Legal departments attempting to control costs are moving work in-house, according to a recent survey of in-house legal professionals by the Association of Corporate Counsel and legal tech company Everlaw.
In the survey, 66% of respondents cited bringing work in-house as their top cost-cutting strategy. Respondents noted insourcing increases value by using internal expertise and improves cost predictability.
And this may be a trend, according to a report from Thomson Reuters on how legal departments are looking to control costs. The report found that 68% of legal departments are planning to bring more work in-house over the next year.
Pressure from business leaders and value from law firms drive insourcing
General counsel may be under “moderate to significant cost pressures from business leaders,” according to nearly 70% of survey respondents. The report also said that the percent of corporate budgets allocated to external providers plunged from 67 to 59 over the last five.
Meanwhile, law firms’ hourly rates rose 4.5% in 2022, the biggest increase since 2013, a LexisNexis CounselLink report said.
Legal departments, however, may not see increased value for their spend. Respondents to the Thomson Reuters survey, on average, rated the work of their eternal providers at an 8.2 out of 10, with one respondent saying that firms tend to “over-comment on drafting points which have no impact on the legal documents.”
“With budgets under scrutiny and many GCs willing and able to move their legal work, law firms need to remember that one competitor with which they often have to contend is in fact, the client itself,” the Thomson Reuters report said.
Size factors into cost-cutting strategies
Size matters when considering cost-cutting strategies, according to the Association of Corporate Counsel and Everlaw survey.
Small and midsize companies are more likely to insource work to their legal departments, according to the survey results, while large companies may opt for alternative fee arrangements with law firms, such as value-based billing, where a law firm is paid for the value of legal service provided rather than the time it takes to complete the work.
Almost 70% of respondents at both small companies and midsize companies said that they are bringing more legal work in-house compared to 58% of respondents at large companies.
When legal work is outsourced, 39% of companies said they are sending it to smaller firms that can provide similar value for lower costs, according to the survey. This was the second most popular cost-cutting strategy for legal departments.
Using AI to improve productivity
Many lawyers have heard of generative AI’s (e.g., ChatGPT) potential to improve productivity and efficiency, and some are already using AI platforms for tasks like summarizing documents or drafting litigation content, letters, or marketing material.
According to the Clio Legal Trends Report, 32% of lawyers believe that AI can help reduce workloads.
Many respondents in the Association of Corporate Counsel and Everlaw survey agree. Thirty-nine percent of survey respondents said that they are using AI to cut costs.
Lawyers spend just 37% of their day on billable work (based on an 8-hour workday) and nearly two-thirds of a lawyer’s workday is likely spent on non-billable administrative, business development, or other tasks, according to the Legal Trends Report.
Nearly half of respondents to the Legal Trends Report said that they were interested in using AI to accomplish non-billable tasks. The most popular uses for AI that lawyers identified included finding and storing documents, calendaring, tracking billable hours, marketing, and collecting payments.
With AI handling these tasks, lawyers could potentially spend more time performing billable work.
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