Earlier this month, Wolters Kluwer ELM Solutions hosted a peer forum in Houston, bringing together legal operations professionals in the energy sector to discuss critical strategies for optimizing vendor management. Effective vendor management is essential for strengthening outside counsel relationships, controlling legal costs, and driving efficiency.
The ELM Solutions team shared our paradigm that we have seen form the basis of a successful vendor management program. Our approach has three core phases: engage, enforce, and examine.
Engage: Laying the groundwork for effective law firm relationships
Engaging outside counsel is not a challenge with a one-size-fits-all solution. Legal departments must tailor their engagement strategies to align with their organization’s culture, business needs, and scalability. Common methods include:
- Independent outside counsel selection – allowing internal teams to choose counsel based on expertise and fit
- Panel/preferred provider programs – establishing a vetted group of firms for legal work
- Requests for proposals (RFPs) – inviting firms to compete for engagements based on predefined criteria
- Strategic pricing models – incorporating rate reviews and blended rates to control costs
- Data-driven decision-making and collaboration – leveraging analytics to assess firm performance and pricing trends
According to the Blickstein 17th Annual 2024 LDO Survey, there is a growing tension between relationship-driven engagement and innovative cost control strategies. The survey found:
- 96% of legal departments want law firms to propose new delivery models.
- 69% believe law firm pricing professionals can drive service innovation, yet only 12% primarily engage with them.
- 85% of legal teams primarily engage with relationship partners rather than pricing professionals.
In my experience, law firm teams are generally very motivated to find ways to ensure clients are happy and continue to assign matters to them. When legal departments contact law firm pricing professionals seeking innovative methods of controlling spend, they are often met with enthusiasm. These key law firm contacts have experience helping clients optimize their outside counsel investment and can work with you to understand your needs and propose options for meeting them.
In addition, tools like LegalCollaborator can make RFPs a workable option. LegalCollaborator streamlines the RFP process by integrating pricing data directly into the enterprise legal management (ELM) platform, improving efficiency and transparency in outside counsel selection.
Enforce: Strengthening engagement through accountability
Engagement strategies alone are not enough—legal departments must enforce policies and expectations to ensure compliance and cost control over time. Key areas to manage include:
- Outside counsel guidelines – setting clear expectations for billing and service delivery
- Hourly rate structures – ensuring rates align with negotiated terms
- Budgets and alternative fee arrangements (AFAs) – enforcing cost predictability
- Data collection for compliance tracking – using analytics to monitor adherence to guidelines
Among the roadblocks that often prevent legal departments from fully embracing enforcement are some commonly held misconceptions, which can create unnecessary friction in outside counsel relationships. However, our 2024 LegalVIEW BillAnalyzer Law Firm Survey debunked some of these fallacies. Two typical examples are:
- Myth: “Law firms don’t prioritize compliant invoices.”
- Reality: 92% of law firms consider billing compliance a high or very high priority.
- Myth: “Enforcing billing guidelines damages outside counsel relationships.”
- Reality: 94% of legal departments report that compliance enforcement has strengthened or maintained relationships.
The right technology can help legal teams make these improvements by automating workflows and making it easier for internal and outside counsel teams to align their goals and processes. LegalVIEW BillAnalyzer enhances law firm collaboration by:
- Increasing compliance by up to 20%
- Strengthening client-law firm relationships, with 38% of firms reporting significant improvement
- Delivering up to 10% cost savings
- Speeding up payment processes for 54% of firms
Examine: Leveraging data for continuous improvement
Vendor management is an ongoing process that requires continuous analysis and refinement. Legal departments can optimize relationships and cost efficiency by leveraging key performance data:
- Historical invoicing trends – understanding past spending patterns
- Industry benchmarks – comparing rates and performance against industry standards
- Outside counsel performance metrics – assessing efficiency and compliance
- Predictive Insights – using data to forecast legal spend and optimize firm selection
The industry’s leading source of benchmark spend data, sourced directly from actual invoices, is Wolters Kluwer’s Real Rate Report. Powered by more than $200B of invoice data, the Real Rate Report provides powerful insights that help legal teams to better negotiate rates, develop credible matter budgets and efficient staffing plans, and manage legal services effectively. For example, our 2024 report found that:
- New York, Chicago, and Los Angeles continue to have the highest partner rates in the United States, all with hourly averages over $1,000.
- Compared to other U.S. cities, the highest increases in 2024 partner rates were seen in Boston (6.6%), Pittsburgh (6.5%), and Chicago (6.3%).
- Partner rates remain highest among Am Law 1-50 firms.
Insights like these give legal departments the critical information they need to make sound decisions about where and with which firms to invest their outside counsel dollars for maximum value.
The vendor management lifecycle is a continuous process of engagement, enforcement, and examination. At the peer forum Wolters Kluwer hosted in Houston, attendees gained actionable insights into how these strategies can be implemented within their own legal departments. Stay tuned for our next post, where we’ll dive into the key takeaways from discussions among the forum’s panelists and attendees.
