4 legal cost control takeaways from COVID-19
Nearly 70% of general counsel surveyed by the Association of Corporate Counsel lowered their budgets because of the COVID-19 pandemic. These tightened budgets sent legal cost control to the top of legal ops’ list of priorities, and teams had to quickly find new ways to optimize spend.
Even as major effects of COVID-19 subside, 88% of surveyed general counsel said they’re still “planning to reduce the overall cost of the legal function” from 2021 to 2024. This means the legal cost control innovations that emerged during the height of the pandemic will still play a big role in the coming years.
Be mindful of these legal cost control trends as you set your 2022 budgets:
1. Departments are reducing their reliance on outside counsel and changing how they manage vendors
One key legal cost control strategy is limiting outside counsel use. Outside counsel use decreased 6% from 2018 to 2020, according to Gartner, and this trend will likely continue into the coming years. And in an effort to maximize the ROI of this smaller number of partners, legal ops teams choose vendors based on hard vendor performance data.
To make the most of their external partnerships that do remain, departments:
Use vendor metrics to inform vendor selections
Bloomberg Law’s 2021 Legal Operations Survey found that 65% of respondents had implemented or were planning to implement “metrics to measure vendor or outside activities.” That’s because vendor metrics provide a fuller picture of a prospective vendor’s productivity and value than total legal fees alone.
Digging deeper into data like costs per matter, compliance with billing guidelines, or average matter lifecycles lets you create a more comprehensive baseline to determine which partners make the most sense to work with. You can also use this information to negotiate better rates or alternative fee arrangements (AFAs) with vendors. Metrics offer an objective look at performance, which keeps these conversations fair and evidence based.
Allocate matters to differently tiered firms based on their value
Gartner’s Rob van der Meulen writes that legal data also helps teams to better match “the tier of the law firm to the value of the legal matter.” You can easily lose hundreds of thousands by assigning “low value” matters that aren’t high risk or too complex to pricey firms.
Gartner used the 2020 median outside counsel spend of $3.1 million to calculate department savings of “just over $460,000” a year from fixing matter misallocations. To determine consistent matter values, van der Meulen recommends creating a standardized scoring system that factors in aspects like “financial loss [and] damage to reputation, operations, and strategy.” Learn how to apply his suggested approach here.
Hire more alternative legal service providers
There was a 21% increase in the use of alternative legal services providers (ALSPs) from 2019 to 2020. This trend is likely to continue because ALSPs are less expensive than traditional law firms and can provide specialized legal expertise. Additionally, ALSPs are well known for embracing innovation and new technologies — areas where firms typically struggle. As EY Legal Function Consulting Leader Rob Dinning notes, corporate legal departments want to work with vendors who use advanced technology because it “allows risk to be managed at a more granular level.”
2. Companies want to hire more in-house specialists
The proportion of specialist attorneys on in-house teams increased by 21% from 2018–2020, according to Gartner. For firms with significant legal work, hiring salaried, in-house lawyers to handle recurring legal matters ends up being cheaper than outsourcing to firms with hourly billing.
78% of general counsel who responded to the 2021 EY Law Survey said bringing work in house was a strategic legal cost control method. The pandemic emphasized that unpredictable vendor billing adds risk, while using in-house counsel makes legal spend more predictable. In-house specialists are also fully immersed in just one business, so they have deep knowledge about the company. In comparison, outside counsel have to learn about and manage many clients.
Take a look at your list of matters and evaluate your spend by practice area. If your spend is largely concentrated in certain specialized areas like litigation or IP, you may want to consider bringing that work in house. Then, you can outsource less expensive general legal services.
3. Budgets need to account for the impact of more remote work
Legal departments surveyed by Gartner listed the “increase in remote work” as having the most significant impact on their team during the pandemic — and it’s only going to continue growing so departments can attract and keep more talent.
The legal industry wasn’t immune to COVID-19’s “Great Resignation.” Writing for Bloomberg Law, Vivia Chen says that “lawyers are bouncing around like pinballs” looking for better job opportunities, both at firms and in internal legal departments. While many law firms do have remote work policies still in place, many attorneys (especially associates) have been pressured by higher-ups to return to the office. In-house teams that offer remote work — and make it clear that it isn’t viewed as lesser work — gain a competitive hiring advantage.
More remote work does mean more spending on things like hardware or cyber liability insurance to protect against costly data breaches. However, holding back on remote opportunities in an attempt at legal cost control will actually hurt your budget more. Fifty-four percent of surveyed law department employees said they’re likely to quit if they don’t have flexible work options, and it costs employers about 33% of an employee’s salary to find one replacement.
To support the shift to remote work without emptying budgets, 75% of surveyed legal ops members said they were considering cutting down office space. Those savings can then be put toward costs like hardware and software for virtual hearings and meetings.
4. Investing in legal technology supports the bottom line
The COVID-19 pandemic and pivot to remote work emphasized that legal technology was a necessity, not a luxury, for legal ops teams to perform effectively. General counsel respondents in the 2021 EY Law Survey listed a “greater use of technology” as the top way to gain cost savings. Time is money, and advanced legal technology gives strained legal operations teams more of it by automating manual tasks.
Legal technology lets teams prioritize strategic work
According to the 2021 EY Law Survey, in-house team members spend about 20% of their time on “low complexity and routine work.” From data administration to building reports, repetitive manual tasks make it harder to concentrate on strategic priorities like legal cost control.
Enterprise legal software saves teams time and energy, freeing them up to focus on higher-level work. When it comes to legal spend management, for instance, legal technology can automate invoice workflows and accrual collections and enforce billing guidelines. The platform can also pull relevant spend data from different sources into one place. This makes spend reporting much easier and more accurate — which means you can find more opportunities to save money.
The right technology can make or break job performance. McDonald’s legal ops team understood this well, and when COVID-19 hit, their first step in crisis response was “to survey the organization’s various business and legal teams to identify their technology needs and wish lists.” McDonald’s then brought on an enterprise platform to meet those needs. This ensured minimal disruptions to business operations, even in the pandemic, because global teams had the resources they needed to succeed. Putting technology first ensures that your company won’t get left behind.
Legal technology decreases employee burnout
COVID-19 put added pressure on legal ops to demonstrate their value as strategic business leaders. But while some teams managed to step up to the plate, unfortunately, many had to deal with flat or declining headcounts while navigating the crisis. In-house workloads are expected to increase by 25% by 2024, and the average full-time legal ops member already supports 23 other employees. Without technology to support them in their jobs, burnout is unavoidable.
While the cost of legal technology may seem steep, it pales in comparison to the average annual cost of employee burnout: between $120 and $190 billion. Research from Salesforce also notes that workers who were unhappy “with their work technology … are more than twice as likely as those who are satisfied to say they feel burned out.”
Legal cost control is a top priority for legal departments, but it’s not the only priority
If the pandemic taught legal departments anything, it’s that forward-thinking legal ops teams will be the ones who experience the most success. When it comes to mastering legal cost control, corporate legal departments need to stay nimble and creative while also using objective data to back up their strategic choices.
Legal operations teams are now expected to be experts in legal spend management as well as managing contracts, documents, vendors, and legal analytics. Our enterprise legal management system is here to help. Take a quick virtual tour to see how centralized legal technology can fast-track the success and growth of your department.