Despite expectations that corporate law department (CLD) provider counts would recover post-pandemic, a new report from Wolters Kluwer ELM Solutions indicates that the number of actively used law firms and service providers continues to remain depressed, with even some of the larger Am Law firms experiencing client attrition. The study marks the fifth in an ongoing series of LegalVIEW Insights reports sourced from ELM Solutions’ LegalVIEW database, which contains more than $150 billion in legal invoices.
In March 2021, ELM Solutions’ inaugural LegalVIEW Insights report examined the biggest shakeup in the outside legal services market since the Great Recession, with more than 90% of corporate legal departments (CLDs) reducing their active provider relationships. The fifth and latest study indicates that trend has yet to fully reverse itself, with a typical CLD found to engage a median of close to 122 providers in 2021 – an 8.6% decrease from 2020. But dwindling vendor portfolios haven’t necessarily blunted CLD’s average external legal spend, which has grown by 36% over the last year in conjunction with the average dollar size of some law firm and client relationships.
“Law firms can grow revenue by expanding the number of clients they serve or increasing their average revenue per client,” said Nathan Cemenska, Director of Legal Operations and Industry Insights at Wolters Kluwer ELM Solutions. “Our findings show that unranked law firms lost clients but grew revenue by increasing the dollar size of the average client relationship.”
Additional highlights from the fifth LegalVIEW Insights report include:
- The average vendor count at “small” or “medium” sized organizations remains depressed. But CLDs based in large companies with more than $20 billion in revenue have continued to expand their use of providers since the pandemic, leveraging an average of 451 vendors in 2021 – up from 436 in 2020 and 433 in 2019, respectively.
- Firms in the Am Law 1- 10 failed to retain the market share gains they captured in 2020, dropping from a 14.1% share to a 12.6% share. Small and unranked firms outside the Am Law 200 enjoyed a more favorable trajectory, expanding their share of external legal department spend from 44% to 47.5% over the last year.
- Alternative legal service providers (ALSPs) continue to represent a small but potentially growing share of the market. However, that share is largely dominated by seven leading companies, with the industry’s remaining ALSPs accounting for only 4.7% of spend on alternative legal services.
