by Doug Ventola, Managing Director, Consilio
When I think about spend management for legal operations, I focus on the relationship between your company and its outside vendors, whether those vendors are law firms, technology providers, or legal service providers.
A good spend management program allows you to operate efficiently, both from a cost and time perspective, without disrupting the relationship between your vendors and the legal matters they support. As a matter of fact, I believe that a good spend management program actually enhances the relationship between your outside counsel and vendors while controlling costs.
It all starts with setting expectations. Clear communication is critical to a strong, collaborative relationship. The best tool for communicating those expectations is your outside counsel billing guidelines. A strong set of guidelines is an efficient way to communicate those expectations to your law firms, covering issues such as staffing, billing practices and requirements, DEI expectations, and reporting.
But you should not view your outside counsel guidelines as overly burdensome to your outside counsel. A good set of guidelines sets the expectations you have of your outside counsel – and your expectations are important.
Using a legal bill review service is an effective way to enforce guidelines without creating friction or wasting time responding to law firm questions. A good service can monitor outside counsel invoices, reject clear violations, and flag potential issues. While some worry guideline enforcement may lead to appeals and extra work, the service can also handle appeals, freeing your in-house counsel to focus on managing risk and practicing law.
Having a good rate management program is also essential. I’ve seen various strategies for managing rate reviews, from fixing rates for 2-3 years to capping rate increases (e.g., 5%) or adopting more alternative fee arrangements. Recently, rate freezes for 2-3 years have become common, but firms often request steep increases—sometimes 30%-40%—when the freeze ends.
The goal is to maintain fairness with your outside counsel. Firms should feel properly compensated for a job well done, while excessive pressure on rates or unreasonable increase requests can harm the relationship.
How do you define fairness? Good benchmarking data is essential for evaluating rate increase requests and deciding whether to approve, reject, or counter-offer. Without it, assessing reasonableness is challenging. Simply capping increases (e.g., at 3% per year) doesn’t ensure efficiency if the starting rate is already above market. Reliable benchmarks are critical to determine if your starting point for rate negotiations is fair. For instance, if your base rate is already 15-20% above market, a 3% capped increase still leaves you paying more than necessary.
One useful benchmark is the market comp rate—what you should expect to pay for a similar timekeeper based on position, experience, location, and law firm tier. Other benchmarks include the firm’s average rate for specific roles and, when available, what the attorney charges other clients. Benchmarks don’t determine exact hourly rates but help guide whether requested rates are reasonable or worth negotiating. More information leads to better decisions. Not all firms should charge the same—higher-risk, complex work should cost more than low-risk, simple matters. No legal department has an unlimited budget. A good spend management program should save money, but there are often ways to do so with little or no extra investment.
Take a look at the technology you already have, like e-billing and matter management systems. Are you getting the most out of them? Often, the experts who implemented these tools leave, and those remaining may not have the time or knowledge to fully utilize the system. A technology assessment from experts in a particular platform may yield insights and enhancements at minimal cost with existing technology. Not only does that save you money but it also leaves you with an improved spend management program for little or no incremental cost.
The best advice I can give when developing a spend management program is to try not to boil the ocean. Start somewhere and then build on it. Create those guidelines as a starting point, and build from there. And don’t try to do it all yourself. There are many advisory and managed services that offer you experts who make your life easier and deliver savings and efficiencies to your company. Let the attorneys practice law and allow the service providers to become an extension of your organization, so as not to be limited by the internal resources available to you.
