Almost one-third of in-house teams experienced significant volatility in their legal spend over the past five years, underscoring the challenge corporate legal departments face to keep their costs under control and manage unplanned expenses, according to a new Wolters Kluwer ELM Solutions report.

The study – LegalVIEW Insights report – showed that 29% of surveyed departments recorded at least a 90% difference between their lowest and highest legal spend, with 9% of those reporting a difference of three times or more. Often this can be because a new transaction or unexpected piece of legislation emerges or an ongoing matter ends up costing more than previously projected, the study suggests.

Nathan Cemenska, director of legal operations and industry insights at Wolters Kluwer ELM Solutions, said: “Legal spend variations are more volatile than most people appreciate, and it is not just because of the pandemic. Our data shows that the past is a good future predictor in the short term, but not necessarily the long term. In the long run, there is always a risk of significant outside marketplace events that can potentially double or triple the amount of legal work, which is never affordable.” 

Cemenska added that organisations with more mature legal functions, for instance in the banking sector, are better positioned to control costs even during unstable environments. Meantime, legal spend in industries such as retail and manufacturing was more likely to be volatile.

The study also showed that despite the levels of volatility and long-term trend of escalating costs, many in-house teams were able to keep spending flat for one, two or even three consecutive years. The data indicates that legal departments have a 46-60% chance of holding legal spend steady for one year and a 9-18% chance for keeping it flat for three years in a row.

While the chances of variation go up over time, the report shows that some firms have experienced sudden significant spikes in costs – some 4% of in-house teams saw legal spend at least double between 2019 and 2020, while 4% saw them shrink by at least half.