Blog Post

Maintaining Profitability Through Legal Spend Analysis

August 13, 2020

According to Gartner research, more than two-thirds of legal and compliance leaders are struggling with their workload due to the disruptions caused by the COVID-19 pandemic and economic uncertainty. In order to stay up to date on crucial work, in-house counsels are increasingly turning to external experts to supplement their teams.

There’s nothing inherently wrong with this — on the contrary, third-party support is so often the key to a successful legal endeavor. But managing what services you purchase and how your external support provides those services is essential to managing cost. In fact, that same Gartner research revealed that at least 70 percent of legal leaders were overspending on outside legal support.

It can seem like in-house legal departments are caught between a rock and a hard place; either take on an untenable workload that could be better handled externally, or drown in costs. Identifying a way out of this circumstance is exactly what legal spend analysis was made for.

What is a legal spend analysis?

It may seem counterintuitive to bring in an outside expert to help keep your organization’s outside legal spending under control, but consulting with a legal spend analyst can have a big impact. Simply put, legal spend analysis consists of a comprehensive assessment of legal departments’ expenditure on external legal service providers.

A legal spend analyst might audit your external providers, conduct in-depth assessments of invoices, review historical data, develop reports and more in order to provide actionable advice on how you can reduce your legal spend without sacrificing valuable external services. In fact, a legal spend analysis can often empower organizations to gain more value from their external legal service providers.

Naturally, the exact outcome of a given legal spend analysis will vary by organization. That being said, in-house counsels can expect to receive much-needed answers to common questions after consulting with a legal spend analyst.

1. Who are your key legal service providers?

As your organization grows larger over time and develops different legal needs and functions, it’s natural for a small galaxy of external legal service providers to accumulate.

It’s an intuitive conclusion that these different providers have overlapping services. A well-executed legal spend analysis can identify which providers offer the most wide-ranging, highest quality services, enabling you to condense down to just these essential providers.

In terms of profitability, this has two large impacts:

  1. You’ll achieve economies of scale by consolidating your legal service providers.
  2. You’ll be responsible for more of an individual service provider’s business — and thus you’ll have more leverage when negotiating for tailored service.

This second point, in particular, can result in significant efficiencies. You’ll be better able to negotiate how your external support goes about providing their services, how they format their invoices, what they can and cannot bill for — and other small changes that result in a more cost-effective relationship.

2. Can your providers delegate work more efficiently?

During an audit, a legal spend analysis might uncover that your external legal service providers aren’t being as efficient as they could be. There are a lot of tasks that don’t require a high degree of legal skill — and therefore don’t merit a law firm’s high hourly rates.

Tasks like due diligence and data room set-up for M&A deals or e-Discovery for litigation shouldn’t be billed at the same rate as the advanced strategic skills that your outsourcer went to law school to learn. A legal spend analysis can identify instances where a legal service provider could offer lower rates by outsourcing the tasks that don’t strictly fall under the umbrella of legal expertise.

Not only does outsourcing these tasks reduce the bill you owe your legal service provider, but in many cases, it will result in better outcomes as well. e-Discovery, for example, can be a highly technical task; outsourcing that work to a specialist often results in a faster process that uncovers more opportunity.

Some external law firms may be resistant to this idea initially, as it reduces their control over the matter and the amount they can bill. However, if your organization has consolidated many of its external legal services to this provider, you’ll have an easier time asking them to outsource. Once they do, many law firms end up making legal outsourcing a permanent fixture of their services, as it saves on cost for themselves as well.

3. What tasks can actually be performed in-house?

There are some tasks that are simply better suited to be carried out in-house. These could depend on an intimate understanding of your organization, involve sensitive data, require collaboration with internal stakeholders and so on.

However, sometimes these tasks come in such high volumes that they must be outsourced to an external provider, even though your in-house team is far better suited to executing them.

In cases like these, a legal spend analysis can identify methods for bringing these tasks back under the purview of your in-house team. Often, legal departments offload high-volume tasks simply because they don’t have access to the tools they need to carry them out. This could occur because the legal department may have a technology-averse culture, or perhaps the IT department fails to understand legal’s particular needs — whatever the case, technology exists that can support high-volume legal work.

A notable example of this is contract management. Organizing and analyzing your organization’s contracts really should occur in-house, but this can often result in your in-house team slogging through a pile of documents numbering in the thousands. An effective legal spend analyst will be able to recommend contract management software that fits your organization’s individual needs, such as one that can sift through vast contract portfolios, identify similar contracts, perform context-aware smart searches and other functions that make it easier to manage this high-volume task.

Learn more

A legal spend analysis can uncover numerous different inefficiencies in an organization’s legal outsourcing strategy — too many to list here. To learn more about the kinds of outcomes you can expect from a legal spend analysis, watch our video case study on Anglo American, the world’s largest mining company. Through Exigent’s legal spend analysis, Anglo American reduced costs by more than 50 percent over six years.