Reduce Legal Spending
A Survey Of In-House Attorneys
A special report on how in-house counsel currently manage outside counsel spending, their understanding of the tools and services now available for legal spending management and their plans for the future.
About the Survey
Just a few years ago, the only way for legal departments to reduce spending on outside law firms was for in-house counsel to directly question their outside firms, resulting in conversations that were often uncomfortable for both participants.
Beyond the awkwardness of the topic, line-by-line review of legal bills can be extremely difficult (if even possible) for already overburdened in-house lawyers. Even when time can be found to conduct bill reviews, legal departments often lack sufficient data to evaluate the reasonableness of fees for a given project or task.
For these reasons, the sponsors of this survey thought the time was right to launch an annual “Reducing Legal Spending” survey.
Since 2020 is the inaugural year for our survey, we focused on baseline issues, including the following key topics:
How do in-house counsel currently manage the reduction of legal spending (if at all)?
What is the current state of knowledge among in-house counsel regarding available tools and procedures for reducing legal spending?
What are the plans and hopes of in-house counsel regarding how they will reduce legal spending in the future?
Our goals in this white paper are:
(1) to share with the legal community an interesting summary of what we learned in this survey; (2) to provide practical advice that in-house counsel can use right now to reduce their companies’ legal spending; and (3) to give outside counsel useful data regarding their clients’ attitudes and concerns about legal spending.
Survey Demographics
There was significant interest among in-house counsel in our inaugural Reducing Legal Spending survey, which garnered 167 responses along with dozens of insightful anecdotal observations.
The survey drew from in-house counsel in a wide variety of industries:
Which of the following best describes the principal industry of your organization?
Our survey was balanced in terms of company size, including numerous companies with 2,500 or more employees (36.5%), 100 - 2,499 employees (37.1%) and fewer than 100 employees (26.4%).
Respondents came from companies with a broad range of outside legal spending:
What is your approximate annual spending on outside counsel? (Your best estimate is fine).
Executive Summary
5 Key Takeaways
1. Nearly Three-Quarters of In-House Counsel Are “Concerned” About Overspending on Outside Counsel and More Than a Quarter of all In-House Counsel surveyed are “Very” Concerned or “Extremely Concerned” About Overspending
Our questions about overspending clearly touched a nerve with many in-house counsel (Q6).
Not only did nearly three-quarters (73%) of respondents have at least some concern that their company was overspending on outside counsel, more than one-quarter (26%) of in-house counsel were “very concerned” or “extremely concerned” about overspending.
Respondents' comments underscored these concerns. Typical comments included:
“We are not getting value for money”
“[We’re] paying a lot, not getting closure”
“[Outside firms take] excessive time to complete tasks”
These findings should ring some alarm bells among General Counsel and other legal department managers. Statistically speaking, there is a very high likelihood that your outside counsel are not delivering sufficient value for your outside legal spending. After all, in-house counsel are part of a business, and any business should be concerned when a significant segment of vendors is not delivering value.
2. Over One-Half of Legal Departments Are Prioritizing Reducing Legal Spending as a 2020 Initiative
If you have not targeted the reduction of legal spending as a priority in 2020, you might want to consider joining more than half of your peers who are prioritizing this issue.
Our survey found that over one-half (55%) of in-house counsel surveyed report that reducing outside legal spending is a priority this year (Q7).
Typical comments included:
“We are not getting value for money”
3. Nearly Three-Quarters of In-House Counsel Would Like to Track Outside Counsel Spending Metrics, But Most Currently Lack Tools to Do So
A clear takeaway for in-house counsel is that they should educate themselves on the solutions currently available for managing and reducing outside legal spending. Working in a department traditionally viewed as a “cost center,” in-house counsel should also consider how appreciative their management might be if the legal department came up with new ways to save money, rather than spend money.
A nice question to ponder: how might your legal department use the resulting savings?
