Corporate Law Departments are Using Metrics to Manage Spending on Outside Counsel

For corporate law departments, controlling the cost of outside legal counsel begins with detailed financial and operational metrics that reveal opportunities to improve performance, support sound decisions, and enable innovation.

That’s the message that legal operations specialists from Stryker and Kayak share in a new, on-demand webinar from Thomson Reuters, “Using Metrics to Guide Stronger Outside Counsel Management Practice.”

The webinar, available on demand, addresses:

• Metrics that legal departments can use to manage their spending on law firm services.
• Software solutions that automate the capture, tracking, benchmarking, and analysis of law departments’ financial data.
• How law departments can reduce outside counsel spend by identifying trends and outliers, enforcing billing guidelines, and negotiating lower rates.
• How to ascertain when it’s advantageous to change firms, pursue discounts, propose alternative fee arrangements, or bring work in house.

Charting a course

Cost control is a critical issue for corporate law departments today. In the Thomson Reuters 2021 State of the Corporate Law Departments report, 58% of survey respondents reported a surge in work demands and nearly 30% had to reduce spending as their companies navigated the pandemic. “Legal budgets are likely to be further stretched,” the study noted, “as business as usual comes back to full force alongside rising work levels coming out of the dynamic COVID-19 environment and related disputes.”

The webinar frames law departments’ quest for operational sophistication as a five-stage process from chaotic to predictive:

Chaotic: Legal invoices are maintained outside the department’s e-billing system and the legal team lacks the ability to report on spending in a consistent manner.

Reactive: E-billing is used effectively and able to generate basic spending reports.

Proactive: The legal operations team has established billing guidelines, invoice audits, and processes for managing timekeepers and matters.

Optimized: This stage is characterized by centralized management of rates, use of RFPs and competitive bids to set rates, internal processes focused on driving down costs, and advanced reporting on law department performance.

Predictive: Operations actively manages matters in collaboration with attorneys and outside counsel. Also, sophisticated financial data management and metrics deliver detailed matter budgets, performance benchmarks, and budget predictability.

“This is definitely a journey,” Ryan Albregts, senior legal operations manager for Stryker, says during the webinar. “This past year pushed us and forced us into more progressive ways to . . . control our spend.” These ways include the use of RFPs and competitive bids to select law firms and set rates, pursuit of discounts, and improved capabilities to forecast spending and report on law firm performance.

Data-driven decisions

None of this is possible without dependable underlying data from a software solution like Legal Tracker that manages e-billing, matter management, and performance analytics — while also empowering legal ops teams to create and report on essential metrics.

The webinar, citing the Thomson Reuters Legal Department Operations Index 2020 report, notes that the top five target spend metrics used by corporate legal departments comprise total spend by law firm, total spend by matter type, total spend by practice group, total spend by business unit, and forecasted versus actual spend.

“I can 100% confirm these reports are the most commonly used,” Meghan Fish, legal operations coordinator for Kayak, says during the webinar. “They are a great starting point for conversations with counsel.” These core metrics inform decisions about whether to reallocate work from one firm to another, consolidate work with fewer firms, or shift work to in-house lawyers, Fish explains — in 2020, Kayak began using Legal Tracker to centralize spend analysis across its business units and brands.

While these five metrics are a great starting place, they are not enough for a law department to become an optimized or predictive operation, however. To reach that level, Stryker digs deeper to assess matter-specific spend, as well as internal spending, in order to gauge the success of their cost control measures. During the height of the pandemic, for example, Stryker asked its law firms to provide discounts of 10% to 20%, to focus solely on essential work and to accept slower payment of invoices to help improve the company’s cashflow.

“We report in detail on litigation spend by firm, by hours, and we really look at the trends. We could clearly see the impact those (initiatives) were having on the spend,” Albregts says. Importantly, they also could easily share that information with the Stryker finance department and company leadership.

Fish says Kayak evaluates high-spend matters to identify those in which spending is accelerating or surpassing established budgets. “That has led to big changes — terminating firms that had a really high spend, being able to compare similar firms in particular practice areas,” and switching from one to another when costs justified a change, she says.

Kayak also has automated the review of invoices to find errors, flag those that deviate from billing guidelines, and surface timekeeper rates that were not pre-approved. The software can automatically reduce or reject invoices that violate guidelines. “That has helped to rein in spend,” Fish says. “Some of these things may seem small, but they add up over time as hours pile up.”

Advancing diversity and inclusion

Both Stryker and Kayak analyze outside counsel staffing data and metrics to ensure the law firms they work reflect their companies’ commitment to diversity and inclusion, the legal operations specialists said.

Stryker has added language to its billing guidelines that expresses its commitment to diversity and inclusion and its expectation that the law firms it engages share that commitment, Albregts said. The company details this requirement in its RFPs and captures law firm staffing data in Legal Tracker in order to confirm and enforce those expectations. “That has been an important factor in our sourcing decisions and it has impacted who we’ve selected on RFPs,” he said.

Looking forward

The ability to track sophisticated metrics and conduct deep-dive analyses enables the Kayak law department to be more predictive in budget setting, Fish says, and to rely less on past performance as a baseline for future needs.

At Stryker, the legal department holds quarterly check-ins with the finance department to reconcile spending, address financial challenges as they arise, and identify opportunities to contain costs and improve performance. None of this would be possible without sophisticated, automated financial data management and metrics.

“Going forward, a strategic priority in legal and compliance is innovation — automated workflows and process automation to increase efficiencies for legal ops and for our attorneys,” Albregts says.

For the Kayak law department, Fish states, the future will focus on strict enforcement of billing guidelines, more automated and streamlined workflow processes, expanded use of automated invoice auditing and reduce-or-reject functionality, and the collection of law firm staffing demographics to ensure teams assigned to Kayak matters reflect the company’s commitment to diversity and inclusion.

For both firms, sophisticated metrics provide a clear picture of their law firm spending and a clear path to exemplary cost management and service delivery.