Cost control is the metric most companies analyze first when evaluating legal department performance. And since the largest line items tend to point toward outside counsel engagements, it makes sense to start there when seeking potential cost-saving opportunities.
But the right strategy is rarely as simple as restricting all work to in-house attorneys and low-bidding law firms. Value, as opposed to expense, is the word to keep top of mind.
For a more sustainable way to reduce outside counsel spend, take the more holistic perspective outlined below.
The first rule of reducing outside counsel spend is to ensure only the right work is reaching their desks. Each company will define “right” slightly differently, but the factors to consider are specialization, complexity, risk, and scope. Broadly speaking, you should reserve law firm engagements for matters that score the highest across those criteria.
To better align task value with resource expense, ask yourself the following questions.
Not all work that lands in the legal department’s inbox requires a law degree to complete. These low-risk, low-complexity, often repetitive (and occasionally irrelevant) requests should never make their way onto a law firm invoice. And ideally, they would be kept far away from your in-house attorneys as well.
With a few smartly designed systems, tools, and training, you could supply non-legal staff with all the resources they need to address lower value tasks autonomously. A few hours spent organizing and standardizing new hire paperwork, for example, could effectively automate away a whole category of work originating from your HR department.
The next category of work to consider involves low-risk, low-complexity, high-volume tasks that do require an attorney’s attention. Document review, contract management, and e-discovery, for example, are all processes you might entrust to an alternative legal service provider (ALSP).
This type of legal process outsourcing (LPO) is significantly more economical than typical outside counsel rates. And, just as important, it can free up valuable internal resources.
Perhaps the most obvious way to reduce outside counsel costs is to reassign their work to your in-house attorneys instead. Unless you take full advantage of automation and outsourcing opportunities first, however, you may never have the luxury of employing this option. Staff lawyers may stay too bogged down by low-value (yet time-consuming) activities.
But let’s assume you have the bandwidth to absorb more high-complexity, high-risk matters. Where do you draw your perimeter? Typically, the best-match matters for your in-house team will center on a recurring subject matter and represent a reasonable scope. Sprawling, anomalous litigation, for example, would likely be better served by outside counsel.
Your current areas of expertise will be a deciding factor, of course. But over the long term, it’s also worth considering the cost impact of hiring more specialists onto the team. When entering a new business region, for instance, bringing a versatile local expert on staff could be dramatically less expensive than deferring to a panel of law firms.
Once you can confidently say the right work is going to the right people, the focus can then shift to cost-effectively managing outside counsel relationships. Here are several levers you can use to systematically lower legal spend.
A request for proposal (RFP) process invites qualified service providers to compete against each other for a given piece of business. By tendering your legal work this way, you may be able to secure more favorable law firm rates than you imagined. As an added bonus, the range of potential solutions pitched by participants may also influence your strategic thinking in surprising ways.
Billable hours aren’t the only way to quantify the cost of legal services. Alternative fee arrangements (AFAs), such as blended rates, fixed fees, capped fees, and retainers, can all shave valuable percentage points off your annual legal spend.
At the very least, these conversations should help generate more thoughtful cost estimates and help you manage budgets more predictably.
One variable that's always within your control is the ability to set clear and concise parameters. Miscommunication surrounding matter scope can quickly trigger unexpected expenses.
The solution could be a simple as sticking to the following checklist:
Set scope and confirm fee arrangements in writing
Debrief outside counsel on your business strategy and answer any questions
Walk outside counsel through your legal billing guidelines and underscore expectations
Approve and route invoices to finance team only after billing compliance is verified
Classify your completed work so you have an objective record to reference later
Review the resulting data to inform future matter and resourcing strategies
Budgets should be treated as more than estimates or guesswork. Analyzing the data mentioned above is the first step toward creating detailed, accurate cost projections the team can trust.
Your law firms should also provide you with fee estimates for their work to be completed within a budgeting form. This should include both timekeeper rates and expected timelines.
Legal billing guidelines exist to maximize the value of your spend — but they only work when consistently enforced. If you can't commit to manually inspecting each invoice, that's understandable. But should commit to employing a more scalable review system.
E-billing tools that automate guideline enforcement, for example, may be the most efficient way to spot violations and transform them into cost savings.
Curious to see what it looks like when you have all these factors working together?
Watch Brightflag COO Alex Kelly explain How Corporate Legal Team Can Effectively Control Costs.