Modernization is a priority for a majority of law departments; it is a way to effectively align budget and resources and meet their legal and compliance priorities at the lowest cost and highest possible effectiveness, according to a UnitedLex survey. Legal teams are meeting modernization mandates by leveraging technology more effectively, outsourcing “run the business” tasks to third-party, and putting in place programs to formally manage external counsel and service providers.
Pervasive law department inefficiencies
In light of modernization efforts, law firm spend continues to dominate 89% of spend on external providers, with just 3% on service providers. In fact, law departments often underinvest in how law firms manage their matters, including their legal bills, taking a hands-off approach when managing outside counsel spend. And when faced with stretched resources amidst unplanned legal work, 55% of general counsel default to outside counsel regardless of cost, and 50% go over budget to get fast turnaround.
Law department leaders and legal operations professionals historically have turned to traditional levers to reduce costs as part of their modernization efforts. These tactical efforts include alternative fee arrangements (a model which may quickly increase with AI-supported legal tasks), renegotiating or “freezing” rates, creating panels of preferred law firms, and conducting RFPs.
Invoice review and management is another strategy that should not be left on the table.
Transforming outside counsel spend with legal bill review
According to the UnitedLex survey, 45% of in-house counsel seek to improve spend versus budget management. By taking a strategic and holistic look at law firm spend with legal bill review and management, law departments can save consistent spend over time.
By taking a strategic approach to legal bill review, rather than viewing it as a “check the box” administrative function, legal teams can:
- Eliminate overbilling by uncovering and rectifying instances of inaccurate or unjustified charges against billing guidelines;
- Improve efficiency and cost by optimizing internal and external resources;
- Identify areas where workflow adjustments can lead to significant cost reductions; and,
- Enhance transparency to all parties with a clear view into billing practices, fostering trust and accountability with law firms and other third-party providers.
Best practices for establishing a strategic legal bill review program
- Develop a baseline analysis to identify opportunities for improvement
Oftentimes, legal professionals dive right into invoices on a one-by-one basis, identifying and escalating billing issues piecemeal, rather than seeing spend patterns in their entirety. A baseline analysis can uncover gaps and opportunities for improvement, informing a roadmap that incorporates an understanding of the issues to address through a legal bill review program.
An initial analysis can uncover non-compliance issues and inefficiencies that help understand how and why they originate, and help prioritize areas that are most inefficient. For example, it can identify whether staffing arrangements for different types of matters are right-sized, whether you are paying for partner time when an associate could handle that work, or paying for services (such as docketing services) when a legal service provider could do that same work at lower cost.
- Reallocate resources to enhance efficiency
A strategic overhaul of sourcing approaches (58%) and better resource allocation (52%) are top priorities for in-house legal teams as key modernization initiatives, the UnitedLex survey also found.
Legal bill review is the perfect opportunity to improve internal and external resource allocation. Normally there are a few people at a company that try to make sense of volumes of invoices. By collaborating with third-party invoice reviewer expertise, organizations can reduce internal team administrative tasks to focus on higher value work for the business.
- Establish (or update) legal billing guidelines
Many in-house teams operate without billing guidelines—risking overbilling, inefficiencies, and inconsistent practices across their outside counsel. Guidelines are formalized policies that outline the expectations, billing practices, and operational procedures firms must follow when providing legal services to their clients. Guidelines are essential for managing spend effectively, maintaining accountability, and fostering collaborative relationships with externa law firms. Moreover, they provide clarity on rates, staffing, expenses reimbursement, and the like.
Throughout the process, key stakeholders such as law firm partners should be educated on the goals of the guidelines, and guidelines for reviewing and submitting guidelines.
Of note, ABA Formal Opinion 512, issued in July, 2024, says that if a lawyer uses a generative AI tool to draft a pleading or review documents for eDiscovery, for example, and spends 15 minutes entering information into the program, the lawyer may charge for that time as well as to review the output for accuracy and completeness. In-house teams and review specialists with AI expertise should take heed of these trends to ensure guidelines remain up to date.
- Leverage a data- and human-centric approach
A data-first, human-led review approach leveraging technology should include a customized workflow for invoice approvals, escalation protocols, and standardized appeal workflows. Specialized business partners are trained to look for certain things, including non-compliance with billing guidelines. That’s an areas in which the review experts can take the bulk of the work from the in-house team’s plate, flagging those instances that need internal review so lawyers can focus on whether the substance of the work was delivered, and the substantive legal issues.
- Use data-driven insights to support decisions
Reporting provides data and analysis for informed decision-making on spend, identifying opportunities for cost savings, and optimizing legal spend. Beyond cost savings, real-time insights can help law departments better enforce outside counsel guidelines, address legal billing issues promptly, and foster greater accountability among law firms. Finally, insights can identify opportunities to support rate negotiations, using data showing trends outside the norm to support rate decisions.
Use good legal bill management to further law firm relationships
Invoice management practices can provide savings to the bottom line—and do more. It can improve relationships with external vendors. When firms adhere to established guidelines, the process is more efficient and the bills are more accurate, giving clients greater confidence.
Start with legal bill review as a path to modernization
Legal bill review is just one way law departments can start the journey towards modernization efforts to further the financial health of an organization.
Effective invoice management extends far beyond just administrative tasks; it enhances partnerships with law firms and vendors, contributes to an efficient allocation of resources, and improves transparency, efficiency, and cost savings.
Learn more about UnitedLex’s Legal Invoice Review Service.
