Corporate legal teams face pressure to control rising outside counsel costs while proving value to the business. This article outlines best practices for legal spend management, from enforcing outside counsel guidelines to leveraging legal spend management software and analytics. By centralizing data, automating invoice review, and applying AI insights, departments can improve legal budgeting, ensure cost-effective legal partnerships, and strengthen oversight of outside counsel spend. Learn how modern legaltech solutions like Litify empower teams to optimize spend management and deliver greater transparency and accountability.

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Corporate legal teams are being asked to deliver more value with fewer resources, and rising outside counsel costs make that challenge even harder. Budgets can slip without visibility into spend, making it more difficult for the legal department to help move the rest of the business forward.

Read on to explore why managing outside counsel spend matters, the common challenges in-house legal departments face, and practical steps for stronger legal spend management. 

You’ll also learn how Litify helps in-house teams gain transparency and apply AI solutions to firm selection and spend analysis.

Why is outside counsel spend management important for corporate legal teams?

Outside counsel is one of the largest line items in a legal department’s budget, which makes it a major focus for business leaders. Every dollar spent needs to be justified, especially when costs are rising across the board.

If spend is not tracked closely, it’s easy to go over budget, which can impact organization-wide financial planning. Legal teams need to be able to properly manage those costs so they can show that they have counsel spend under control.

Good spend management also positions legal teams to recommend more cost-effective ways to work with outside firms, particularly when the team can utilize historical data to provide context or help make more informed decisions.

The challenges of managing outside counsel spend

One of the biggest hurdles in managing outside counsel spend is a general lack of transparency in billing, often made worse by siloed systems or data. Tracking spend across different matters, case types, or regions adds another layer of complexity to legal budgeting. When the data is scattered or siloed, it’s easy to lose sight of total costs.

In addition, your guidelines for outside counsel aren’t always followed consistently. Firms may interpret policies differently (or may lack the transparent software of their own to automatically apply and follow billing rules!), leading to disputes or unexpected charges. It’s up to in-house teams to manage these rules and ensure they are adhered to, so there are no delays or penalties.

Many departments still use manual approaches, such as spreadsheets, which slow reporting and increase the likelihood of mistakes. Invoices are usually long and complex, without much detail about the work performed, making it hard to know where the money is going. 

Best practices for controlling outside counsel costs

The teams that handle spend management best are the ones that combine structure with consistency. They use proven approaches like these to stay on track:

1. Create a playbook for outside firms. Set expectations for billing rates, staffing, and approvals at the start of an engagement. When both sides know the rules, you can hopefully avoid disputes and keep matters moving.
2. Use alternative fee arrangements (AFAs). Options like flat fees, capped rates, or results-based billing give both sides a clearer sense of value.
3. Leverage data. Looking at trends across matters and firms reveals where spend is higher than expected and where renegotiation might make sense. Historical data can also provide context to ensure you select the right outside counsel for a particular case.
4. Audit invoices regularly. Routine reviews help your team identify billing errors, duplicate charges, or deviations from guidelines.

Taken together, these best practices give legal departments a stronger handle on budgets.

The role of legal technology in spend management

Manual tracking won’t help you keep up with today’s demands. Litify combines multiple legal spend management software capabilities in one secure platform:

• Matter management and eBilling. Keep every matter and invoice in one connected system.
• Real-time dashboards. See outside counsel activity as it happens instead of waiting for month-end reports.
• Automation. Build consistency into approvals, invoice reviews, and reporting so nothing falls through the cracks.
• Litify AI. Surface insights about which firms deliver the best results at the right cost, based on historical data. 

Salesforce’s legal team already used Salesforce to track matters and invoices, but they didn’t have visibility into firm performance and overall spend. When they started using Litify, they gained a clearer view of outside counsel relationships, found new ways to collaborate, and doubled their efficiency.

How Litify empowers data-driven spend management

With a fully integrated matter management platform that includes eBilling and spend management, in-house legal teams can better manage outside counsel spend through a combination of powerful reporting, increased visibility, and workflow automation. 

Instead of feeling like another piece of software to manage, Litify becomes part of your department’s day-to-day. Teams have the data and real-time insights they need to make strategic, data-driven decisions about outside counsel, enabling them to demonstrate the impact they’re delivering to the rest of the business.

Put your data to work with Litify. Get started by scheduling a demo.

FAQs

What does managing outside counsel spend mean in legal departments?

Managing outside counsel spend is the process of tracking, analyzing, and controlling how much the company invests in outside firms. This usually involves setting clear billing guidelines, reviewing invoices against those rules, and using legal spend management solutions to bring transparency into the process. 

When done well, it gives legal departments a clear picture of whether those investments are paying off.

What are the best practices for reducing outside counsel costs?

The most effective teams set clear billing rules and expectations with their firms from the start. They run regular audits to catch mistakes or charges that fall outside guidelines. They experiment with alternative fee arrangements, like flat or capped fees, to create more predictable costs. And they look closely at data to spot trends and identify savings opportunities. 

How can legal spend software help improve outside counsel management?

Legal spend management software takes tasks that are often manual and centralizes them in one place, such as confirming billing guidelines and analyzing outside counsel relationships. It stores all matters and invoices together, automates the review process, and provides dashboards highlighting where money is going. 

Ultimately, the software makes it easier to enforce policies and uncover areas for savings.

What challenges do legal departments face in outside counsel spend management?

Billing can be inconsistent across firms, and invoices may lack detail. Many teams also still rely on spreadsheets or manual tracking, which slows review and approval down. Siloed data and systems create inefficiencies in selecting the right outside counsel or in sharing valuable updates to the rest of the organization.

And when work spans multiple firms or regions, consolidating all that data into a single view becomes a major challenge.

How can technology improve billing transparency with outside counsel?

Technology, particularly eBilling, makes the invoicing process much clearer. Legal teams can set standard rules for how bills are submitted, and the system can then flag discrepancies automatically and create a consistent record across all firms. That level of transparency helps both sides stay aligned.

What role do data and analytics play in outside counsel spend optimization?

Analytics allow teams to compare performance across firms, spot trends in overspending, and forecast future needs. These insights guide smarter decisions and more accurate budgets.

How does Litify help legal teams manage outside counsel spend more effectively?

Litify integrates everything into one platform. Teams get legal spend analytics, automated invoice review, and configurable workflows that fit their existing operations, today and into the future. Litify AI can also recommend the firms most likely to deliver strong results. 

With these tools, it’s far easier for legal departments to manage outside counsel spend.