In-house legal teams, particularly at smaller companies, are spending more of their legal budget internally and less on outside counsel, according to new research by the Association of Corporate Counsel and Major Lindsey & Africa. 

The 2022 Law Department Management Benchmarking Report found that more than half (54%) of legal spend was in-house, a shift from last year’s survey, which tilted slightly toward a larger external spend – 51% on average. 

The distribution of internal and external spend continued to vary significantly by company size, with smaller organisations spending more internally on average while larger companies maintained a majority external spend. Smaller companies spent on average 57% of their budget in-house, while the legal teams for companies with revenues of more than $2bn spent on average 54% externally. 

Compared to last year, more departments reported shifting work in-house in the areas of due diligence (+6%), labour and employment (+6%), legal research (+5%), and intellectual property (+4%). 

At least 90% of departments reported handling at least some of the following functions internally, if relevant: compliance, contract management, corporate and governance, document management, invoice review, legal operations, privacy and security, records management and regulatory. This accounted for nine out of 17 possible areas, while at least eight in 10 departments also handled some aspect of due diligence, labour and employment, legal research and litigation/legal hold in-house.

Legal departments used external providers to handle other tasks, with the most prevalent being data collection (68%) and data hosting and processing (45%). Discovery was also the area most commonly outsourced to alternative legal service providers (ALSPs), with 11% using such providers to handle data collection and 23% to deal with data hosting and processing. 

In a sign of the growing overall workload for legal departments, this year saw a 6% rise to 35% in the number of respondents who said they increased the number of law firms they engaged compared to 2020. 

The same cannot be said for ALSPs, with the vast majority (86%) reporting there was no change in the number of ALSPs used. The report’s authors said they ‘continued to see that ALSPs are only seeing widespread use by larger companies with minimum outside spend of $5m annually.’

This year’s survey results were based on responses from 427 legal departments in organisations of all sizes across 24 industries and 26 countries.  

Veta Richardson, president and CEO of ACC, said the findings provided a baseline from which legal departments can “chart a path forward to maximise productivity while reducing costs and ultimately deliver greater value”. 

A report published in February by US business advisory firm FTI Consulting in partnership with legal and compliance tech company Relativity found that general counsel are taking on more responsibilities related to technology-related decision making. 

The shift in responsibility – which many respondents attributed to demand created by the pandemic – led 87% of surveyed GCs to become heavily involved in aspects beyond providing budget approval like tech planning and purchasing.