Increased legal spending favours global and top-tier law firms
Australia's biggest consumers of legal services have dramatically increased their spending on legal advice with the big winners being global and top-tier law firms.
The increase in spend in considerable with in-house legal departments upping average spending on legal services by 34 per cent since 2015 $4.3 million - up from $3.2m two years ago. The bulk of this spend, some 60 per cent, is going to law firms and other external providers compared with 56 per cent two years ago.
Average external spending jumps
Average external spending by in-house legal departments has jumped even more and is up 44 per cent since 2015 or in other words up from $1.8 million to $2.6 million. And top-tier and global firms are winning almost half this work (46 per cent) compared with 27 per cent for mid-tier firms and 13 per cent for boutique or niche firms.
These are the key findings of the latest benchmarking report for in-house legal practices that has been produced by the Association of Corporate Counsel Australia and the In-house Lawyers Association of New Zealand. The report, based on a survey of 300 general counsel and chief legal officers, is in sharp contrast with the 2015 benchmarking study, which found overall average spending by in-house legal departments had fallen by 11 per cent and external spending was down by 18 per cent.
Listening to clients
The ACC’s Tanya Khan who is Vice President and Managing Director for Australia and Asia-Pacific said that the spend reflected companies better serving the needs of clients. ‘They have been trying, they have been working collaboratively with their clients to understand what their issues are, their constraints and how best to serve them.’
Biggest companies biggest average spend
The report showed that organisations with turnover above $1 billion had the highest average spending on legal services at $13.3m followed by those with more than 2000 staff ($11 million); finance and insurance organisations ($9.9 million); public sector organisations ($7.6 million); and public companies ($7.1 million). Those with the lowest average spending on legal services were manufacturers and construction companies ($1.1 million); private companies ($1.2 million); organisations with fewer than 300 staff ($1.3 million) and agribusiness companies ($1.4 million).
Despite the big increase in average spending with law firms, the report warns that the legal services industry is only growing at about 1 per cent or 2 per cent and is now a ‘buyer’s market’. It also points to the fact that NewLaw firms are giving in-house legal departments the power to change the face of suppliers of legal services. While these NewLaw firms accounted for just 9 per cent of legal departments’ budgeted external legal spending, it is up from 7 per cent two years ago. Miss Khan said: ‘Our observation is that our members are increasingly engaging with NewLaw firms. General counsel will always be looking for better and more efficient ways of doing things and I think NewLaw firms are now becoming a more mainstream part of our profession.’