Next year clients are expected to cut private law firm spending in the US and more of them will steer clear of outsourcing legal advice, a new survey revealed.

According to the BTI Premium Practices 2009 corporate legal spending survey growth in demand for external legal advice in the US will drop to just 1.9%, representing the legal market's third consecutive year of single-digit growth. By comparison in 2006 demand for legal advice was almost 10 times more at 19.5%.

The study interviewed 1,900 clients and corporate counsel at Fortune 1000 organisations over a period of 8 years. Topics included spending, budget and practice area assessments for 2008 and 2009.

Most corporate counsel said they relied on about 40 law firms for legal advice, which was 20% less than the 52 firms used last year. They have also used in-house legal departments more to reduce outsourced work and compensate for rising law firm fees.

Overall these trends indicate increased competition between firms to win mandates and could even mean lower fees. Although the outlook is rather gloomy, most competitive firms are tipped to survive the financial storm. One of the tips is for firms to be proactive in seeking work, rather than waiting for clients.

The US bailout is expected to generate up to US$5bn in legal fees next year, however, this is likely to be spread across a large number of firms - not confined to New York's Wall Street.

The study offers a range of suggestions about how firms can counter this downturn, such as focusing more on practices tipped to grow such as litigation, IP, regulatory and class actions. It also recommends targeting immediate client needs by practice and industry such as banking, chemicals, consumer goods, energy, financial services and health care.