Alternative legal service providers (ALSPs) have captured a tiny proportion of corporate legal department spending despite their potential for generating significant savings, according to analysis of legal bills in the US. 

The LegalVIEW Insights report by Wolters Kluwer found that ALSPs accounted for just 2.2% of megamatter work, which is defined as legal matters that accrue more than $1m in costs.

While that figure is double the 1.1% spent on all outsourced legal work, the report’s authors suggest companies are missing out on the opportunity to make savings given that megamatter work, which is best suited to efficiencies, typically accounts for 61% of total outside counsel spending.

The research is based on $140bn-worth of invoice data supplied by ELM Solutions, Wolters Kluwer’s legal spend and matter management platform. It found that corporate and securities work was most likely to be handled by an ALSP (2.8%), followed by litigation (2.5%) with just 0.7% of M&A-related outside spend going to this type of firm.
 
The report suggests that the concentration of M&A work among the top 20 US law firms – which receive 70% of megamatter M&A fees – may help account for the paucity of this type of work being farmed out to ALSPs.
 
‘The minimal role ALSPs play in M&A work — which includes a lot of due diligence process work that seems suited to ALSPs — may be at least in part to the white shoe culture around that type of work and the tradition of having most of that work be done only by the largest, most prestigious firms,’ it argues.

The report also notes a reluctance for companies to use firms outside the top 200 for mega matters, with these firms accounting for 28% of such work, compared to 40.3% of work generating less than $1m in fees. 

It asks whether legal departments are missing out on an opportunity to make savings by farming out more work to these firms. 

'Since it is apparently, at least according to the corporate legal departments who continue to use them, safe enough to use unranked firms for some megamatter work, is there an opportunity to use them even more broadly and thereby capture cost savings in the form of lower hourly rates?' it asks.

The report urges corporate legal departments to devote more time to scrutinising their spending on megamatters, given that ‘in a typical corporate law department, somewhere between 2.5 and 5% of legal matters generate 80% of legal spend in any given year’.
 
Nathan Cemenska, director of legal operations and industry insights for Wolters Kluwer ELM Solutions, said: “There is always low-hanging fruit in every type of legal matter, and the scope of these matters means that the simple effort of picking the low-hanging fruit from a single matter could save millions.” 
 
However, the report notes: ‘The biggest opportunities for savings are in the largest matters, but those can also be the matters where the organisation is most likely to choose a hands-off approach because the matters are so high stakes (and potentially urgent) that the corporation will pay any cost.’
 
It adds that ‘even if it is admitted that there are some legal matters that are so sensitive they must be ignored by legal ops entirely, most megamatters are probably not quite that important, and legal ops should be able to find ways to contribute without creating any undue friction'.