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Legal Spend Management: Help Your Law Firms Help You
3 tips to help you better direct your law firms and prevent legal budget overruns, surprise invoices and hours spent reviewing and contesting invoices.
With external resources accounting for about half of the average Legal Department spend, it’s critical that law firms manage matter budgets and follow billing guidelines.
But research shows those tasks don’t come easy.
Indeed, Aderant’s Law Firm Leader Survey on Outside Counsel Guidelines highlights a number of obstacles that thwart effective budget management on the law firm side:
1. Lack of process
Only 23.1 percent of law firms said they have a process to review, analyze and document outside counsel guidelines and that it is always followed. (A startling 14 percent answered “Every lawyer has a different process”).
2. Disconnection from timekeepers
At a majority – 61.8 percent – of firms, the Billing Department or Pricing Department takes responsibility for reviewing, analyzing and documenting outside counsel guidelines. Fewer than 20 percent of respondents said the billing lawyer is accountable.
3. Lack of communication
When asked how their law firms communicated guidelines to lawyers, 55.7 percent said they provide email summaries. A not insignificant percentage – a combined 44.3 percent — responded with “We put something in our DMS and hope they look at it,” “We are working on that,” or “We don’t send any communication related to this.”
4. Uneducated timekeepers
When asked what percentage of lawyers know the guidelines for their legal matters, only 31.4 percent said more than half.
5. Lack of compliance
Almost half of responding firms (46.2 percent) said they do not monitor lawyers to ensure they follow guidelines for their legal matters.
In short, those billing guidelines you worked hard to draft? They are sitting with the billing team, far from the individuals actually doing your work, many of whom have never seen your guidelines and are not being effectively trained on or required internally to follow them.
It’s more than a little disheartening. And as economic uncertainty continues to put increased scrutiny on budgets, this data makes clear that responsibility for legal spend management rests solely on the Legal Department.
Help your law firms help you
How can you better direct your law firms – and prevent budget overruns, surprise invoices and hours spent reviewing and contesting invoices?
Consider these three starting points:
1. Have – and share – clear ground rules
While Aderant’s survey showed the challenges inherent in enforcing guidelines with law firms, the rationale for them remains: Putting guardrails around when and how you will receive invoices will ease your administrative load and your inbox.
Once they are drafted, take the survey findings to heart: Do not assume that any of your timekeepers have seen them, let alone read them. Be proactive in presenting them to the lawyers themselves, and in asking for acknowledgement of them.
A modern matter management software can be an effective tool here. At the invoice level, invited law firms can confirm compliance with the billing guidelines. (And even better, the legal matter management software can restrict law firms from submitting invoices that exceed cost estimates, fall outside agreed-upon timeframes, and more).
2. Create accountability
Show your law firms, regularly, how they are performing against budget. Just as you run reports for your board or business units, you can run reports for your law firms. The right law firms want to be an effective partner for you, and they want to perform to your standard; share the numbers, reward the firms that perform well, and weed out the firms that do not. For instance, budget behavior can be among the selection factors for your preferred-provider panel.
3. Review your resourcing
Budget issues often spawn when the law firm isn’t the right fit for the matter at hand – for instance, when your most sophisticated, expensive law firm is handling a basic project (or projects). Or, on the opposite end of the spectrum, when an inexperienced resource burns time “getting up to speed” on a complex issue…negating the lower hourly rate.
Consider an annual review of your external work, assessing legal matters with three factors:
- Strategic value
For work that is simple, low-risk, or unlikely to make a strategic impact, what’s being over-lawyered? For work that is of critical importance, where might you need to increase your firepower?
Your law firms are not your only budget line item, to be sure – but on average, they comprise about half of the Legal Department’s spend. Proactive measures to enforce rules and budgets, convey expectations of accountability, and ensure every project is matched to the right resource will deliver ROI far beyond any attention you pay to how much is spent on office supplies, lawyer training and the holiday party.
Ready to take charge of your legal spend?
Download Xakia’s white paper, Legal Spend Management for Beginners, to learn the common pain points that plague in-house lawyers – and five steps to smarter budget control.