In-house legal teams are unafraid to change their external counsel and are demanding alternative pricing models and discounted fees from them. In-house teams are also using technology, process improvement and Legal Operations Management roles to drive efficiency and cost reduction. These were among the findings of the 2019 Altman Weil Chief Legal Officer (CLO) Survey

Now in its 20th year, the survey received 280 responses from US-based in-house legal teams, covering departments from one through to 50+ lawyers, in businesses with revenue ranging from less than US$1 billion to over US$20 billion. While similar in some respects to the Australian in-house legal market, the survey reveals some differences in the way external counsel are selected, and which technology creates the greatest efficiencies.

1. In-House Teams are Changing External Counsel

The top three reasons why in-house teams with a legal work portfolio worth $50,000 or more are changing external counsel are:

  1. Legal expertise (42%) 
  2. Lower fees (40%)
  3. Client service (38%). 

The size of the in-house team influences these decisions. For companies with only one in-house lawyer, finding the right legal expertise is a high priority. This, however, is a lower priority for companies with in-house teams of 51+ lawyers (possibly because larger teams have more diverse expertise). Conversely, nearly half of large in-house teams are switching external counsel in order to reduce costs, while for companies with only one in-house counsel, reducing external legal costs is a lower priority. 

In Australia, in-house counsel responding to the ACC Trends Report 2019 choose external counsel based on their understanding of their organisation’s requirements, in addition to having specialist expertise.  

The CLO Survey revealed that just over half of respondents believe they do not have enough ‘buying power’ to negotiate reduced costs from external counsel. Unsurprisingly, nearly half of respondents find external counsel resistant to offering larger discounts, however, a third are worried that if they do apply more pressure, they will damage good relationships. 

2. Increased Value Sought From External Counsel 

In-house counsel’s expectations about the value they receive from external counsel are increasing. The top three areas of improvement that in-house teams want to see from their external counsel are:

  1. Greater cost reduction (58%)
  2. Improved budget forecasting (40%)
  3. Non-hourly based pricing structures (32%).

In addition, in-house counsel are applying management techniques to improve external counsel’s performance. The top three techniques resulting in the most significant performance improvements are:

  1. Enforcing budgets for major matters (76%)
  2. Negotiating fixed, capped or alternative fees (75%)
  3. Enforcing guidelines for billing, expenses, matter staffing, and matter management (75%). 

In Australia, the desire for fixed, capped or alternative fee models is growing and is predominantly being offered through NewLaw firms. NewLaw firms also use technology to drive down costs and improve efficiencies, in particular for matter management and highly repeatable, low complexity tasks.

3. Technology is Increasing In-House Teams’ Efficiency

In-house teams are using technology to improve their department’s efficiency in delivering legal services, with over 60% of respondents making greater use of technology in the past year. This is particularly important to larger in-house teams, with nearly 72% of law departments with 11-50 lawyers making greater use of technology.

The most common technological investments in the past year included Board of Directors portal software, e-Billing, contract management, and matter management. However, the top three technology types that result in the most significant improvement in law department efficiency are:

  1. e-Discovery software (88%)
  2. Corporate/Company Secretary software (87%)
  3. e-Billing software (83%).

In Australia, the ACC Trends Report 2019 similarly found that in-house teams are leveraging technology to empower their teams, but the most commonly used technology here differed, with legal libraries, document management software and virtual data rooms being the most popular.

The CLO survey also noted other efficiency tactics employed by in-house teams, including collecting and analysing management metrics (45%), internal restructuring/resource reorganisation (43%) and redesigning workflow processes (36%).

4. Improved Internal Processes Driving Cost Control 

In the past 12 months, over 60% of in-house teams focused on improving the efficiency of their internal processes and procedures as a means of reducing their department’s costs. Other ways they have controlled internal costs include: 

  1. Developing client self-help materials (39%)
  2. Shifting in-house work from lawyers to paralegals (31%)
  3. Using contract or temporary lawyers (28%).

Employing Legal Operations Managers to oversee day-to-day operations and track costs is also driving cost efficiencies. Legal Operations Managers manage multiple functions for in-house legal teams, including finance, technology, people, and day-to-day operations.

The Legal Operations Manager role is increasingly popular with in-house legal teams, regardless of their size. In the past year, the number of in-house teams with a full time or part-time Legal Operations Manager role increased 5%, with over three-quarters of companies with 51+ internal lawyers employing someone in this role. 

Similarly, Australian respondents to the ACC Trends Report 2019 noted that in-house legal teams have at least one person in their team focused on legal operations to improve efficiencies. A further 8% of ACC respondents expect to introduce a dedicated legal operations role in the next 12 months.

Key Takeaways

Cost control and cost efficiency is a major driver of US-based in-house legal teams, with external counsel coming under increased pressure to offer alternative price models and discounted fees. Half of the respondents do not believe they have the buying power to reduce external counsel fees and are worried about damaging these relationships. 

Nonetheless, they are seeking fixed, capped or alternative fee models, such as those as offered by NewLaw firms in Australia. General Counsel are seeking additional cost savings by making their teams more efficient, using technology and Legal Operations Management roles as a means of reducing their department’s costs. In this, they have much in common with their Australian counterparts.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Laini Bennett

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