Thomson Reuters research identifies costs-saving tactics being used by in-house legal teams

Research conducted by Thomson Reuters has shown almost 9 in 10 (87 per cent) of corporate legal departments are prioritising controlling outside counsel cost.

The Legal Department Operations (LDO) Index report by Thomson Reuters is comprised of real-world legal spend analytics gathered from Thomson Reuters’ Legal Tracker and sourced from more than 1,500 corporate legal departments. Added to that data was a Thomson Reuters survey, conducted in June 2021, to which 100 legal departments responded.

The research found 60 per cent of corporate legal departments had increased the amount of legal work dealt with in-house, in a bid to control costs. This has led to a recruitment surge for in-house lawyers – over a third (37 per cent) of corporate legal departments have hired more in-house counsel.

The retention of work in-house and focus on controlling costs comes as law firms have increased hourly rates. Thomson Reuters reported this increase is most pronounced at associate level. Corporates with an annual revenue of below $500m have seen an 11.6 per cent rise in rates at associate level; the index average across corporates of all sizes was a rise of 3.2 per cent in associates fees.

Jas Sandhu Dade, Head of Corporates, Europe, at Thomson Reuters said: “Corporates have made it clear that they are focusing their efforts on controlling how much they spend on external lawyers. This will put law firms under pressure to prove that they are providing value for investment, particularly given the recent increase in billing rates.” 

The research also identified other strategies being used by corporates to keep costs under control. These included the enforcement of billing guidelines – 86 per cent of legal departments identified this as an effective way to reduce invoice fees and expenses.

It was also found that larger businesses have begun to favour alternative fee arrangements which allow them to pay a fixed fee or a fee based on results or other metrics, as opposed to hourly rates. 27 per cent of large businesses surveyed said that increasing usage of alternative fee arrangements was a priority, in contrast to 19 per cent of small businesses. 

Sandhu Dade commented: “Legal departments are remaining very vigilant over costs. With more corporates looking to use alternative fee arrangements, law firms may need to consider increasing their fee flexibility and introduce more innovative fee structures, to remain competitive.” 

The use of legal tech was also found to be up. Of those surveyed, over half (52 per cent) of corporate legal departments said they had made greater use of legal tech in the past year.

The most commonly used legal technology tool was found to be eBilling/Spend and Matter Management, identified as being used by 97 per cent of corporates to manage legal spend. This was followed by eSignature, used by 80 per cent of in-house teams to enable digital signatures on documents and Legal Hold, used by 65 per cent of teams to track information that is subject to hold.

When asked which technologies they planned to procure in the next 24 months, the most popular answers were legal workflow automation (27 per cent), contract management (22 per cent), document management (22 per cent) and Contract AI for analysis, risk assessment or due diligence (20 per cent).  

Sandhu Dade said: “Corporate legal departments are making better use of legal tech solutions which can improve their efficiency and lower costs. The best solutions are those which are cloud-based, easy-to-use, quick-to-implement and which can scale and grow to meet departments’ current and future needs.”