7 key benefits of legal spend management: resolve to gain control of the legal department budget without disenfranchising your law firms in 2023
Lawyers working in-house and for law firms both dislike haggling over legal fees and billing; legal spend management brings objectivity to these conversations and enables lawyers to refocus their efforts on practicing law
Here we go again.
Large law firms are planning “the largest rate hikes on record next year.” That finding is from a recent survey by the Wells Fargo Legal Specialty Group as reported by Bloomberg.
Yet “legal departments say they're in a financial squeeze and can't absorb big increases,” according to Corporate Counsel. Many in-house lawyers are reportedly “surprised, angry and dismayed” at the proposed rate hikes and plan to “fight” the increases.
They seem to be making quick work of that vow too:
“Law firms are seeing longer delays in payments from their clients, amidst a slow-down in [M&A] deals and changes in corporate billing departments,” said the American Lawyer in another report. It cited data from the Global Wealth at Work Law Firm Group by Citi.
Both sides dislike these uncomfortable conversations
None of this is new and we see a similar story year after year. Sure, there are different angles and subtleties, but the subplot is always the same.
There’s usually one detail that goes unnoticed in the ruckus: lawyers on both sides of the aisle dislike these uncomfortable conversations. Further, many of the existing solutions – demanding discounts, challenging line items or rejecting invoices – are divisive. Perhaps worst of all, it’s a distraction from the important duty lawyers have of mitigating risk.
There is a better way.
It starts with an emerging category of legal technology that removes the opacity around legal billing – and puts clients and law firms on a level negotiating field. That technology is called legal spend management.
7 key benefits of legal spend management
Typically, (but not always) it’s the client side that procures Apperio and uses it to connect to the practice management systems used by their law firms. It pulls together all the spending data around their matters, across all their law firms and puts it on a single screen. This allows clients to see the live status of all matters and budgets across their organization in one dashboard.
Obtaining this comprehensive view of legal spending is one of the most significant benefits of the software. Below is a list of other legal spend management benefits we hear from the market.
1. Automate the collection of legal spend data.
Businesses often struggle with the tedious task of manually collecting spend data and reconciling the formats. They’ll get reports in spreadsheets, presentations, PDFs and email, for example. It takes a lot of effort to get all the data into a format that’s usable for tracking spend. The manual process means it's error-prone and slow – the data goes stale.
Apperio does this all automatically in real-time. The only thing that’s left to do is customize your dashboard to display the information how you’d like it. Law firms get a dashboard too for the matters they are working on, seeing the same data their clients see. This puts clients and service providers on the same page.
EQT, one of the world’s largest investment organizations, found Apperio eliminated about 90% of the back-and-forth emails it used to take to chase down spend data.
This benefits law firms too: it eliminates the back-office scramble involved in pulling together a status update in response to a client inquiry.
2. Accurately report and forecast law department spending.
It’s relatively straightforward to report and forecast spending because all the legal spend data is in one place. Since the data is current, corporate counsel always knows exactly where they are on budget – they have the most accurate view.
If finance wants to know what the business spent on legal services last week, last month, last quarter or last year, that information is a click away. If they want to know what invoices are forthcoming, in-house teams can see their law firm’s work-in-progress (WIP) and time accruals. This allows them to accurately anticipate when an invoice might come due in the next 30, 60, or 90 days.
This benefits law firms too because the client is never surprised by an invoice. Even better, they’ve been following the progress all along, which means the invoice review and approval process becomes a mere formality – resulting in law firms getting paid faster.
As the client begins to collect data, over time, they can see trends in spending by firm and matter type for example. This historical data makes it much easier to forecast legal expenses for the next quarter, or the next year – and it’s all based on historical spending and not a gut feeling.
3. Get notified when new matters are initiated outside of the legal department’s purview.
Some of the challenges around managing legal spend has less to do with an organization’s external spending and more to do with their internal processes and structure. One huge barrier is the decentralized initiation of legal matters: the legal department gets a law firm invoice for a matter they never even knew was worked on.
This is pretty common among financial services companies and investment organizations but it happens in other verticals too. For example, we’ve seen it in markets including infrastructure and utilities. These businesses need to move quickly – on investment deals or to invoke easement clauses to initiate repairs rapidly – so there are employees outside of the legal team that are authorized to initiate work directly with preferred law firms.