Nearly three-quarters (72%) of in-house counsel surveyed believe that percentage and dollar reductions in outside legal spending would be a valuable metric for their legal department to track (Q8).
However, our follow-up questions revealed that the great majority (73%) of legal departments are not in a position to do so, since they lack any system for managing outside counsel spending (Q9).
4. Among In-House Counsel Who Do Use Legal Billing Software, Four-Fifths Find The Tools At Least Somewhat Effective in Reducing Legal Spending — Though Significant Caveats and Concerns Remain
Even more concerning, a significant minority (21%) complain that their legal billing management software is simply “not effective” — in significant part due to the fact that the software generates too many “false positives” (apparent billing errors which turn out to be typos or only minor discrepancies) while simultaneously failing to catch significant overbilling issues (“false negatives”) by outside counsel.
A key takeaway here is that while legal departments should, by all means, research available tools to manage outside legal spending, they should carefully evaluate the available products and services — since our survey results show clearly that these solutions are not all created equal and, unfortunately, some even seem to raise more issues than they resolve.
Zeroing in on the relative minority of legal departments (24%) which do use legal billing software, fully four-fifths (80%) of in-house counsel find the software to be at least “somewhat” effective in reducing legal spending (Q10).
This is an encouraging sign and an indication that most, if not all, legal department managers should investigate the software billing tools that are available.
However, digging just a bit deeper makes it clear that the experience of in-house lawyers with legal billing software is a decidedly mixed bag. Barely 1 in 10 (11%) in-house lawyers who use legal billing software find theirs to be “very” effective, while a large majority (68%) find them only “somewhat” effective.
A nice question to ponder:
How might your legal department use the resulting savings?
5. Seven out of Ten In-House Counsel Would Welcome a Third-Party Legal Bill Review Solution
70% of in-house counsel (among those who do not already use such a service) would welcome a third-party bill review vendor, so long as the service would not significantly impact their legal budget and would ease the burden on their in-house legal team (Q14).
These findings are summarized in this pie chart:
If you do not use a third party legal bill review vendor, how do you feel about the possibility? (Select the choice that fits best)
One question the authors sometimes hear from in-house counsel is “would introducing a third-party legal bill review solution harm our relationship with outside counsel?” Encouragingly, our survey findings indicate that the vast majority of your in-house colleagues do not share this concern. In fact, over four-fifths of in-house counsel are not concerned about the potential relationship impact and nearly 50% even believe that their outside firms will “come to accept the idea” — especially if legal bill review would reassure clients that they are getting real value for their legal spending (Q15).
Based on these survey findings, the key takeaways are that:
(1) in-house counsel should not be unduly worried about the impact of legal bill review services on their relationship with outside law firms; and
(2) in-house counsel should be focused on evaluating the specific benefits such services can provide (in terms of both “hard cost” savings via lower legal bills, and “soft cost” savings in reducing in-house counsel stress and time spent reviewing bills).
DETAILED REVIEW OF SURVEY
In 2020, Overspending on Outside Counsel is a Major Concern Among Legal Departments
73%
Of survey respondents have at least some concern that they over overspending on outside counsel
a. Nearly Three-Quarters of In-House Counsel Are “Concerned” About Overspending on Outside Counsel and Many are Highly Concerned
Our survey reveals that concerns about overspending on outside counsel are, quite frankly, rampant within the in-house legal community. As the following chart shows, almost three-quarters (73%) of survey respondents have at least some concern that they over overspending on outside counsel, including 20% who are “Very Concerned” and 6% who are “Extremely Concerned”:
How concerned are you that your company is overspending on outside legal services?
The qualitative feedback from our respondents highlights the anxiety in-house counsel have about overspending.
Samples of In-House Counsel Comments:
“I worry that we are getting overcharged for legal services.”
“We are provided with estimates … and the bills we get are a lot higher.”
“Assigning higher level folks matters that could be handled by a junior.”
“Billing for every little thing.”
