Dive Brief:
- Two in five general counsel say they anticipate spending more money on outside counsel in the coming year, which is double the roughly 20% who expect such spending to decrease, according to an industry report.
- The GCs expect increased spending to boost counter-cyclical practice areas like labor and employment and litigation, which are the type of practices that boosted demand for law firm services last year.
- Midsize law firms once again led the way in demand growth, seeing an average increase of 2.4% through the first 11 months of last year, according to Thomson Reuters’ 2024 Report on the State of the US Legal Market.
Dive Insight:
Many of the 40% of GCs who expect an increase in outside counsel spending point to their anticipation that law firm rates will continue to rise.
From January through November of last year, Am Law 100 firms raised their worked rates by more than 7% on average and Am Law Second Hundred firms raised their worked rates by more than 5% on average.
“Worked rates, the negotiated rates clients agree to pay to law firms for particular matters, have risen at a relatively dramatic pace over the past five years,” the Thomson Reuters report said. “The past two years, in particular, have seen the pace of worked rate growth begin to rival figures from before the GFC of the late-2000s.”
Meanwhile, demand for legal services rose by an average of 1.1% in the first 11 months of 2023 compared to 2022.
Litigation was the biggest driver of demand growth in 2023, increasing by a 15-year high of 3.2%, according to Thomson Reuters.
“This historic boost, coupled with uplifts from the other counter-cyclical practices, as well as smaller lifts from regulatory, patent prosecution, and antitrust work, pushed the legal market as whole into positive territory despite the continuing contraction of transactional practices,” the report said.
Regulatory work and corporate matters are among the areas seen as ripe for additional outside counsel spending in the coming year.
The report also highlights that 69% of general counsel plan to bring more work in-house, which is one of their leading cost-control strategies.
While this may seem to conflict with legal chiefs’ expectation that their outside counsel spend will grow, Thomson Reuters says there is an explanation.
Amid increasing matter volumes, many corporate law departments are struggling with capacity and need the assistance of external law firms, the report said. Law firm rate increases are also likely given the recent trends.
“Consequently, corporate general counsel could, quite understandably, intend to do more work within their own departments but still anticipate having to spend more on outside counsel,” the report said.
