Insights from our recently-released white paper, “Turning Legal Into a Value Center”

Note: This blog post originally appeared on the Corporate Legal Operations Consortium (CLOC) blog. View the original post here.

Providing more value for legal services is one of the top initiatives for most legal departments this year. According to a recent Thomson Reuters report, 78% of legal departments say that controlling costs is a high priority. Seeing this general sentiment in surveys and in our conversations with legal operations professionals, we partnered with CLOC to put together a resource that provides a window into the strategies legal teams are using to address this priority.

The result is our white paper, “Turning Legal Into a Value Center,” which is based on interviews with 16 legal industry leaders and offers a jumping-off point for any legal department team looking for ideas and best practices around cost-saving strategies. In addition to giving a bird’s eye view of legal spend concerns, the paper discusses project prioritization, internal work allocation, the role technology plays, outside counsel management and more.

Below you’ll find an excerpt, covering outside counsel management strategies. To learn more, download the full white paper here.

Cost-Savings Strategies for Outside Counsel Management

Many legal operations professionals and others throughout the legal industry have noted that there has been a mindset shift around the approach to outside counsel over the past decade or so. Corporate legal departments are looking more closely at their relationships with law firms and the value they provide.

Alongside this increasing focus on value, more alternatives to traditional outside counsel have been created including legal staffing firms, Alternative Legal Service Providers (ALSPs), legal marketplaces and other “New Law” companies. This has put legal department leaders in the driver’s seat when it comes to optimizing legal spend through outside counsel decision-making. The strategies discussed below are important parts of the value conversations you should be having both internally and with your outside counsel partners.

Right-Sourcing the Right Way

The concept of right-sourcing is really where the rubber hits the road regarding this outside counsel mindset shift. Put simply, right-sourcing means sending legal work to the provider that offers the most value for that type of work. For most legal departments, this means first analyzing the type of work before deciding where to send it.

Many factors can go into this decision, and it usually involves consideration of things like complexity, risk, scale and scope. Do you have a highly complex, bet-the-company litigation matter that you need handled? That should probably go to one of your trusted Big Law firms. But does it make sense to send less risky and less complex transactional work to that same firm and pay their premium rate? Probably not. 

Many of the legal operations professionals we talked to tier or score work to help determine the right provider. For example, one company used an “ABC” format where work that was scored as an “A” would go to the top level of providers (e.g., Big Law firms, senior in-house counsel), “B” work would go to a middle level (e.g., specialized small and boutique firms, solo practitioners and some ALSPs), “C” work would go to a lower level (e.g., ALSPs, LPO, paralegals and other paraprofessionals, etc.) and so on. This type of analysis can also be visualized similarly to the cost-benefit analysis discussed above. Below is a simplified example of what this process might look like. 

Cost savings is one of the biggest benefits of right-sourcing. Utilizing small, midsize and boutique law firms or ALSPs to do work that you used to send to large law firms can reduce your legal spend substantially. Multiple companies we talked to said that analyzing your legal work with right-sourcing in mind was the key to reducing external legal spend and getting more value from outside counsel. Some companies encourage the process by creating a specific target—saying that a certain percentage of work has to go to midsize firms or ALSPs, for example, and anything over that percentage requires approval. 

Another important aspect of right-sourcing is it provides legal departments with more access to diverse law firms and legal providers. It’s no secret that the largest law firms are generally lacking in diversity. One legal operations expert described this as an easy “win-win”: Small and midsize firms are more likely to be diverse and they are more cost-effective. Right-sourcing work can help you support these important company initiatives and optimize spend at the same time.

Less Is More – Panel Consolidation

A common but more involved method for optimizing outside counsel spend is building a preferred law firm panel program. The idea behind a panel program is that you consolidate the outside counsel you work with and choose a smaller number of firms to give panel membership to. You then send the majority of your legal work to these preferred firms and in return the firms give you better terms, whether that means alternative fee arrangements, locked rate increases or volume discounts. Additionally, it can strengthen your team’s relationship with the chosen firms and improve the quality of work because the firms become more familiar with your company and how it operates.

One legal operations professional we talked to did a panel consolidation project and reduced the number of firms their company regularly worked with by almost 90%—from around 700 to about seven. Not only did this drive efficiency by making it easier for the legal team to manage outside counsel work (fewer firms to onboard, communicate with, review invoices for, etc., means less time spent on administrative work) but it also drove spending down through better negotiations with those firms. Another company we talked to found great success by asking panel firms to agree to locked rates for a determined time frame, which was incredibly helpful for budgeting as the company could depend on known rates for the projects those firms took on.

Building a panel is a huge change management project that requires a lot of time and attention. And it’s not always the right solution for every company, particularly companies with smaller outside counsel needs. If it’s something your legal department is curious about exploring, here are a few tips that the legal operations professionals with panel experience shared. 

Quick Tips for Panel Success

• Consolidate, but not too much. If you make your panel too small you could lose bargaining power and actually see your rates increase.
• Review your panel on a regular schedule. Usually yearly, most companies running successful panel programs review the cost, performance, timeliness, and other aspects of their panel firms on a regular basis to decide to continue with current panel members and/or bring new firms on.
• Utilize it consistently. The more you allow “step-outs” to your panel firm, the less useful the data you collect will be. For companies that use it consistently, panel data gives a great window into legal spend and aid budgeting and forecasting processes.
• Consider a hybrid panel. For companies with large regional needs or lots of niche work, a panel might not make sense at first glance. But you still may be able to create a panel of firms for high-profile, “bet-the-company” cases and make a significant impact on those costly matters.

For more cost-savings best practices, strategies and insights, download the white paper, “Turning Legal Into a Value Center.”