Managing your Legal Budget – A Third Way?
Senior In-house lawyers feel a gentle, but unmistakable pressure to contain the costs of the ever-increasing demand for legal services. Those fortunate to even have their own budget (a position some others can only dream of) face constant pressure from above to reduce both internal and external spend (which is really as it should be – no department is more deserving of a budget than any other).
This constant cost-containment comes with the added challenge that there were traditionally only two ways to address the ever increasing work burden on an in-house team: expensive external counsel (who have neither the in-house experience, nor the propensity, to deliver the same level of service as an in-house team member), or the ever-painful challenge of trying to add to headcount, and all the challenges, risks and cost that brings to a business.
But what if there was a third way………
External Lawyers – The Money Pit
Purchasing the considerable expertise of external counsel is an unavoidable cost to most in-house legal teams. Whether it be on the day-to-day side in a smaller team, or niche input into a specific event or project in larger departments, there will always be a place for external firms to advise both in-house legal departments and the business they service. For example, in the case of a large merger or acquisition, or high profile litigation, these are matters that are ordinarily outsourced by in-house teams to external firms.
The downside to this spend is pretty obvious; it’s very expensive. While this can be understood and accepted by the Senior Management Team where the external firms are offering specialist expertise to the business, the value add is far less well understood when they are asked to discharge an invoice, for example, for an expensive risk review of a standard non-disclosure agreement (yes, this really happened).
While you can manage your legal budget effectively by agreeing fixed fees for particular work, scope creep is a constant problem. Legal firms that charge by the hour are designed to maximise their fees, and fee recovery rates. It’s their business model, and it is not going to change.
In-house Counsel – The Headcount Headache
Building a legal department is a difficult challenge at the best of times. Even if you are fortunate enough to have a legal budget, the strain on the business that comes with headcount can be an entirely separate challenge to manage and negotiate. If, as discussed above, you use external legal counsel for open-ended tasks, identifying accurately your likely requirements as an in-house team can be very difficult. Trying to accurately communicate that requirement to a CEO or CFO can be a real headache. At the end of the day, the legal department is a cost-centre and, in most companies, costs get cut.
With your in-house team, capacity will always be tested. Add to that the cost of recruiters, salaries and benefits, pension contributions, insurance and practicing certificates and the plethora of employment law rights for workers, and it becomes a high cost endeavour for any legal department, and the business they support. Given that the legal function is not revenue raising, the request for additional headcount is often met with a jaundice eye.
Three particular circumstances that arise, where headcount can cause a real ‘headache’ are:
- where a legal team require in house support on a predetermined or part time basis;
- where additional resources are needed on a transactional, project-based or ad-hoc basis;
- seeking junior support for senior in-house lawyers.
Legal Consulting – A Third Way?
In order to marry the requirements of all stakeholders in the business, while meeting the individual needs of the in-house legal team, a creative approach is required. This is where legal consulting comes into its own: in-house lawyers, with a wealth of expertise, who join the team on an interim or semi-permanent basis.
The considerable upside to this is that you have not committed to any new headcount in the business, or any of the attendant costs, as the consultants are self-employed. In addition, legal consultants charge considerably less then private practice rates, with the added benefit of being experienced in the delivery of in-house legal services. So, by spending less of your legal budget on a legal consultant, you receive a better service; instantly.
When I discuss my new practice with senior lawyers working in-house, I generally get asked the same two questions:
- How has this not been available before? The answer is that it has. It’s been available in the UK market for many years now, but has not, to my knowledge, been brought to Ireland by a legal practice until now;
- This is not as good as having a full-time member of staff? In ways, they are correct. It isn’t. Which is why our arrangements build in the option of taking on the consultant full-time, should both the consultant and the business want this. We are not here to stand in the way of our consultants, or the clients.
Planning for the future can be very difficult. The ability to scale up and scale down can cause tension within the business, and also within an in-house team already stretched to maximum capacity. It only takes one additional matter to raise its head and carefully laid plans are laid to waste. As Mike Tyson famously said ‘Everyone has a plan until they get punched in the face’. How true is that! With PF Solicitors, we believe our consultancy offers a solution to these stresses and strains.
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The material contained in this post is for general information purposes only and does not constitute legal advice. Specific legal advice should be sought on any particular matter. No liability whatsoever is accepted by PF Solicitors for any action taken in reliance on the information in this post.