Because of the COVID-19 outbreak, over 70% of general counsel surveyed by the Association of Corporate Counsel reduced their spending. Due to the restricted budgets, legal cost control rose to the top of legal operations’ priority list, and teams had to immediately develop innovative ways to optimise expenditure.
Even when the significant benefits of COVID-19 fade, 88 percent of general counsel polled claimed they are still “looking to cut the overall cost of the legal function” between 2021 and 2024. This means that the legal cost-cutting solutions that arose at the peak of the epidemic will continue to play an important role in the coming years.
As you plan your 2022 budget, keep the following legal cost-cutting trends in mind:
Departments are lowering their reliance on outside counsel and modifying their vendor management practises.
Limiting the employment of outside counsel is an important legal cost-cutting measure. According to Gartner, the usage of outside counsel declined by 6% between 2018 and 2020, and this trend is projected to continue in the following years. Legal operations teams select suppliers based on hard vendor performance data in order to optimise the ROI of this reduced number of partners.
To make the most of their remaining external ties, departments:
Utilize vendor metrics to guide vendor selection.
According to Bloomberg Law’s 2021 Legal Operations Survey, 65% of respondents had employed or planned to implement “metrics to track vendor or outside operations.” This is due to the fact that vendor metrics give a more complete view of a potential vendor’s productivity and value than total legal fees alone.
By delving further into data such as expenses per matter, billing guidelines compliance, and average matter lifecycles, you can construct a more thorough baseline to assess which partners make the most sense to collaborate with. This information can also be used to negotiate better prices or alternative fee arrangements (AFAs) with vendors. Metrics provide an objective view of performance, ensuring that these discussions are fair and evidence-based.
Distribute matters to different tiers of businesses based on their worth.
According to Gartner’s Rob van der Meulen, legal data also assists teams in better matching “the tier of the law firm to the value of the legal problem.” You can easily lose hundreds of thousands of dollars by allocating “low value” items to expensive businesses that aren’t high risk or overly complex.
Gartner calculated department savings of “just over $460,000” per year from case misallocations using the 2020 median outside counsel expense of $3.1 million. Van der Meulen suggests developing an uniform score system that considers elements such as “money loss [and] damage to reputation, operations, and strategy” to generate consistent matter values. Learn how to use his suggested strategy by clicking here.
More alternative legal service providers should be hired.
From 2019 to 2020, the use of alternative legal service providers (ALSPs) increased by 21%. Because ALSPs are less expensive than traditional law firms and may provide specialised legal skills, this trend is expected to continue.
ALSPs are also recognised for embracing innovation and new technology, which are areas where corporations often struggle. Corporate legal departments prefer to deal with suppliers who employ modern technology because it “allows risk to be handled at a more granular level,” according to EY Legal Function Consulting Leader Rob Dinning.
Businesses desire to recruit more in-house experts.
According to Gartner, the share of expert attorneys on in-house teams climbed by 21% between 2018 and 2020. Hiring paid in-house attorneys to handle recurrent legal concerns ends up being less expensive than outsourcing to hourly billing services for organisations with large legal activity.
According to the 2021 EY Law Survey, 78 percent of general counsel felt bringing work in-house was a smart legal cost containment technique. The pandemic stressed that unpredictability in vendor billing increases risk, whilst hiring in-house counsel reduces legal expenditure. In-house experts are also totally involved in only one firm, thus they have extensive understanding of the organisation. Outside counsel, on the other hand, must learn about and handle a large number of clients.
Examine your list of matters and assess your spending by practise area. If your spending is heavily focused in specific specialist areas, such as litigation or intellectual property, you may want to explore bringing that work in-house. You may then outsource less costly general legal services.
Budgets must take into account the impact of greater remote work.
According to Gartner, the “growth in remote work” has had the most significant influence on legal departments’ teams during the pandemic — and it’s only going to expand in order for departments to recruit and retain more talent.
COVID-19’s “Great Resignation” had an impact on the legal field as well. According to Vivia Chen, writing for Bloomberg Law, “lawyers are bouncing around like pinballs” searching for better work chances, both at firms and in internal legal departments.
While many legal firms still have remote work rules in place, many attorneys (particularly associates) have been urged to return to the office by higher-ups. In-house teams that provide remote work and make it clear that it is not considered inferior work earn a competitive hiring advantage.
More remote work means more money spent on gear and cyber liability insurance to defend against costly data breaches. However, avoiding distant chances in an attempt to cut legal costs will really affect your budget more. Fifty-four percent of law department employees polled stated they are likely to resign if they do not have flexible work alternatives, and it costs companies around 33 percent of an employee’s pay to find one replacement.
To enable the move to remote work without depleting budgets, 75% of legal operations members polled stated they were thinking about downsizing office space. These savings can then be used to cover expenses such as gear and software for virtual hearings and meetings.
Legal technology investment benefits the bottom line
The COVID-19 epidemic and shift to remote work highlighted the importance of legal technology as a requirement, not a luxury, for legal operations teams to function efficiently. According to the 2021 EY Law Survey, the #1 option to save money for general counsel is to “make better use of technology.” By automating manual activities, modern legal technology allows overworked legal operations staff more time.
Legal technology enables teams to prioritise strategic tasks.
According to the EY Law Survey 2021, in-house team members devote around 20% of their time on “low complexity and regular tasks.” From data administration to report creation, repeated manual procedures make it difficult to focus on strategic issues such as legal cost control.
Enterprise legal software saves time and energy for teams, allowing them to focus on higher-level tasks. Legal technology, for example, may automate invoice workflows and accrual collections, as well as enforce billing norms, in the context of legal cost management. The application may also aggregate relevant expenditure data from many sources. This makes spending reporting more easier and more precise, allowing you to identify additional possibilities to save money.
The appropriate technology may make or ruin a job. When COVID-19 struck, McDonald’s legal operations team’s first move in crisis management was “to survey the organization’s different business and legal departments to determine their technological needs and wish lists.” McDonald’s later added an enterprise platform to suit those requirements. This meant that company operations were disrupted as little as possible, even throughout the epidemic, because worldwide teams had the resources they needed to thrive. Putting technology first guarantees that your firm does not fall behind the competition.
Employee fatigue is reduced by legal technology.
COVID-19 increased the burden on legal operations to demonstrate their worth as strategic business leaders. While some teams were able to step up to the plate, many were forced to cope with flat or decreasing headcounts while handling the crisis. Workloads in-house are predicted to climb by 25% by 2024, and the average full-time legal operations employee now supports 23 additional staff. Burnout is inescapable in the absence of technology to assist people in their professions.
While the cost of legal technology may appear high, it pales in contrast to the average yearly cost of employee burnout, which is estimated to be between $120 and $190 billion. According to Salesforce research, employees who are dissatisfied with their work technology are more than twice as likely as those who are satisfied to feel burned out.
Legal cost containment is a primary goal for legal departments, but it is far from the only one.
If the pandemic taught legal departments anything, it’s that forward-thinking legal operations teams will be the most successful. When it comes to mastering legal cost containment, corporate legal departments must remain agile and inventive while still relying on objective facts to back up their strategic decisions.