What is legal spend management?

Legal spend management is the process of reviewing, tracking, analyzing, and reporting — on both in-house and outside legal costs — in a modern department. The legal operations team usually implements it as a law-department-specific software package. The goal is to increase efficiency and transparency within the legal department, keep track of and identify opportunities to reduce costs, and ultimately create spend management strategies on how to achieve long-term, sustainable savings.

Legal spend management has four main components:

1. Legal e-billing software. Replaces and automates paper billing and paper invoices from law firms. The range of legal e-billing spans from simple things like using a law firm portal to upload PDF or other electronic invoices to more sophisticated processes like using LEDES-formatted invoices from the law firm’s billing software, possibly with an artificial intelligence-assisted review and audit, to enforce outside counsel billing guidelines.
2. Law firm management. Supports enterprise procurement and sourcing processes but prioritizes law department needs, allowing law firms to be onboarded into enterprise vendor management and accounts payable systems. Successful legal spend management recognizes the unique elements in the relationship between in-house and outside counsel, including firm selection, diversity and inclusion, and volume discounts or alternative fee arrangements (AFAs).
3. Timekeeper rate management. Takes inventory and review of all timekeepers, their roles, law firms, legal matters, hours worked, agreed rates, and any proposed increases. Timekeeper rate management excels when paired with industry benchmark data or comparisons with peers, allowing legal operations teams to understand the going rate for a given legal practitioner with X years of experience in Y domain in Z location — all while considering expected outcomes and contrasting those same timekeeper rates across law firms of different sizes in different jurisdictions.
4. Legal spend reporting and analytics. Provides the ability to analyze corporate law department spend data. This type of analytics will help build general counsel dashboards, report legal budgets to stakeholders, support data-driven decision making, and export data to Excel, Power BI, or Tableau.

Legal spend management is a foundational building block for any enterprise legal management (ELM) strategy. To get started with ELM, most corporate legal departments rely on legal spend management software — both to save on outside counsel costs and to better track overall in-house costs and matters.

Do companies expect legal fees to go up?

According to the 2023 State of Corporate Law Departments Report from the Thomson Reuters Institute, at least one in three corporate law departments for global organizations with revenues of more than $1 billion project a rise in their legal spend. The growth rate varies significantly by region, with Asia leading all markets with a projected 51% increase and bookended by Canada with a projected 31% increase. By contrast, only 8% of global companies in Asia project a decrease in legal spend, while in Canada, slightly more organizations anticipate a drop in legal spend than a rise. In Australia, Mainland Europe, and the U.K., a larger share of companies projects a drop in spend.

What's more, the areas of regulatory, labor and employment, and disputes and litigation are expected to drive growth in legal spend. Understanding these trends and the sources of legal spend increases allows law department leaders to better manage their budgets and benchmark their spend to peer organizations.

How can companies reduce their legal spend?

To identify opportunities for effectively cutting costs without sacrificing the quality of legal service, companies need a comprehensive overview of their entire legal spend so they can provide predictable forecasts of their budget.

The most effective one-time reduction in legal spend typically comes from the transition from manual systems and processes to a legal spend management software package that helps automate financial workflows. The resulting better management of external legal spend will often allow enterprises to save as much as 15% of their total legal spend in the first year of implementation.

But there’s more. General counsel and legal operations teams are approaching legal spend management with multiple benefits in mind — all resulting in cost or resource reduction:

• Automate legal e-billing and legal invoice review. Automates the submission of legal invoices, simplifies legal invoice review and approval, and integrates with accounts payable systems for hands-free payment of legal invoices.
• Reduce legal spend and control law firm costs. Reviews legal invoices using artificial intelligence (AI), giving a clear view of how well each line item meets the billing guidelines set by your law department for your law firms. Timekeeper rate management helps provide an understanding of what you actually pay contrasted with what you should pay based on industry benchmarks, peer data, and historical data. Noncompliant invoices are automatically rejected.
• Comply with sourcing and procurement teams. Manages the administration and bureaucracy of sourcing and procurement compliance — from law firm onboarding to annual compliance work — so you can meet the needs of enterprise vendor management.
• Decide which legal work to perform with in-house counsel or outside counsel. Provides the legal data and reporting to support the critical data-driven decision of which work to perform in-house versus which to perform with outside counsel — including firm selection, volume discounts, alternative fee arrangements, timekeeper rate management, and matter budgeting.

A legal spend management software system helps with more than just cost savings — it’s the opportunity to spend more time doing legal work and less time managing it.

What are the benefits of legal spend management software?

Before general counsel invest in legal spend management software, they should consider the overall benefits for the company and identify their organization’s most serious problems. Some of the largest benefits of a spend management system are:

• Legal billing. Saves time and money with automated legal invoice workflows and auditing tools.
• Matter management. Keeps legal matter information located in an instantly searchable, unified repository.
• Reporting and analytics. Identifies what peer companies spend and proves the value of the legal department with real-time data.

How can data from legal spend management software help reduce legal spend?

With legal spend management software, legal departments can create detailed real-time reports, dashboards, and data to provide a comprehensive overview of the organization’s legal spend, budget, and allocation of legal work. This data gives business leaders the tools to:

• Measure performance, review spend, and budget appropriately. Shows the leadership team a 360-degree view of their corporate legal department’s spend, budget, and allocation of legal work so they can make precise, data-driven business decisions.
• Benchmark data and mitigate risk. Compares your organization against the highest-performing legal departments from around the world with over $150 billion in legal spend. Isolates specific types of work by spend, department and company size, type of work, rates by metro and classification, and firm performance by substantive law.

With a comprehensive overview, you can provide greater transparency into how both your in-house team and your outside law firms are performing — and how much value they are each providing to the organization.

How can your legal team reduce legal spend?

Introducing better legal spend management through a comprehensive software system is the first step to reducing your legal spend. To truly build a high-performing law department and deliver superior value, your legal operations team needs to look for technology solutions to help automate manual tasks and provide visibility into all aspects of a matter, from initial intake to final invoice.

The leading legal spend management solution, Legal Tracker, gives you comprehensive matter management, effortless e-billing, custom analytics, and complete integration with your existing software and systems — so you can start saving on your legal costs from day one!