5.


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

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).

70%
are "intrigued" (34%) or "interested"(29%) or even "love the idea" (6%)
“[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”

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?

“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.”

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.”

“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?

Up next:

Future Plans — Where Do We Go From Here?