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The proportion of legal spending on outside counsel instead of spent in house has declined from 50% in 2018 to 44% this year, according to a recent survey by Gartner, Inc. Gartner surveyed 126 legal leaders in the summer of 2020 to understand legal counsel spending trends.

“We’ve seen legal departments gradually shifting more work in-house over the last few years, but this year we’re also starting to see them make longer-term in-house investments to try and offset some of the lost access to expertise that comes from reducing their reliance on outside counsel,” said Caroline Van Allen, senior research specialist in the Gartner Legal & Compliance practice. “Our clients have increased the proportion of specialists in their teams by 21% since 2018 and this has enabled them to reduce outside spend without having to compromise on work quality.”

This increase of specialist in-house legal full-time employees (FTEs) is driven by legal leaders in-sourcing their highest areas of legal spend (see Figure 1). Litigation (40%) and intellectual property (14%) account for more than half of all external legal spending. 

Legal departments expect several of the changes resulting from COVID-19 to have more lasting repercussions for their work – 45% of legal departments anticipate remote work to be a top impact on legal work, and 39% expect impacts from legal and regulatory changes.

However, the crisis has also created severe cost constraints for most organizations – 49% of respondents indicated they expected further legal budget reductions in the second half of 2020, and 66% said they expected their department’s headcount to remain the same. While many legal departments relied on trusted law firm partners to help interpret regulatory changes and respond to urgent work in the early months of the pandemic, they have found a more cost-effective, longer-term solution – bringing that work in-house.

 “Responding to the pandemic and its aftershocks revealed some significant weaknesses for legal departments,” said Ms. Van Allen. “Low technology adoption and insufficient knowledge management capabilities left many teams unprepared to immediately switch to remote work, so they were trying to implement those fundamental technologies and upskill their staff remotely. As 2021 quickly approaches, legal departments are looking to close some of those gaps.”

The expansion of legal operations indicates who heads of legal have tapped to lead the charge – the number of legal departments with a legal operations manager has increased by almost 75% since 2018’s survey. Maintaining legal technologies and building knowledge management processes are two of their top responsibilities, at 76% and 74% adoption, respectively.

“In an environment where legal leaders are seeking to reduce spend and yet carry out more complex, unpredictable legal work, legal departments that can leverage technology solutions and legal operations to drive greater efficiency in-house will be the winners,” said Ms. Van Allen.

Gartner for Legal & Compliance leaders can watch the webinar replay here: Planning and Budgeting for 2021: Findings From the State of the Legal Function.

Non clients can download a summary of the report here: Legal Planning and Budgeting for 2021: Key Findings from the State of the Legal Function.

About the Gartner Legal & Compliance Practice

The Gartner Legal & Compliance practice brings together in-depth research and analysis, peer-based best practices, metrics and data to offer legal and compliance leaders a platform to make the choices that will drive their business forward and deliver results. Additional information is available at https://www.gartner.com/en/legal-compliance. Follow news and updates from the Gartner Legal & Compliance Practice on LinkedIn and Twitter.