Corporate Legal Spend Is Way Down. Here's Why
Corporate clients are spending significantly less on legal services than they once did. In the last year alone, legal spend has dropped 11 percent on average, according to a new survey from Bloomberg Law and the Buying Legal Council. The most successful teams were able to cut their spending by 23 percent, or nearly a quarter.
So, how'd they do it?
The key to in-house cost cutting is a "well-conceived, properly staffed procurement operation," according to the 2017 Legal Procurement Survey. The survey looked at spending and procurement practices across 101 buyers of legal services. The survey suggests that procurement professionals, already responsible for 84 percent of corporate expenditures, are having a strong influence on legal spending. We're at "a kind of tipping point," according to the report, where "procurement professionals have developed strong, positive relationships with their counterparts in corporate legal departments and at law firms, and data shows that they are increasingly effective in controlling spending."
Alright, so how exactly do these procurement professionals cut costs? The report identified "the five most effective activities legal professionals use to drive and receive value from legal service providers," based on the respondents answers. These are:
1. Using Requests for Proposals, or RFPs
2. Using alternative fee arrangements or project-based budgets
3. Working with a list of preferred vendors
4. Using alternatives to traditional firms
5. Using billing guidelines
The most common "value-driving" procurement activity was negotiating discounted hourly rates, with 91 percent of respondents utilizing the tactic, while the rarest approach was "e-auctions," which only 15 percent made use of.
Buy In and Experience Needed for Success
Companies need more than just any old procurement professional to reduce their legal spend, though. Those with significant experience in legal procurement provide the greatest cost reductions, according to the survey. Legal procurement "veterans," those with 5 or more years of experience, were characterized as "highly successful" and reduced legal spend by 15 percent on average. Mid-career professionals and those new to legal procurement saved their employers only 8.6 percent.
Further, buy in from the company's actual lawyers is a significant factor in success. Of those who said they had a "reluctant" relationship between procurement and the legal department, 67 percent had "below average success." For those with a collegial relationship, 52 percent described their success as "above average."
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