Congratulations! You have implemented a legal spend management solution, the legal department is saving money, and legal spend metrics are starting to positively impact department processes. Breaking legal spend into fees and costs, viewing information by firm and case, and identifying trends have never been easier with the new system in place.
But wait: Does your legal spend information really give you a complete picture? While most ebilling services provide some reporting on outside counsel spend, there may be other costs to a case. In some fields, particularly in transactional, liability, and medical malpractice areas, a substantial portion of a matter’s total spend may come from non-law firm vendors. Without adding in costs attributed to non-law firm vendors, general counsel and risk managers may be receiving incomplete cost of case information from their legal spend management solution.
Non-law firm vendors include all entities other than a law firm that provide services directly related to a matter. Companies such as transcription services, copy centers, and consultants are all non-law firm vendors. However, the expenses most likely to impact your legal spend are experts. Subject matter experts come in all shapes and sizes, but depending on the work performed, can be very expensive. Expert fees and costs can dramatically shift the total amount billed to a specific case.
Legal and risk departments have historically treated vendor invoicing in one of two ways. First, the client depended on the law firm to identify the need for an outside vendor, in addition to paying that vendor. The law firm then included the cost as an itemization on their own invoice to the client. While this process is a simple and effective way of covering vendor expense, it has several drawbacks:
- Law firms are growing less likely to front a cost to a client with expectations of reimbursement. Some firms set a threshold (such as $5,000.00), and any vendor expense higher than that is sent directly to the client for payment. Still, others refuse to pay upfront for any kind of cost incurred outside the law firm.
- Allowing law firms to make the sole determination of what vendor to use can put a client at the disadvantage of missing economies of scale based on volume work. For example, a company with a large volume of real estate transactions may contract with one outside copying service to get a lower pricing structure. Legal departments lose this kind of bargaining power by allowing the firms to use their own preferred vendors (most likely at a higher cost).
- Legal and risk departments do not retain any kind of actionable information on the vendors and experts being used on any of their legal matters.
A second method for paying non-law firm vendors is for the company itself to contract with all vendors and maintain control of the payment process. While this method alleviates law firm concerns of paying for costs up front and keeps control of all actionable information with the client, the high volume of invoicing can be difficult to manage anything beyond payment. Also, depending on the resources available and the software used in the accounting department, it may be difficult internally to tie vendor spend to a specific matter. Few legal department resources are available to identify commonly used vendors, create a list of preferred subject-matter experts, or negotiate for more favorable pricing terms.
The third and best solution to manage your complete legal spend is to process all non-law firm vendor invoices through your ebilling partner. Invoices can be submitted by the contracting party (either the client or the law firm), ensuring that all legal spend information is housed in the same entity. When looking at total cost of case information, both law firm and non-law firm vendor spend will be associated with the case. Additionally, this information can be used to evaluate vendors, identify commonly used companies, create lists of preferred subject-matter experts, or capitalize on economies of scale pricing structures. Most importantly, general counsel and risk managers receive complete legal spend data, allowing them to make better and well-informed decisions.
As with implementing a legal spend management solution, make sure to ask the right questions about vendors. Does your company or your outside counsel use non-law firm vendors on your matters? How are they currently retained and paid? And lastly – how is that expense accounted for in your legal spend data? Without answers to these questions, legal departments run the risk of missing an entire segment of legal spend.