“Lack of controls by outside law firms”
“Excessive time to complete tasks”
“We pay for advice we do not really need”
“We are not getting value for money”
“Spending a lot of money and not getting the quality / useful help”
“Overstaffing a matter”
“Hourly rates are too high”
“Unknown fees before work starts”
“Big Firm's dishonesty in billing”
"Time based billing is sometimes not worth the services”
“Are we getting value for the amount we spend?”
“Lack of visibility / control, duplication of efforts”
“Redundancy in efforts/time/issues (ie. multiple calls on same issues, bringing in new partners and having to re-cover fact patterns, etc)”
“Paying a lot, not getting closure”
“Lack of creativity in cost efficiencies for smaller matters”
“Lack of communication before work is begun”
“Hourly billing provides for a natural tension between client and attorneys”
“Paying a premium for services that could be done faster with internal resources”
“Over-inflated time”
“Not knowing potential range of costs up front”
“Are we getting value for the amount we spend?”
One respondent took the opportunity to unload a veritable laundry list of cost concerns:
“(a) Failure of [outside] counsel to take time to understand in house counsel's assessment of legal & business priorities;
(b) failure to quickly identify & raise w/ in house counsel all spotted issues/potential issues relevant to a given assignment and obtain (and adhere to) direction from in house counsel regarding which issues to pursue and which issues client is willing to assume risk before o/s counsel devotes excessive billable hours to issues client willing to risk or to issues that intrigue or interest outside counsel;
(c) failure to attend sufficiently and timely to assigned matters so as to avoid excessive staffing and billing when particular matter nears a crisis or conclusion.”
“The authors advise General Counsel and other legal department managers to thoroughly evaluate what can be done”
b. Fear of Over Spending (“FOOS”): Key Takeaways for In-House Counsel
If you are an in-house lawyer, this survey should leave no doubt that the great majority of your in-house peers, independent of company size and industry, have major concerns about overbilling by outside law firms.
Our respondents' comments are focused on three main culprits:
Inefficiency (possibly even dishonesty) resulting in law firms charging too much for too little;
Lack of flexibility in staffing and billing practices (resulting in unnecessary and redundant billable hours); and
Law firms’ continuing failure to provide “actionable” advice to their clients.
The authors advise General Counsel and other legal department managers to thoroughly evaluate what can be done with regard to their internal processes, their relationships with law firms, and the opportunities for third party tools and services to help calm the “FOOS” (fear of over-spending) that, statistically speaking, most of your in-house legal staff are experiencing right now.
Those legal departments which do take the time to perform such an evaluation are likely to be rewarded both in terms of “hard cost” savings (reduced legal spending) and “soft cost” savings (reduced stress and reduced busy work by in-house legal staff).
55% of Legal Departments Are Targeting Reduction of Outside Legal Spending as a Priority in 2020
Over half of the in-house counsel surveyed (55%) work in legal departments which are targeting the reduction of spending on outside counsel as a key initiative in 2020 (Q7).
This finding tends to speak for itself, but what the authors find most hopeful and important about the finding is that more than half of in-house legal departments are acting on the near-pervasive anxiety around overspending discussed in the previous section.
Our only question is: why not 100%? What’s even more interesting is that more than 7 out of 10 in-house counsel are concerned about overspending with outside counsel, but only 5 out 10 are looking into the issue of legal overbilling in 2020.
When this finding is broken out by company size (number of employees), it can be seen that larger companies are significantly more likely to be prioritizing the reduction of outside legal spending:
59%
5,000+ Employees
60%
500 - 4,999
41%
Up to 499 Employees
A roughly similar trend is found when the data is broken out by annual legal department spending on outside counsel:
40%
Up to $1 Million
53%
Between $10 and $20 Million
65%
Between $1 and $5 Million
68%
Over $20 Million
80%
Between $5 and $10 Million
Interestingly, it is the companies with between $5 and $10 million in outside legal spending that seem to be most focused on reducing legal spending in 2020.