A recent survey of in-house lawyers working for PE and VC firms found 81% said some matters are initiated without their knowledge. One chief legal officer for a PE firm said they find out about new legal matters from investors – outsiders to the internal workings of the business.
Apperio solves this problem because it’s connected to the law firm’s system of record. When a new matter is initiated, it will alert the legal department and allow them to track the matter’s progress and spend. The upside here for law firms is keeping the legal department informed and the lines of communication open, which fosters greater trust with their clients.
The benefit of this particular feature was appealing to the Phoenix Group, the UK’s largest long-term savings and retirement business and a large utilities and infrastructure company.
4. Improve transparency for regulatory compliance.
A number of our customers enjoy the transparency and audit trail our product provides for regulatory compliance or investor disclosure purposes. Network Rail is a long-time Apperio customer and compliance is one of several use cases they have for the product.
As a public sector company, they are regulated and required to account for all spending, including legal. This can’t be a guessing game – or an estimate – they need to report with precision and have a clear audit trail. Our software allows them to do that.
Similarly, private investment funds are facing increased scrutiny from regulators. One managing partner we spoke with noted in his 25 years of experience, his firm has had two unannounced visits from the Securities and Exchange Commission (SEC).
They wanted to know that the firm was applying the same level of rigor to legal expenses charged to a fund – that is investor money – as they were to “house spend” – that is the cost of running a general partnership.
In other words, the SEC investigators said, ‘show me the law firms you work with along with the rates you've paid and the billing terms – and now show it to me for both your house spend and your deal spend.’ The terms and amount paid need to be the same, or the investment firm runs the risk of fines, penalties or worse.
5. A law firm panel review process based on data.
Network Rail used the data in Apperio to right-size their law firm panel. It took the guesswork out of estimates and drove clear, transparent and competitive bids. The team ended up with a smaller panel doing more of their work – a clear advantage to those law firms that embraced transparency.
“We wanted to keep our panel small, because that way we knew we could build a true long-term partnership with our outside counsel,” said Dan Kayne in a panel discussion. He was a longtime GC at Network Rail and has since turned consultant and founder of the O Shaped Lawyer.
“I believe this is because having a smaller number of firms allows you to have a deeper relationship, built on a genuinely open and transparent arrangement, which includes visibility of spend,” he added.
6. Strengthen relationships with law firms.
Many of the software products on the market today – such as e-billing – deliver their value based on invoice rejection. These tools automate the enforcement of billing guidelines. This means it needs an invoice to trigger an action which is reactive. By contrast, legal spend management is proactive and enables the legal department to get ahead of the invoice.
More importantly, it can be a frustrating process for law firms that have many clients and need to comply with several different guidelines and e-billing tools. As such, it becomes divisive in a profession that prides itself on relationships and collaboration.
Apperio helps inside and outside counsel build a common operating picture. Conversations about progress and budget are guided by data, which makes the conversations a whole lot more objective. In turn, this builds trust and strengthens the relationships between clients and law firms.
7. Improve the legal department’s standing within the business.
Some legal departments struggle to have basic conversations with finance because they don’t have command over their numbers. We’ve watched as customers have transformed from being incapable of reporting and forecasting their budget, to being a model example for the rest of the business.
Business acumen matters too, as one GC noted in response to a survey by the Association of Corporate Counsel: “Being a good lawyer is a given; it’s the other skills that matter.”
There’s a benefit here for law firms too: every service provider is in some sense defined by the success of their client. In other words, a client’s successes are a law firm’s success.
Mutual benefits for law firms
We’ve sprinkled in some of the benefits for law firms throughout this post, yet there are many more. Indeed, law firms are very much a part of the process, which is in part, what separates Apperio from other categories of legal spend technology. For example, there are filters in Apperio that a law firm partner can put in place to make sure both sides are comfortable with what’s being shared.
Today, there are more than 250 global law firms on the platform with more coming on board as we write this post. Some of the most prestigious law firms in the world view the transparency Apperio provides as a competitive advantage. Several have proactively introduced the technology to their clients to differentiate themselves.
This has enabled clients and law firms alike to move past those uncomfortable conversations and get back to the important role of practicing law. That’s the common thread in all of the benefits of legal spend management: corporate legal can gain control of their legal spending without disenfranchising law firms.
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See it for yourself: The Apperio platform provides in-house legal teams with a proactive approach to managing their legal spend. See for yourself and schedule a live demo by emailing email@example.com.