The Three Financial Failings of the Legal Profession

The UK legal market faces a big challenge: major structural problems have been preventing in-house legal teams from effectively managing their legal spend for years.

Based on an analysis of millions of pounds of 2018 UK legal spend data, we have identified and listed the main challenges GCs face.

Have a look at this handy infographic and see for yourself.

Flying blind

A staggering 9 out of 10 departments don’t know what they spent last year.

Spend visibility is a priority

93% of U.S. corporate legal departments see controlling outside legal spend as critical,

But only 13% considered their spend management as ‘optimised’. This hinders resource decision-making in a changing market.

In-house talent

The move to in-house talent is expected to grow from just above 20% (2017) to 35% (2025)2.

Challenges

Challenge 1: Invoice delays

Late invoicing by external counsel means legal spend tracking is often four months or more out of date.

The gap between work done and invoicing is:

  • Immigration work: typically 36 days
  • Average across all disciplines: 93 days
  • Real estate: 239 days – almost eight months!

Challenge 2: Unwarranted charges

Weak practices and ageing billing systems lead to inadvertent but costly errors.

  • We found that 2.38% of fees were billed for tasks that would normally be excluded from law firm/client agreements (travel, scanning/printing, internal meetings etc.)
  • That’s over £2m from our dataset - and across the UK legal services industry, that 2.38% would amount to £835M of unexpected costs for in-house legal departments per year!

Challenge 3: Errors

Complex systems lead to inadvertent charging errors, for example, we found:

  • £20,000 in Duplication of time entries
  • £36,000 in Misallocation – an incorrectly allocated photocopying charge 
  • £42,000 in Inaccurate charge out rates 

Challenge 4: Inconsistent and late time recording

Ageing billing systems also encourage inconsistent and late recording of 6- and 12- minute billing units. And late recording encourages inaccuracy.

We found that:

  • Three days after work done, billing units are more than six times less likely to be recorded.
  • Four days after work done, billing units are over four times more likely to be rounded to the nearest half hour.

Alternative arrangements are not a quick fix

We found that 21% of fixed fee arrangements are billed over agreed budgets anyway.

And capped fees don’t necessarily yield value – they ultimately incentivise firms to allocate their lowest-cost talent.

The Three Financial Failings of the Legal Profession

In this free insight report, Apperio’s analysis of several hundred million pounds of 2018 UK legal spend reveals how in-house legal teams are forced into an impossible situation caused by a lack of visibility and transparency, confusing alternative fee arrangements and recurring inadvertent errors.

More importantly, the report outlines how advances in technology driven by a new generation of Legal Tech start-ups are reversing the situation. By giving in-house legal teams real-time visibility and transparency of their spend, they’re helping to bring clarity, control and confidence to legal budgeting, enabling in-house legal teams to reclaim their rightful position as a strategic organisational function.

Access the full report here.

 

[1] 2018 Thomson Reuters Legal Tracker Legal Department Operations Index

[2] Apperio Insight Report: The Three Financial Failings of the Legal Profession

Do you want clarity on your legal spend?