The bottom line, in the authors’ view: any cost savings in outside counsel spending are “found money” for your legal department, money which we presume your department would happily spend on something else. So, if your legal department is one of the 45% which is not prioritizing the reduction of outside legal spending, we have to ask:
Perhaps companies in this bracket are spending enough on outside law firms that alarms are being raised about spending, but remain small enough that members of the legal department are “feeling the pain” of overspending more directly than their peers at larger departments where the pain is more “spread around.”
What are you waiting for, an engraved invitation?
Legal Departments Want Effective Legal Spend Management Solutions, But Implementation Lags Far Behind
Perhaps unsurprisingly in view of the prevalent anxiety around spending, our survey found that over 70% of in-house counsel believe that percentage and dollar reductions in monthly outside counsel spending would be a valuable metric for their legal department to track:
"There is a perception among smaller companies that the effort put into tracking such metrics would not be [worthwhile]"
We were very interested to learn that there is a real spike in interest in tracking outside counsel spending metrics within companies spending between $5 and $20 million per year on outside counsel. Perhaps there is a perception among smaller companies that the effort put into tracking such metrics would not be worth whatever time and effort might be needed to implement such tracking. In-house counsel at larger companies (with over $20 million in annual outside counsel spending) might feel “less personal” about their department’s expenditures on outside counsel, as compared to those in smaller, possibly tighter-knit legal departments.
As revealed by follow-up questions, the clear desire for legal spending metrics has generally not resulted in actual use of such metrics. In fact, we were surprised to find that about three-quarters (73% - Q9) of legal departments have no system at all for managing outside counsel spending.
An important takeaway for in-house counsel is that they should educate themselves on the solutions available for managing and reducing outside legal spending. Working in a department traditionally viewed as a “cost center,” in-house counsel should also consider how appreciative their management might be if they come up with a way for the legal department to save money, rather than spend money.
A nice question to ponder:
How might your legal department use the resulting savings?
Legal Billing Software is Partially Effective in Reducing Outside Counsel Spending
As we have already seen, most legal departments simply have no legal spending management system at all
Among the relatively few legal departments which do use legal billing management software, 9 out of 10 in-house counsel find it “not effective” or only “somewhat effective” in reducing their monthly spending on outside counsel.
Presumably, most of these departments are reviewing outside counsel bills the old-fashioned way, by hand (or worse, not reviewing them at all).
“The experience of in-house lawyers with legal billing management tools is a decidedly mixed bag”
Looking a bit deeper into the results, it becomes clear that the experience of in-house lawyers with legal billing software is a decidedly mixed bag. Within the minority of legal departments which do use legal billing software, only 10% find such tools “very” effective, while 68% find them only “somewhat” effective. Those falling into the latter category apparently experience significant “soft costs” in using their spending management systems — especially the drain on employees’ time spent analyzing the output of the software and individually negotiating bill reductions with each outside law firm.
Moreover, a significant minority (21%) complain that their legal billing management software is simply “not effective” at all — in significant part due to the fact that the software generates too many “false positives” (apparent billing errors which turn out to be typos or only minor discrepancies) while failing to catch significant overbilling issues by outside counsel (“false negatives”).
"To end on a high note, it bears repeating that the “lucky 10%” who find their spending management system “very effective” reported that they “consistently obtain reductions” in outside counsel spending. This is intriguing, as it suggests that many other legal departments could also reduce spending if only they had an effective tool to identify such savings opportunities."
The lesson here is that, while legal billing software clearly has some potential value to in-house legal departments, as of today this potential value rarely translates into actual, measurable reductions in outside legal spending. In-house departments should carefully evaluate the available products and services — since our survey results show very clearly that all of these systems are definitely not created equal and some tools, unfortunately, appear to raise more issues than they resolve.
