February 22, 2024

 Sarah Wilson-Ward

outside counsel law firms legal spend legal operations law department

What do law departments and their outside law firms have in common? These days, the unpleasant answer is ‘tough times’.

Law departments face a five-faceted conundrum: a volatile economic environment, intensifying management pressure to deliver greater business value and better ROI on legal spend, stagnant or shrinking departmental budgets, increasing compliance and regulatory duties, and outside counsel rate hikes.

Meanwhile, the majority of law firms have to wrestle with maintaining (and, ideally, growing) profits despite record overheads (looking at you, ‘Salary Wars’), high utilisation rates, stiff competition, and scant opportunities to increase billing rates.

Zero-Sum vs. Reciprocal Gains

Who can blame law departments and law firms for viewing the client-counsel relationship as zero-sum? Rate increases exacerbate the pressure on law departments, and cutting back on outside counsel spend decreases law firm revenue.

Yet, there is a way for everyone to win.

Reciprocal gains begin with understanding that individuals in both types of organisations need tangible achievements to showcase to their leadership. For law department professionals, these include demonstrating a strategic and disciplined approach to spend. For law firm lawyers, increased efficiency, reduced non-billable time, and write-offs, along with growing the relationship and portfolio of work with a client, can pave the way for promotion.

Helping Each Other Win

These key objectives map to specific actions one entity can take to benefit its counterpart. For example, law departments help outside counsel by:

• Implementing an RFP process that accurately scopes matters and describes the work in adequate detail.
• Providing clear and streamlined billing guidelines that help their law firms achieve ‘right-first-time’ billing.
• Establishing set points in the year for two-way feedback sessions so law firms can focus their efforts and communicate openly about any blocks that your department contributes to.

Law firms also have ways to benefit law department clients, such as:

• Increasing transparency by providing robust and up-to-date information about legal spend and progress against budget, thereby empowering your instructing lawyers to vouch for your spend in their internal meetings (and to their boss)
• Conducting an end-to-end analysis of your billing processes. Reducing the administrative burden on your fee-earning team decreases the risk of attrition – meaning less distraction for your team and the client’s. And a happy team is a sticky team.
• Establishing peer-to-peer meetings between your wider teams (billing staff, paralegals, etc.) – allowing them to connect directly creates efficiencies across the board. It also opens the door to new and innovative ways of working.

Reconceiving the Client-Firm Dynamic

Shifting from a zero-sum paradigm to a win-win reality begins with leaders within both types of organisations adopting a new conception of the attorney-client relationship.

The measure of success for law departments has grown far beyond the quality of their delivery of legal work. Law departments must now demonstrate full alignment with business strategy, including their vendor and spend management processes. Openness to improvement and communicating openly and clearly about requirements will always put downward pressure on spend.

Law firms that recognise this need on the part of their clients and contribute to their success not only improve a firm’s chances of being engaged in the future but also perform more efficiently, increasing their effective hourly rate across the time spent with that client.

Law departments and law firms that turn their focus inward and look at what they can do to improve efficiency for each other will reap tremendous benefits – and not at the other’s expense.