In recent years, businesses have been facing a significant challenge in managing their outside counsel spend. Legal costs have been on the rise, and understanding the underlying reasons behind this trend is crucial for effective management. Meanwhile, internal budgets have been reduced by over 10% in most cases. Changing the perception of legal as a cost center starts with – you guessed it – managing legal costs. In this blog post, we will explore the factors contributing to the escalating costs of outside counsel and delve into how businesses can address this issue by leveraging technology, optimizing their in-house legal team, and streamlining legal processes.
Understanding the Factors Behind Rising Outside Counsel Spend:
- Legal Market Dynamics: One of the primary reasons for increasing legal costs is the uptick in hourly rates charged by law firms. Additionally, the demand for specialized legal services has also grown, further driving up expenses for businesses seeking expert advice.
- Lack of In-house Expertise and Capacity: Companies may find themselves lacking the necessary legal expertise and capacity to handle certain complex or one-off matters internally. As a result, they turn to outside counsel, which can be costlier and less efficient than more routinized internal legal demand.
- Inefficient Legal Operations: Poor billing and matter management practices can lead to overbilling and unnecessary expenses. Moreover, a lack of collaboration between legal and business teams may result in duplicated efforts and increased costs.
Leveraging Technology to Rein in Outside Counsel Costs:
- Legal Spend Management Software: Implementing legal spend management software allows businesses to track and analyze their legal expenses comprehensively. It helps identify cost-saving opportunities and aids in implementing effective cost control measures particularly for your recurring legal spend.
- e-Billing Solutions: Automation of billing processes through e-billing solutions streamlines invoice processing, reduces billing errors, and enables thorough invoice auditing and rate validation, ensuring companies pay for services rendered accurately.
- AI-powered Legal Analytics: Harnessing the power of AI-driven legal analytics helps predict future legal spend, identify cost-saving opportunities, and evaluate the effectiveness of alternative fee arrangements, ultimately reducing overall costs.
Harnessing Human Expertise for Cost-Effective Legal Support:
- Building an Effective In-house Legal Team: Companies should assess their legal requirements and invest in developing an in-house team with the necessary skills to handle routine legal matters, thus reducing dependence on outside counsel. Be sure to assess capacity continuously to avoid burning out your team as demands on their time shift and you are forced to make an expensive decision for more outside counsel support.
- Collaborating with Outside Counsel Strategically: When external expertise is needed, selecting the right law firms and attorneys is essential. Establishing transparent communication and aligning goals can lead to more cost-effective and productive partnerships.
Streamlining Legal Processes for Efficiency and Savings:
- Standardizing Legal Operations: By creating standardized templates and best practices, businesses can streamline their legal processes, minimize errors, and reduce the time spent on repetitive tasks. Just keep in mind that this job is never done and should be designed as a continuous improvement strategy.
- Emphasizing Legal Project Management: Implementing legal project management practices helps set clear objectives and timelines for legal matters, ensuring that resources are used efficiently, and budgets are adhered to.
Finding the Right Balance: In-house vs. Outside Counsel:
- Identifying Tasks Best Handled In-house or through flexible legal staffing: Routine legal matters and regular legal support for business operations are often more cost-effective when managed in-house or with a lower cost but highly trusted partner.
- Determining When to Engage Outside Counsel: For complex litigation and specialized matters, it may be more prudent to engage outside counsel temporarily, especially during periods of a surge in workload. Also consider engaging law firms who have a captive alternative legal services provider to keep spending under control.
- Rotate Outside Counsel: Cycling out law firms in higher spend areas may be a good option to manage both your dependency and your strategy for what work can be managed better externally vs. internally.
Continuous Improvement: Monitoring and Adjusting Strategies:
- Implementing Key Performance Indicators (KPIs): Defining relevant KPIs allows businesses to monitor their legal spend and evaluate the effectiveness of cost-saving strategies.
- Conducting Regular Spend Reviews: Periodic reviews of outside counsel spend help identify trends, outliers, and opportunities for further cost optimization.
- Soliciting Feedback from Stakeholders: Engaging key stakeholders, including legal and business teams, for feedback helps in refining cost management strategies and achieving broader organizational buy-in.
In summary, effective spend management involves short-term tactics that also build underlying capabilities to integrate technology, leverage human expertise, and optimize legal processes. By understanding the underlying reasons for increasing costs and implementing proactive strategies, businesses can navigate these challenges successfully and achieve long-term cost savings while maintaining high-quality legal support for their operations.
If you’d like to learn more about mitigating costs in Legal, join Colin Levy, Director of Legal at Malbek and Ronak Ray, fractional General Counsel and Co-Founder of ModCounsel at Envision Legal. Only a few spots left to walk away with practical tips to make the most of your Legal spend.