Legal Departments Would Welcome a Different Kind of Legal Spending Management Solution That is Cost-Effective and Has a Low Impact on In-House Staff
70%
are "intrigued" (34%) or "interested"(29%) or even "love the idea" (6%)
a. Legal Departments Clearly Want Some Kind of Legal Billing Management Solution
Perhaps the most intriguing finding in our survey is one that looks towards the future — hopefully a future in which most legal departments are relieved of the widespread “billing anxiety” which our earlier survey results found is so prevalent among in-house counsel today.
Namely, we found that a sizable majority (70%) of those legal departments who do not yet use a third party bill review solution are “intrigued” (34%) or “interested” (29%) or even “love the idea” (6%) of a legal bill reviewing solution that would: (a) achieve their objective of reducing legal billing, while also (b) avoid both “hard costs” (e.g., software licensing fees) and “soft costs” (e.g., lost time analyzing software output and negotiating with outside counsel, and concerns about the resulting strain on the in-house / outside counsel relationship).
“[It’s] Hard to determine if there is over billing even if you review entries carefully.”
b. Potential Concern With Legal Software Management Systems: Drain on In-House Counsel Time Without Clear “ROI”
One concern the authors sometimes hear from in-house counsel in connection with legal bill review initiatives is whether such initiatives might be burdensome on in-house counsel, requiring them to spend even more of their precious time reviewing bills, while possibly not delivering a clear “return on investment” for the time thus spent.
In the words of one survey respondent, it’s “[h]ard to determine if there is over billing even if you review entries carefully.”
We were intrigued about this concern, so in our study we looked deeper into the cause of why companies do not always carefully review legal bills and we found that a dominant factor was time (48% of in-house counsel were “too busy” to review bills carefully), while another significant factor was trust of outside counsel (31% of in-house counsel thought they could trust their outside counsel to review the bills themselves before issuing them), along with some lesser factors (23% thought that “standard discounts” helped insure that bills were reasonable, while 4% were “uncomfortable” challenging their outside counsel on the reasonableness of bills):
If there are times your company does not carefully review legal bills, what are the reasons why? (Check all that apply.)
These results show that in-house counsel time is the #1 concern for legal departments in relation to legal bill management. Therefore, the authors recommend that in-house legal departments, in evaluating available legal spending management tools, should prioritize those solutions that minimize impact on in-house counsel time.
The second biggest reason why companies don’t carefully review their bills is because they trust their outside counsel. However, trusting your billing attorney doesn’t make them incapable of making clerical errors or time entry mistakes. Moreover, in complex (and costly) legal matters, there are often numerous time entries from associate attorneys, paralegals and administrators with whom you might not have a close relationship or possibly any relationship (and who might feel pressure to bill a lot of hours).
Another significant minority (23%) seek comfort in their “standard discounts” as a reason not to review their legal bills carefully. Discounts are always welcome — but with the hourly time billing model of most law firms, it doesn’t take much in terms of billing errors (or overzealous associates chasing quotas) to exceed that “standard discount” buffer.
“They trust their outside counsel”
“Outside counsel who is not willing to discuss a reduction in bills is a counsel, absent some compelling reason, which should be an easy candidate for elimination in future. There is a lot of talent out there.”
c. Another Potential Concern: Strain on Relationship With Outside Counsel
Another concern the authors have occasionally heard from in-house counsel is the question of whether adopting a legal bill review solution might harm the relationship with outside counsel by introducing a third party into the relationship. However, our survey findings indicate that most in-house counsel simply do not share this concern.
In fact, 8 out of 10 in-house counsel are not concerned about the potential relationship impact and nearly half believe their outside firms will “come to accept the idea” especially if it would make their clients more confident that they are getting real value for their outside counsel spending:
How do you think your outside law firms would react if you did retain a third-party legal bill review service?
