to the different types of arrangements in exchange for the amount of legal work they offer.
For example, 100% of the legal departments in the largest organizations use discounted hourly rates compared to 76% of smaller organizations; and 93% of the biggest organizations use flat fees compared to 52% of smaller organizations.
There are other differences: blended hourly rates are used by 63% of big organizations compared to 28% of small ones, capped fees by 59% compared to 35%, contingency fees by 41% compared to 10% and incentive fees by 19% compared to 9%.
Last year’s benchmarking report didn’t break out the use of alternative fee arrangements by organization size, so it’s not clear if these comparisons moved up or down in the last year.
KPI comparisons
The benchmarking report takes a broad look at key performance indicators (KPIs) of in-house legal departments.
In general, legal departments in smaller organizations are doing slightly more legal work in-house compared to last year while there’s little change in the mix among larger organizations. Work related to due diligence and employment is among the types being done more frequently in-house by smaller organizations.
Even as the trend is for more work to be done in-house, the use of outside law firms is up overall: 35% of organizations said they used more law firms this year compared to 29% last year.
As in previous years, work related to compliance, privacy and ethics is generally done in-house, if not by the legal department then by a separate function that reports to the legal department.
Outside counsel are mainly used for work related to discovery, both collecting and processing the data. Other big uses of outside counsel include handling issues related to intellectual property, labor and employment issues, legal research and litigation case management.
The bigger the organization in which the legal department operates, the more use is made of outside counsel. The smallest organizations typically engaged three outside firms compared to 95 for the largest organizations.
Neither big nor small organizations used many alternative legal service providers (ALSPs), same as in previous years. Virtually no organizations use them until they start spending at least $5 million a year on legal services, at which point they’ll typically work with one. When their spending reaches $10 million, they’ll typically work with three.
As a benchmark report, the data can help general counsel or chief legal officers compare how the number of lawyers and non-lawyer support staff they have stack up to what’s typical for an organization of their size, what’s the typical mix of support staff based on size, how much organizations of comparable size are spending on legal work and support functions, and what type of work is typically done in-house, elsewhere in the organization or outside using vendors.
Access a 35-page executive summary.
