Lower-cost in-house legal departments spend three times more on alternative legal services providers and twice as much on training, research has found.
Lower-cost departments also do a higher share of their work in-house instead of relying on external law firms – 55% compared to 47% for higher-cost departments.
A report from research and advisory firm Gartner said: “Cost-effective legal departments spend more than 6% of their outside spend on alternative legal service providers, compared with higher-cost legal departments, who spend less than 2%.
“Alternative legal service providers can be used for tasks that are high volume and less complex, such as e-discovery, contract management and document review.”
Instead of simply relying on ad hoc savings, such as delaying technology purchases and reducing staff numbers, lower-cost legal departments made “sustainable savings”, meaning that “their investments, not their cuts” differentiated them.
“Training and development help increase personnel productivity without increasing headcount – leading to a decrease in spend on other items, such as expert or outside support.”
Researchers said lower-cost legal departments invested twice as much in training and development – 2% compared to 1% for higher-cost departments.
Gartner’s survey of more than 140 companies around the world found that cost-effective departments spent a higher proportion of their budgets in-house – 55% compared to 47% for higher-cost departments.
“Instead of relying on outside counsel to execute work, lower-cost corporate law departments identify opportunities to shift work in-house, where the implied billing rate is 59% of a law firm associate’s billing rate and 40% of a law firm partner’s rate.”
In-house lawyers also saved money by standardising work, with Gartner calculating that about 63% of work owned by in-house legal teams could be “codified and standardised to some degree”.
“Low-cost legal departments work to address common tasks with a set of repeatable decision rules and criteria, which reduces the amount of lawyer input required on a matter.
“This approach provides a significant opportunity to offload low-value work (e.g., standard contract reviews, non-disclosure agreements) to business partners and other corporate functions.”
Lower-cost departments also worked with a smaller network of external advisers that their higher-cost colleagues, working with 55% fewer firms than the median legal department.
Michael Mayfield, research director of Gartner’s legal and compliance practice, said: “Bringing strategic, complex work in-house can actually improve the quality of legal services because your in-house staff are more familiar with business operations.
“Having a staff member that is an informed, ‘go-to’ contact for a strategic matter can help build stronger relationships with your business clients.
“In order to take advantage of the cost savings by bringing work in-house, general counsel also needs to invest in the right areas to equip their teams to be successful.”
He said this was most clearly on display when looking at the differential in training spend.
“This approach also allows legal departments to negotiate lower hourly rates and alternative fee arrangements in exchange for work volume (e.g through volume discounts), even if law firm rates are increasing overall.”