3 Tactics for Handling Your Biggest Expense: External Resources

Given that outside expenditures comprise 51.2% of the average Legal Department budget, now is a critical time to address external resource management: even small improvements in this facet of legal operations can generate significant ROI.

Xakia’s Legal Operations Health Check surveyed nearly 350 in-house lawyers around the world to assess the health of their Legal Departments and their adoption of 100 best practices in legal operations. By examining this data, we can see what Legal Departments are doing now to manage their external resources – and where they have room to improve.

What's happening now?

As a whole, Health Check participants achieved maturity in five tactics for external resource management:

• Having clearly understood, organization-wide rules about who has authority to engage external legal service providers
• Choosing external legal service providers for each engagement based on expertise, demonstrated outcomes and value
• Fostering collaborative relationships with external legal service providers, facilitating regular and proactive sharing of information and ideas
• Frequently using “value-adds” from external legal service providers, such as training, secondments, library services and precedents
• Using an established panel of firms or other formal relationships with external legal service providers.

This last one merits further discussion: as we will note below, while most Legal Departments have established panels, they fail to monitor and maintain them effectively.

All told, these activities are the proverbial “low-hanging fruit” of external resource management. These uncomplicated tasks provide an important foundation for substantive legal operations improvements.

What's next?

With a majority of Legal Departments taking a scalpel – or a chainsaw – to their spending plans, it’s fine timing to take external resource management to the next level. Indeed, by adopting some of the activities below, in-house lawyers can ensure a consistent (or maybe higher) level of quality from law firms and external service providers, even while cutting costs.

First, recall that most Legal Departments are using panels of firms or external legal service providers. While panels certainly can foster critical institutional knowledge and efficiencies, they must be measured and periodically refreshed. What to do:

• Use quality and cost/value metrics to regularly review the performance of external legal service providers. Presently, 64.2% of Legal Departments do not do this.
• Refresh the legal panel and external legal service providers every two to three years. More than half (58.3%) of Legal Departments do not do this.

Beyond panel maintenance, other smart steps in external resource management include:

1. Explore and use alternative legal service providers

These niche companies – operating in document review, contract management, intellectual property management and the like – can be a cost-effective solution for specialized expertise. Less than half of Legal Departments are currently taking advantage of these resources, but 12.4% reported plans to do so.

2. Maintain templates for RFPs that provide uniformity, minimize assumptions and enable proposal comparisons

This activity requires little time investment and zero dollars, but it will ensure true apples-to-apples vetting of external resources – and help avoid surprises. Just over 40% of Legal Departments currently use RFP templates; another 9.8% are working toward this goal.

3. Frequently use alternative fee arrangements

If there’s ever a time to incentivize your firms to prioritize results over time spent, it’s 2021. Half (50.2%) of in-house teams embrace AFAs; 11.1% plan to in the months ahead.

Next steps for handling your biggest legal expense

Get a handle on your biggest budget line item by tackling this list. (The good news: None of these best practices require any additional monetary spend.)

You can find benchmarks for your team size, industry or region in our new e-book, Legal Operations Health Check: Benchmarking Survey and Practical Tips.

For extra help with your budget, download Ten Steps to a Smarter Legal Budget, a white paper that comes with a Legal Budget template – so you don’t need to start with a blank spreadsheet.