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Wolters Kluwer report shows AmLaw 150-200 firms most impacted as in-house teams pare legal spend
The legal services market experienced its biggest shakeup in a decade last year as a majority of in-house teams reduced their reliance on external legal providers, with smaller firms suffering the greatest impact, according to a new report from Wolters Kluwer ELM Solutions.
The first of its four quarterly reports – LegalVIEW Insights – found that 90% of corporate legal departments downsized their active provider relationships, with 16% of relationships that existed in 2019 paused last year due to the economic impact of the pandemic. Firms ranked between 150 and 200 in AmLaw’s annual US law firm ranking were most impacted by the cutbacks, followed by firms outside the top 200.
Nathan Cemenska, director of legal operations and industry insights for Wolters Kluwer ELM Solutions, said: “Last year, a significant number of relationships between law firms and their clients went dark – not a single legal invoice was sent in these cases. With the economy coming back, those gaps are going to be filled, but it won’t always be by the firms that lost the business.”
He added: “Alternative legal service providers (ALSPs), the Big Four and competing law firms are hungry for that business as are in-house legal teams, which continue to get better at doing the work themselves.”
The report – which analyses legal spend data based on more than $140bn of invoices – found that over the past six years, around a third of in-house legal teams sent at least half of their work by dollar volume to the top 100 global law firms, with some consistently sending more than three-quarters of work to those firms.
Most in-house teams have consolidated 80% of their work into 20% or fewer of their providers, a trend that has seen larger firms pick up market share and smaller firms lose business. Law firms outside of the AmLaw 200 have seen their market share decline by four percentage points since 2016.
Over the same time period, in-house teams have been increasing their use of ALSPs, with 71% now using alternative providers compared to 61% in 2016, according to a report published in February by Thomson Reuters, Georgetown Law and Saïd Business School.
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