Evaluating Corporate Legal Department Spending

Corporate legal departments are getting more savvy when it comes to spending their money on legal resources. We recently saw a slide that circulated from a Paul Hastings associate where, among other not-so-pleasant items, it showed that junior associates are billing rates of $850 per hour. The days of corporate legal departments paying these rates for a junior attorney to perform low-value work are no longer a viable option.

One of the key practices for managing these concerns is to prioritize the most critical legal issues and focus on implementing technologies that can streamline addressing them most effectively. For example, eDiscovery and contract management are critical areas where technology and redistributed staffing can help to simplify workflows and reduce costs. In IPRO’s recent 2023 State of Law Firm Industry Report, 69% of survey respondents pointed out “increasing client demand for ‘more output with less costs’ as the trend they agreed with the most.”

Reducing costs is particularly challenging in the current environment, however: in Thomson Reuters’s 2022 Law Firm Business Leaders Report, 98% of managing partners and C-suite leaders said they would “probably” or “definitely” increase billing rates in 2023 to improve their financial performance. This means that $850 hourly rate will go up even higher. This is not a sustainable model for corporate legal departments that are tasked with cutting costs.

So how are legal departments meeting this goal? There are several baseline steps you can take to evaluate your legal spend.

• Analyze your legal bills.
  • If you don’t use billing codes, it’s a good time to start.
  • What tasks are the attorneys at your law firms performing?
  • What tasks are paralegals performing?
  • What are the technology costs they are passing through?
• Evaluate internal work distribution.
  • What are members of your internal team spending time working on?
  • Are there repetitive tasks you could automate?
  • Is there lower value/risk work that you could outsource to an Alternative Legal Solutions Provider (ALSP)?
• Consider consolidating outside counsel work with just a few firms.
  • According to the IPRO report mentioned above, “over 65% of in-house corporate legal teams are likely to reduce the number of law firms they work with, as they see keeping more work in-house as a measure to mitigate the most pressing challenges of 2023.”
  • This can allow for better ability to negotiate rates and more specialization in your business.
  • Choose firms with the expertise for your matter types, not just by their AmLaw rating.
  • Ask questions about firms’ use of AI and analytics along with proof of concept/case studies.
• Determine the actual volume of data involved in litigation and investigation matters each year.
  • By knowing this figure, you are in a much better position to take control of technology costs such as data collection, processing, and hosting, whether you use a third-party vendor or choose to manage the technology internally.
• Determine the volume of first-level review being managed by your outside counsel.
  • What are you paying your outside counsel to do first-level review, and is it worth it, or are other options more cost-effective?
  • Ensure your counsel is willing to work with your review partner of choice.
• Use AI and technology effectively on every matter.
  • If your outside counsel isn’t pushing this, consider it a red flag. In the IPRO report, 73% of law firm professionals said they “aim to increase the use of technology to become more competitive in 2023.”
  • Evaluate how to bring AI into your existing workstreams. A knowledgeable service provider or ALSP partner can help.
• Track metrics on every case.
  • Your outside counsel and service provider partners should be providing metrics that are meaningful to your business. If they aren’t, figure out what those metrics are, and start building out your models.

In conclusion, in the context of the varied issues facing corporate legal departments today, it is important for companies to prioritize their most critical legal concerns and implement technology and staffing solutions that can address them effectively. Budget and staffing cuts often have a significant impact on corporate legal departments, and it is important for companies to consider the broader implications of these cuts when restructuring. By redistributing some functions, companies may be able to mitigate the impacts of budget and staffing cuts and maintain the effectiveness of their legal departments.