The Old Math Doesn’t Add Up
For years, in-house legal budgets followed a simple formula: as workloads grew, budgets grew with them. Teams hired another lawyer or sent overflow work to law firms. This year’s data shows that formula is breaking down.
The constant: legal budgets are growing. 83% of in-house legal leaders and CFOs expect their legal budget to increase in 2027, and not one respondent anticipates a significant cut. The problem is what’s happening to that budget before it’s even signed off on.
Compensation costs are rising for 83% of in-house teams. Law firm fees are up and, surprisingly, not despite AI but because of it. Nearly 60% of legal leaders say their firms have raised fees with AI marketed as a value-add. Few saw any reductions passed their way.
And when the business asks legal to implement AI, 92% of the time no dedicated budget comes with the ask. The cost gets absorbed by pulling from other line items. Legal leaders are robbing Peter to pay Paul. When AI doesn’t yet deliver the productivity gains teams were counting on—and at this stage, it often doesn’t—many teams still default to calling the law firm. That default adds cost, tightens the squeeze, and starts the cycle again.
The result: more than half of respondents—55%—say workload will continue to outpace their budgets in 2027. Only 6% believe their increase will be large enough to create real capacity. A bigger budget, spent the old fashioned way, no longer buys relief. Meanwhile, AI tool costs themselves are becoming a new and poorly understood budget line. It’s one that can run away fast once adoption takes hold across a department.
Reclaiming Ownership of the Work
Leading in-house teams are changing that equation. The old model, where run-the-company work often went to law firms, is ripe for reinvention. AI is giving in-house leaders a rare opportunity to rethink how they deploy their budget. They are pulling more work back under their own control, handling more of it in-house, and leveraging ALSPs, AI tools and smaller law firms as needed to provide them with the support they need to handle new demands.
The numbers in the study help explain this shift. Two thirds of respondents say ALSPs cost 25% less than law firms for comparable work. And yet cost isn’t even the primary draw. Quality, specialized expertise, and seamless integration all rank higher as reasons in-house teams use ALSPs. The discount closes a decision that quality has already opened.
Indeed, in the past year, more than six in ten teams increased their ALSP use. That increase held across every category of work, with 69% of in-house teams reporting that they expect to increase ALSP spend over the next two years.
The Shift Is Underway
This finding tracks with what we reported in our 2026 GC Report: 80% of in-house legal leaders plan to move significant law firm work in-house or to alternative providers within 24 months, and 63% of large teams are already moving a quarter to half or more of their former firm work.
This trend hasn’t wavered.
This is the new budget math. Flex capacity is something you bake into your operating model vs. a stop-gap measure to be used on a reactive basis. The in-house leaders moving on this early are reclaiming agency and reaping the rewards.
Read what follows. It’s among the most comprehensive datasets available on how legal departments are building and defending their budgets in 2027. Use it to benchmark your department, pressure-test your assumptions, and walk into budget season with current, third-party data behind every number you put on the table.
