External legal spend is likely to remain flat or decline, according to a new study of 200 Australia-based in-house counsel. The study, conducted by King & Wood Mallesons in June 2013 under the guidance of partners Joseph Muraca and Jason Watts, also concluded that the market had “effectively repriced”, meaning that cost was not the number one factor for clients when selecting law firms.

Flat spend
Most respondents expected that external legal spend would either remain flat or decrease over the next 12 months.  About half indicated that they expected no substantial change in spend; while just under a third were expecting an increase. Some sectors, such as the telecommunications, media, entertainment and technology sector and the government sector recorded a higher proportion of respondents who expected to reduce their external legal spend.

Chart one: How do you expect the amount spent by your organisation on external legal services to change in the next 12 months?

Alternative fee arrangements rise….
When asked to nominate the most common ways in which the briefing of external counsel had changed, the most common response was “cost containment”, which included measures such as fixed and capped fees  and other alternative arrangements.  There was also an increased use of pitches and tenders, and  a greater tendency to confine work to panel firms.

Chart two: How has the way in which you have briefed external legal counsel changed over time?

…..but expertise is king
When asked to nominate the most important reasons for choosing a particular external advisor, the most common response was the “expertise and depth of knowledge of the external counsel team”.  Cost was also mentioned, but not  to the same extent, leading the survey authors to propose that “the market has effectively re-priced, meaning that organisations can focus on more qualitative factors when briefing external counsel.”  Relationships and the behaviour of key individuals on particular matters also remain an important factor in this area.

Chart three: What factors are most important to you when deciding which external counsel to brief?

Business strategy has replaced managing legal risk as the new number one challenge for all in-house lawyers, the report found.

The full online version of the KWM Compass 2013 report can be found by clicking here.