There is no “magic ratio” between external and internal costs and the balance will be driven by:
- “Vision” and positioning: is Legal’s role that of an “internal Law firm” or at the other extreme are in-house lawyers “case managers” with the law firms taking a more active role in the lawyering itself?
- Size and maturity: in its early days, a legal function typically does not have the breadth or depth to cover all aspects of law and will resort to external counsel on more consistent basis
- Complexity of the organisation: The more complex the actual business, typically, the higher the reliance on External counsel. Similarly, the more the company is exposed to Litigation, the higher the costs of managing Litigation costs, including E-Discovery.
- Analysis and past experience: This is where the true value of Spend Management comes in.
What is Spend Management?
These are typically the largest portion of a Legal department costs. Most external costs are incurred with law firms can more and more, these costs are also incurred with other types of Vendors or experts, notably in the Litigation management or E-discovery space.
Solutions for managing External costs include:
- E-billing(Invoices are received electronically and vetted for compliance with Outside Counsel Guidelines and other rules enforced by the Legal function.
E-billing is also critical as it provides the flow of Data which allows to really look at what is being spent, where, with which firm, why and from this valuable information determine what could be done better.
Legal Departments have started leveraging E-billing data to revisit relationships with law firms (as part of Panel reviews or not), re-assess whether work needs to be brought back in-house or a contrario, specific areas farmed out to Law Firms
- Manual Bill Review (Bill Auditing): regardless of how well designed an E-billing system is, it is sometimes difficult to change behaviours and for Lawyers to really “act” on invoices and maybe reject invoices that are not compliant with Outside Counsel Guidelines. Bill auditing has been around for decade but some consulting companies are now offering manual Bill Review in conjunction with an E-billing system: the E-bill is being critically reviewed and assessed, to a higher degree than what a lawyer would typically do.
-Legal Process Outsourcing (LPO) & Alternative providers: increasingly Legal Departments are turning to LPO or Alternative providers to provide legal advice. More recently there has been a push towards Legal departments requesting their law firms to “sub-contract” some of the work to lower costs providers (and pass the savings to the clients)
Solutions for managing internal costs include:
-Optimising processes and increasing efficiency: reviewing current processes and better understanding the type of work carried out by the Legal function van provide some most interesting insight.
Many Legal Departments for example carry out regular training sessions for their business “internal customers” so that they can deal with a “pre-legal” work. Contract review is a good example where when the sales force is well versed in the company’s legal position and playbooks, legal only need to be involved in critical contracts and at the crucial stages. Legal department that engage more positively with their business partners also acknowledge that incoming requests for support or advice are better qualified.
- Legal Process Outsourcing (LPO) & Alternative providers: often following a skills/costs/benefits assessment, Legal department have outsourced some aspect traditionally managed by in-house lawyers to LPO providers or Alternative providers. Certain “routine” legal work (parts of HR for example) can effectively by outsource, lowering the direct internal legal costs.
-Leveraging Systems & Technology: through the use of Systems such as Matter Management system, Document Management, Contract Management and components such as Workflow and Templates, Legal departments have been able to deliver on the imperative to do “more for less”. Coupled with efficient Knowledge Management practices and portals as well as “self-services” activities, this can dramatically free-up some precious time to focus on higher value services.