Here's How To Get Your Legal Spending Under Control

Introduction?

In the ever-evolving landscape of legal operations, In-house legal spending by corporate legal departments has surpassed their expenditure, surpassing the amount they spend on external counsel, constituting 54% of their budgets, as revealed in a recent survey conducted by the Association of Corporate Counsel in collaboration with the legal recruiting firm Major, Lindsey & Africa. The first quarter of 2023 alone witnessed timekeeper rate hikes averaging 5.5%, as a report from Thomson Reuters revealed.?

Amidst this landscape, the imperative of effective legal spend management comes to the forefront, advocating for strategic approaches to monitor, analyse, and optimise expenditures within in-house legal departments and with external counsel. This transformative practice involves implementing systems to track financial outflows and pinpointing areas for cost control. This article delves into the challenges posed by escalating timekeeper rates and the critical role of legal spend management in navigating the evolving landscape of legal expenditures.

What Are the Problems Faced By Legal Departments In Terms Of Spending?

Legal departments often encounter several challenges that contribute to an increase in timekeeper rates, leading to unexpected costs for legal departments. Three primary sources of billing discrepancies emerge, impacting the financial dynamics between law firms and their clients, as following are a few of the examples -?

Evolving Rate Dynamics

Law firms possess the legitimate right to seek rate increases, reflecting the value they provide to their clients. While this practice is generally acceptable, instances arise where these increases do not align with prevailing market rates. Consequently, long-time loyal clients may find themselves subject to additional hikes, compounding the impact on already inflated rates. The potential disconnection between rate increases and the true market value raises concerns about transparency and fairness in billing practices.

Complexity of Rate Accuracy

An additional challenge emerges when the rates agreed upon by legal departments fail to be accurately transcribed into the law firm’s timekeeping system. Such discrepancies, primarily from human error, result in clients being billed at rates higher than initially negotiated. Although often unintentional, these errors can significantly contribute to increased overall costs. Understanding the underlying causes of rate errors is crucial for law firms and clients to maintain trust and uphold financial agreements.

Navigating Billing Guidelines

Legal departments establish comprehensive billing guidelines that delineate the specific costs and expenses they are willing to cover. However, challenges arise when excluded expenses, such as copies, scans, overnight messaging, word processing, and document submissions, are erroneously charged by law firms. Despite clear guidelines specifying non-covered items, manual review processes become arduous and time-consuming. Consequently, many law departments inadvertently pay for charges that violate their established billing guidelines. Addressing these billing guideline errors is essential for fostering transparency, ensuring agreement adherence, and avoiding unnecessary financial strain on legal departments.

How to Control the Legal Spend?

Legal departments operate in a complex environment, grappling with escalating costs, intricate billing processes, and the need for stringent budgetary control. Efficient legal spend management emerges as the linchpin, offering a strategic approach to streamline financial workflows, ensure compliance, and drive sustainable cost savings.

Centralizing Spend Data

In the realm of legal spend management, the centralisation of data stands as a fundamental imperative. Consolidating spend-related data into a unified repository expedites analysis, unveiling trends and opportunities while fostering consistency, security, and faster reporting. Conversely, dispersed data across multiple applications heightens the risk of errors and diminishes productivity. The pinnacle solution lies in legal spend management software, a cloud-based platform empowering general counsels and legal operations professionals to monitor and manage matters, vendors, spending, and documents seamlessly.

Setting a Legal Department Budget

Establishing a budget is a pivotal step toward benchmarking and controlling legal spending. By examining expenses from previous years, discerning potential challenges affecting spending, and engaging in proactive discussions with outside counsel for estimated costs, legal departments can formulate budgets that encompass recurring, predicted, and one-off legal matters. Legamart, a prominent online legal tech platform, offers access to outside counsel with diverse expertise.??

Enforcing Billing Guidelines

Billing guidelines are a robust mechanism to prevent surprise fees, unauthorised charges, and vague line items. These guidelines, encompassing staffing information, invoicing procedures, timing requirements, and a signature page, provide a standardised framework for invoice review. Integration into e-billing software ensures seamless enforcement, reducing manual errors and fostering adherence to mutually agreed-upon terms.

