The Fundamental Differences of Legal Spend Management (Part 2)

Spend Matters is pleased to welcome the second post in a guest series exploring spend management in the legal sector by Jeff Hodge, executive director at doeLEGAL. Click here for the first part in this series, and look for the conclusion next week.

If the rapid growth in legal spend management were merely about delivery and payment of a summary legal invoice (matter name, fees and expenses, etc.) there would be no differences, and legal spend management would not exist as a credible and thriving industry. However, legal spend management involves much, much more. In fact, the corporate legal department is using legal spend management very differently from how their peers are using generalized spend management services and software, and the value that corporate legal derives is far greater. The key difference between legal spend management and a more corporate approach is the detail of the data being delivered and how the legal department uses it.

As seen in Fig. 1, a typical electronic invoice delivered by a horizontal e-billing provider usually includes 7-8 pieces of information. This is all of the data required to describe an office product to be paid for such as paper, pencils or computers, and is more than sufficient for a company's accounts payable department to issue payment. Moreover, discerning the value of an office product is a simple assessment of whether, for instance, the paper purchased is the right size, the proper texture, whether the ink pens will write and the staplers staple. But as we know, the product/service delivered by "service providers" such as law firms is much more complex, with many more pieces of information describing what was delivered. The detail of the fees and expenses in the Fig. 2 (below) invoice is what is required.

Discerning the appropriateness of what was delivered by a law firm or consultancy (and its value for what is paid) is a very different and difficult set of tasks. This is complicated by the fact that at any given time, a company will work with perhaps hundreds of law firms under multiple terms of engagement, with varying complexities and subtleties in their work. Frequently, several law firms will perform the same kind of work but with varying approaches, resourcing and costs. The question for legal department managers and legal spend managers is how to get beyond the invoice "For Services Rendered" and truly understand the cost of law firm services/delivered value. The only way to accomplish this feat is by using the data that describes the law firm service: the legal invoice itself.

Studies indicate that the average corporate legal department will spend as much as 80% of its entire department budget on outside counsel services. If this is true, then the legal invoice is an incredibly valuable document as it describes how the department spent that 80% of budget. The question then becomes: how can the information inside of a legal invoice be revealed and used to understand how much has been spent with outside counsel, for what reasons, for what kinds of work and what value has been delivered by the firm?

Fig. 2 is a portion of a typical legal e-bill containing some of the information captured by the law firm in its normal course of business. Compare this to Fig. 1, the summary invoice as might be delivered by a more generalized e-billing service. What is missing from the invoice in Fig. 1 is all of the detail that allows one to determine the value of the services provided:

  • The budget for the matter
  • Dates of the particular tasks performed
  • The law firm timekeeper's identity and experience level (Partner, Associate, etc.)
  • The type of work performed (task code)
  • A description of the task performed
  • The amount of work performed (e.g. hours or other units)
  • The charge for each unit of work (e.g. hourly rate)
  • The total cost of the work performed
  • Any discount applied to the work performed
  • Warnings highlighting potential violations of corporate billing guidelines

What is missing from the summary invoice is as fundamental to discerning the value of legal services as the materials and services list for building a new home. In building a house, one expects an experienced supervisor and staff to oversee and complete the construction. You expect quality materials properly assembled to your specifications in a reasonably efficient manner. Once the plaster, paint and trim are up, what is behind the walls can only be discerned from the materials list, the work orders and the reputation and integrity of the builder.

Although this analogy is an apt one, even the building trades and regulators afford the homebuyer assurances not offered to the consumer of legal services; quality control.

Stay tuned for the final piece in this series, where Jeff will dive into the value within data management and analysis in the legal spend arena.

- Jeff Hodge, Executive Director, Corporate, doeLEGAL

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