With rising law firm rates and internal downward pressures on costs, it can be challenging for in-house legal teams to manage budgets. Whilst it may seem an impossible task to reduce external legal spend, there are tried and tested approaches that can be considered.
In this blog, we will explore seven strategies for reducing legal spend.
The first step in reducing legal spend is to prioritise risk management. By identifying potential risks and taking steps to mitigate them, in-house legal teams can avoid costly litigation or regulatory fines. As such, a key part of risk management for in-house legal teams is a focus on preventing legal issues from arising in the first place. Foster a culture of collaboration between your legal and business teams to ensure that legal risks are identified and addressed early on. By working together, legal and business teams can develop strategies to prevent disputes and resolve issues more efficiently and effectively.
Risk management can also include developing policies and procedures that are compliant with legal requirements, training employees on these, and conducting regular audits. While this strategy may not immediately shift the needle, implementing preventative measures will avoid costly legal fees in the future and is immensely valuable for the organisation.
In recent years, there has been a rise in legal technology solutions that can help in-house legal teams manage their external legal spend, automate routine tasks, and improve the efficiency of legal operations. Using technology incorporating a legal spend management solution can help legal teams make better-informed decisions about their spending on legal services and improve their overall financial performance.
By providing a centralised platform to instruct, track and manage legal expenses and matters, legal spend management solutions can help organisations identify where they can reduce costs, negotiate better rates and value adds with outside counsel, and more efficiently allocate their resources.
Identify and manage a panel of preferred legal services providers that meet your organisation’s specific needs and have demonstrated an ability to deliver high-quality legal services. By working with trusted providers, you can benefit from their knowledge of your business, negotiate better rates, implement technology solutions to streamline matter collaboration, and develop strategies for more effective out-sourcing. Look for ways to leverage economies of scale, use of technology, and value adds, and be willing to listen, learn and iterate. Once a panel of firms is in place it is vitally important to actively manage the performance of the service providers. A strategic and considered approach will positively reinforce good behaviours and successful outcomes as well as identify and remediate issues that impact the legal budget such as scope creep, over-servicing, and poor communication.
In-house legal teams can also reduce legal spend by streamlining their legal processes, both internally and as well as outside counsel engagement processes. Internal process improvement can include automating intake and routine legal tasks, simplifying legal documents, and developing standardised templates for legal work. By streamlining these legal processes, you provide ease of use for internal business users that can subsequently free up in-house legal team resources to do work that would otherwise be briefed out.
Streamlining the outside counsel engagement process is an area often overlooked that can provide quick wins. Start with instructions that are sufficiently detailed and clearly set out expectations about how the matter should be resourced and serviced by the law firm. Ensure that fee estimates are provided along with an agreed scope of work. Have a disciplined and transparent approach that includes monitoring changes to estimates and scopes of work, and ensure that your legal service providers proactively update you on work progress and budgets.
By establishing clear expectations upfront, you can avoid unnecessary legal work, wasted time and bill disputes. Plus, adopting a consistent and structured process across the legal function will help to provide visibility and controls over law firm engagements and promote predictable legal spend.
Another way to reduce legal spend and demonstrate value for money is to leverage competitive tension and ask a selection of your preferred legal services panel to provide a quote for certain matters. This strategy can be applied to set types of work or for work over a particular threshold.
Law firms can be requested to provide a brief proposal that includes fee estimates (including upper and lower estimates) or fixed/capped fees (or other AFA), based on an agreed scope of work, along with their approach to project management and resourcing. You can then compare the proposals and be confident that you are getting market value whilst managing for quality.
Investing in training and development can also help in-house legal teams reduce their legal spend. By developing the skills and knowledge of their team members, in-house legal teams can take on more complex legal work in-house, reducing the need for outside counsel. In addition, investing in training and development can help in-house legal teams improve their efficiency and effectiveness, leading to cost savings over time. Investing in professional development can also assist with retaining staff, directly reducing the direct and indirect costs of employee churn and knowledge loss.
Finally, in-house legal teams should use metrics to measure their success. This can include tracking legal spend over time, quantifying the benefit of value adds, monitoring the effectiveness of legal technology driven solutions, and measuring the impact of risk management initiatives. Using metrics, the in-house legal teams can identify areas for improvement and adjust their strategies accordingly. The General Counsel can utilise these same metrics to report to the C-suite and demonstrate the legal department’s value within the organisation.
Studies show that reducing legal spend is now a top priority for in-house legal teams. By prioritising risk management, investing in technology, developing a panel of preferred providers, streamlining legal processes, leveraging competitive tension, investing in training and development, and using metrics to measure success, in-house legal teams can reduce their legal spend while still providing high-quality legal services to their organisation.
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