Report: ALSPs capture 2% of outsourced legal department work for 'mega matters'
Billing data analysis advises in-house teams to focus more on larger matters, attain cost savings
According to analysis of legal bills in the US, Alternative Legal Service Providers (ALSPs) have seized a tiny proportion of corporate legal department spending, despite their potential for producing significant savings.
As reported by Wolters Kluwer, The Legal VIEW Insights found that ALSPs accounted for just 2.2percent of mega matter work. It is defined as legal matters that collect more than US$1m in costs.
While that figure is double the 1.1 percent spent on all outsourced legal work, the report's authors suggest that the companies are missing out the opportunity to make savings given by that mega matter work. It is best suited to efficiencies, typically accounts for 61 percent of total outside counsel spending.
The research is based on US$140bn-worth of invoice data. It has been delivered by ELM Solutions, Wolters Kluwer's legal spend and matter management platform. It found that corporate and securities work was most probably to be handled by an ALSP (2.8percent). It was followed by litigation (2.5percent) with just 0.7percent 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, may help account for the scarcity of this type of work being worked out to ALSPs. It receives 70percent of mega matter M&A fees.
The report debates, 'The negligible role ALSPs play in M&A work, includes a lot of due diligence process work. It seems suited to ALSPs — may be at least in part to the white shoe culture around that type of work. The tradition of having most of that work is being done only by the largest and the most prestigious firms.'
The report also notes an unwillingness for the companies to use the firms outside the top 200 for mega matters. These firms account for 28percent of such work, compared to 40.3percent of work generating less than US$1m in fees.
It asks whether legal departments are missing out an opportunity to make savings by farming out more work to these firms.
'Since it is apparently, however according to the corporate legal departments, continue to use them, safe enough to use unranked firms for some mega matter work. Is there an opportunity to use them, more generally, hence capture cost savings in the form of lower hourly rates?'
The report urges corporate legal departments to devote more time in inspecting their spending on mega matters. Given that 'in a typical corporate law department, somewhere between 2.5 and 5percent of legal matters that generate 80percent 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. The scope of these matters signifies the simple effort of picking the low-hanging fruit from a single matter could save millions."
However, the report notes: 'The biggest opportunity for savings are in the largest matters. But the organization is likely to choose a hands-off approach for those matters as they are so high stakes (and potentially urgent) that the corporation will pay any cost.'
'Even if it is admitted that there are some sensitive legal matters to be ignored by legal ops entirely, most of the mega matters are probably not that important. The legal ops should be able to find out ways to contribute without creating any undue friction,' the report adds on.