Legal cost management has become more challenging for corporate legal departments, as law firms’ associate salaries continue to climb.
Despite the global pandemic, many law firms had surprisingly strong financial performances in 2020. Reports show AmLaw 50 law firms saw a revenue increase of more than 7%, with other firms reporting double-digit growth and profits per partner jumping 30%.
Now, the nation’s top law firms have raised associate salaries in the hopes of remaining competitive and retaining top legal talent. First-year associate salaries at top firms now sit at $200,000, increasing as associates go up in seniority.
While this is certainly good news for associates, many corporate legal departments are conflicted since the bump will surely be reflected in law firm fees. Some corporate legal leaders view the salary increase with skepticism, especially when companies are under heavy pressure to cut costs and control legal spend. As more and more firms continue to match the new associate pay scales, in-house counsel and legal operations will have to find new ways to respond to the rising fees.
Six Strategies for Legal Spend Containment
While higher associate rates might lead to more pressure, the challenge isn’t insurmountable when it comes to legal cost management. The following are just a few strategies that corporate legal departments can employ to better understand and potentially offset those increased charges on their end.
- Set automated billing rules that address time charged to junior associates. Many corporations disallow billing by first-year associates during their ramp-up period and may start more closely scrutinizing overall firm staffing on matters now that rates are increasing. Any such rules should be clearly included in outside counsel guidelines.
- Closely review all your bills. No one enjoys legal invoice review, but it’s critical for catching improper costs. While not necessarily intentional, inconsistent coding and charges from improper billers happen all the time. They’re often missed because they’re buried in long bills with extensive charges.
- Pursue alternative fee arrangements. Whether it’s flat fee billing or contingency arrangements, alternatives to the billable hour model are increasing in popularity among corporate clients. Outside counsel might collaborate with you to implement them.
- Consider shifting some work in-house or to alternative legal service providers (ALSPs). As outside representation becomes more expensive, now is the time to take a detailed look at whether all the work you’re outsourcing to law firms could be handled just as well by internal resources or more cost-effective ALSPs.
- Move work from associates to paralegals or administrative personnel where possible. Junior lawyers often handle tasks that don’t require someone of their skillset. As associate rates go up, it’s more important than ever to ensure that every task is being handled at the right staffing level.
- Understand your overall approach to legal cost management to see where your dollars are going. Are you paying for things like overhead charges and photocopies or are you allowing invoices that include block billing? Eliminating these charges can help offset the newly increased associate fees.
The Role of Enterprise Legal Management and AI Invoice Review
All of the above cost-cutting measures will be significantly easier and more effective if you have the right enterprise legal management software (ELM) and AI-powered invoice review tools. These tools incorporate electronic billing, automated billing rules, machine learning and more which make it easier to enforce your outside counsel guidelines and engage in legal spend management.
AI is far more efficient at reviewing lengthy legal invoices and better at catching improper coding – charges that aren’t allowed, work that’s being handled at the wrong level and more. In-house legal professionals are already tasked with doing more with fewer resources and manual invoice review shouldn’t add to that burden.
Whether you turn to third-party review or implement your own internal solutions, you stand to better understand your overall spend and significantly reduce costs. InvoiceAI, Onit’s new AI offering for legal invoice review, has already identified six-figure savings in improperly billed travel costs for Onit customers during a time when travel was at an all-time low. The potential savings from using the right tools is significant.