?Automating Billing

Automated billing, facilitated through e-billing software, emerges as a game-changer in legal spend management. Organisations can achieve significant cost savings by eliminating manual billing errors and enhancing accuracy. Essential features of effective e-billing software include metrics tracking, easy reporting, free training and support, and pre-built integrations, ensuring a holistic and streamlined billing process.

Monitoring Spend and Vendor Performance

Continuous monitoring of spend and vendor performance unveils opportunities to control costs and enhance efficiency. Creating a comprehensive view that compares spending across vendors against their performance metrics enables informed decision-making. Tracking key performance indicators (KPIs) such as cost per lawyer, cost per matter, success ratio for cases solved, and time taken to resolve matters offers insights into vendor value. Additionally, qualitative KPIs and feedback from in-house counsel provide a holistic perspective on vendor performance.

Leveraging Past Data for Informed Decision-Making

As legal departments track spend over time, they accumulate a valuable repository of past expenditures. This spending record becomes a cornerstone for decision-making, offering insights into budget allocation, identifying trends, and ensuring cost predictability. The record helps address potential overspending and positions legal departments to stay ahead of industry trends. With a clear view of past spending analytics, legal departments can make agile and data-informed decisions, aligning financial strategies with the evolving landscape of corporate legal operations.

How Can Legal Spend Management Help In This?

In the dynamic landscape of legal operations, the intricate process of Legal Spend Management takes centre stage. Orchestrated by the legal operations team through dedicated software, this approach encompasses an exhaustive review, tracking, analysis, and reporting of in-house and external legal costs. Comprising a suite of strategic components, Legal Spend Management aims to elevate the efficiency of the legal department, offering a nuanced approach to cost reduction and the formulation of sustainable savings strategies for the long haul.

Components of Legal Spend Management

Legal E-billing Software

“We did notice dramatic improvements in our data quality and our standardization of processes. The e-billing implementation alone saved us an average of about 6.7% on legal invoices. In some areas, those cost savings were even higher….It’s a gift that keeps on giving.” - Brian McGovern(Mitratech Executive Director)

Revolutionising traditional billing methods, legal e-billing software automates invoicing, from basic law firm portals for document uploads to sophisticated systems that allow you to receive invoices directly and help you save cost. Enhanced by artificial intelligence, these tools enforce billing guidelines, ensuring seamless financial transactions.

Law Firm Management

Bridging enterprise procurement and law department requisites, law firm management integrates law firms into vendor management and accounts payable systems. This multifaceted approach supports firm selection, diversity, and inclusion initiatives and facilitates negotiations for volume discounts or alternative fee arrangements.

Timekeeper Rate Management

Delving into the intricacies of legal practitioners, timekeeper rate management conducts a comprehensive inventory and review. Scrutinising roles, law firms, legal matters, hours worked, and agreed rates, this facet thrives when coupled with benchmark data. It enables legal operations teams to contextualise timekeeper rates, considering experience, domain, and location factors.

Legal Spend Reporting and Analytics

Offering a panoramic view of the corporate law department spending data, reporting, and analytics tools empower stakeholders. From general counsel dashboards to budget reporting, these tools facilitate data-driven decision-making. Exportable to platforms like Excel, Power BI, or Tableau, they provide flexibility and insights for strategic planning.

Conclusion?

Hence, the confluence of escalating legal complexities, budgetary constraints, and substantial rate increases demands a strategic response from legal departments. The pivotal role of Legal Spend Management emerges as a transformative solution, orchestrating a comprehensive approach to streamline financial workflows, ensure compliance, and foster sustainable cost savings. By centralising spending data, setting strategic budgets, enforcing billing guidelines, and leveraging automation, legal departments can navigate the evolving landscape with precision.?

Continuous monitoring of spending and vendor performance, coupled with the power of past data, empowers informed decision-making. Legal Spend Management becomes the cornerstone for legal departments seeking financial resilience, operational efficiency, and strategic alignment with the dynamic demands of the legal landscape. Embracing these practices positions legal departments to weather current challenges and proactively shape a robust and adaptable in 2024.?

As 2024 is around the corner, legal counsel must start planning now and adeptly implement the insights shared in this newsletter. Reevaluating expenditures and past data can be the first step in the process.?

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