Trying to Control Legal Spend? Beware Budgeting Buckets

Given the economic downturn, GCs and other legal leaders have grown tired of the cliché, “do more with less.”  

Ninety-eight percent of legal leaders report their budget has been cut as a result of economic uncertainty, and 94% predict a hiring freeze is likely. Nearly half (41%) report it’s very likely or already happening, according to a recent Axiom survey. 

Simultaneously, nearly 100% report their in-house team is handling an increase in both the volume and complexity of legal matters. When GCs aren’t able to hire, they typically seek support from external resources like law firms, or they rely on flexible legal talent through ALSPs. But Legal’s current budgeting structure often limits them from doing so cost-effectively, and in some cases, prevents them from doing so entirely.   

How does Legal’s budgeting structure inhibit in-house teams’ ability to reduce spend? 

Along with hiring freezes, many companies have also mandated enterprise-wide freezes on contractor and consultant spend. While the intention behind these mandates is admirable, they often have unintended consequences on the legal team’s ability to actually reduce spend. How?  

According to a recent Wells Fargo report, law firm billing rates have increased by 7-8% in 2023, with some rate hikes reaching as high as 30%, the largest increase in over a decade. In an economic downturn, these rate hikes are not only prohibitively expensive, but they are indefensibly expensive. 

In other words, enterprise-wide freezes on contractor and consultant spend unintentionally encourage legal leaders to rely heavily on more expensive resources that don’t fully solve for the pain points they are experiencing. In fact, 44% of those same legal leaders say law firms lack the institutional knowledge of their business necessary to quickly and autonomously handle in-house legal matters, and 42% say that law firms provide the wrong type of advice for the matters on which they most need support.  

On the other hand, 65% of legal leaders see flexible legal talent providers as a mostly/completely effective solution to address their department’s resourcing needs, and almost half (41%) say flexible talent providers offer better value for every budgeted dollar. 

So what’s the solution? How can GCs and other legal leaders access the resources they need?