While a relatively small minority of respondents (8%) offered the view that such a third party service could “ruin” their relationship with outside counsel, the authors would respectfully ask the following question: why would a law firm be so averse to a second opinion regarding its bills that it would risk destroying a client relationship? Maybe clients would be better off hiring firms that are more confident that their bills will withstand scrutiny. Or, as one of our respondents puts it, rather matter-of-factly: “Outside counsel who is not willing to discuss a reduction in bills is a counsel, absent some compelling reason, which should be an easy candidate for elimination in the future. There is a lot of talent out there.”
This is what we found when we broke out the Question 15 data by annual outside counsel spend (percentage not concerned with damage to outside counsel relationship):
Up to $1 Million: 77%
Between $1 and $5 Million: 77%
Between $5 and $10 Million: 77%
Between $10 and $20 Million: 87%
Over $20 Million: 89%
In general, then, companies with larger legal spending had less of a concern that the use of a third party legal bill review solution would harm the relationship with outside counsel.
In any case, based on our survey findings, it appears that in-house counsel should not be unduly worried about the impact of legal bill review services on their relationship with outside law firms — and instead should be focused on evaluating the specific benefits such services can provide (in terms of both “hard costs” savings via lower outside counsel spending, and “soft costs” savings in reducing in-house counsel time and stress).
We’ll let one of our respondents have the last word on this topic:
“I actually think most [outside] counsel would welcome this in the long run.”
Another concern the authors have occasionally heard from in-house counsel is the question of whether adopting a legal bill review solution might harm the relationship with outside counsel by introducing a third party into the relationship. However, our survey findings indicate that most in-house counsel simply do not share this concern.
How do you think your outside law firms would react if you did retain a third-party legal bill review service?
Future Plans
WHERE DO WE GO FROM HERE?
With 2020 and the start of a new decade, it’s a great time for legal departments to re-assess their traditional approaches to managing outside counsel spending.
Our survey findings demonstrate that there is a strong desire within legal departments to measure, track and reduce outside legal spending. Fortunately, our findings also show that third party solutions have emerged to address this traditionally thorny issue, and that these solutions are, generally speaking, effective in reducing legal spending.
In planning for the future of their legal departments with regard to outside counsel spending, the authors of this survey recommend the following practical approach:
01
All legal departments with significant outside counsel spending definitely should have a plan that includes having actual experienced attorneys analyze each time entry on all legal bills and discuss the findings directly with their outside law firms.
02
In conducting their evaluations, legal departments should compare the out-of-pocket costs of various legal billing management solutions and understand the true ROI based on savings on staff time and outside counsel spending.
03
Legal departments do not need to be overly concerned with potential objections from outside law firms — law firms who are delivering high quality and cost-effective services have little to fear from this type of innovation and those are the firms legal departments should be most interested in working with.
04
Legal departments should also be very attuned to the “soft” costs of alternative legal billing solutions:
Does a solution put a time burden on in-house counsel? Does a solution find real cost savings, or merely pick up on typos and discrepancies with attorney entries based on predefined criteria? Does a solution free in-house counsel from wrangling with outside counsel over bills, or just add one more item to bicker about?
About the Author
Chris Colvin
Chris Colvin has an Aerospace Engineering degree from Princeton University, a J.D. degree from George Washington University, and a Cybersecurity Certification from Harvard University.
Chris first worked as a software engineer for IBM and has been a practicing lawyer for nearly 25 years. Consistent with his background, Chris works at the intersection of law and technology, both as a first-chair IP litigator (having handled dozens of significant patent, trade secret, trademark, copyright, and false advertising cases) and as a legal technology entrepreneur (having held General Counsel and other executive positions with various startup companies).
About the Sponsors
In The House
In The House is a membership community for General Counsel and other in-house attorneys. In The House is on a mission to empower in-house counsel to succeed by providing education, thought leadership, technology tools, peer networking opportunities and more.
Legal Bill Review
LegalBillReview.com helps in-house legal teams save time, reduce legal expenses, and improve attorney relationships. Our team of experienced attorneys identify excessive charges and billing errors, then cooperatively work with outside counsel to correct the bill.