Can Choosing an ALSP Slash Your In-House & Outside Legal Costs?
If you were at CLOC Global Institute 2023, you likely heard the opening address given by Mike Haven, Head of Legal Operations at Intel and CLOC President, about the precedence-shattering changes to legal operations (if you need a refresher, you can view it here). From generative AI to the heightened expectations on corporate counsel to empower business growth, he outlined the variety of new and emerging forces pushing legal leaders into unexplored territory. What’s remained unchanged is the push to cut legal costs.
Mike said, “Many of us are still seeing massive pressure on our budgets and resources, still asked to deliver on that tired, old cliché – do more with less – while facing an uncertain economic future.” But what else can be cut?
Many organizations have and continue to examine their workforce and resources for redundancies, but what if you feel you’ve exhausted every option? How do you find more legal costs to control and still thrive? After all, there’s a big difference between pruning branches and hacking a tree to the ground.
As we’ve spoken with legal leaders over the past year, we’ve realized one area that legal departments and law firms are still overpaying for is their contract analysis. The practice of reviewing contracts for insight can often generate cost-savings, but the legal resources and technologies traditionally used to do it could be better utilized.
Here’s how much in-house corporate counsel, outside counsel, and the right alternative legal service provider (ALSP) can cost your enterprise.
Outside Counsel
If you run a compact legal department, your outside legal partner would have traditionally been your only option for a rapid contract analysis process. Teams of attorneys and defined processes can accelerate and scale contract reviews when insights need to be timely, especially in preparation for M&A activity, regulatory reviews, or other urgent needs. When you have an established relationship with a law firm, you also can get a sense of continuity across projects.
The catch is the steep cost. At the outset of 2023, law firms anticipated raising their rates by 9% for associates to make up for the shortfall created by depressed transactions. That same downsize of M&A activity has the potential to raise the cost of contract analysis as more U.S. law firms cut junior associates and/or legal staff.
This means that businesses choosing to work with an outside law firm for their contract review will not only pay higher billable rates to inflation but will likely be using the services of more tenured associates or partners. How much will that cost your business? The ABA Journal finds the average second-year associate at BigLaw firms bills $1,000 an hour and that price can skyrocket depending on the seniority of the team deployed to review your contracts.
In-House Counsel
Organizations with enough in-house talent to quickly turn around contract review might default to this approach. Your in-house counsel know your business best—your goals, industry, regulatory hurdles, contract types, etc.—and can ramp up to complete contract review projects without as much preparation. It’s also easier for them to directly connect with internal stakeholders for further guidance and insights.
Again, we return to the question of compensation. Let’s look at the Chicago market as an example. Glassdoor estimates the average corporate counsel makes about $157,322 in base pay alone, which translates to about $75 per hour. Even with additional pay (bonuses, overtime, etc.), which can add up to $232,731 a year, the average rate of an in-house attorney can reach $111 an hour.
The hourly rate of your corporate counsel is much more affordable than outside counsel, but there are other costs that pile up along the way. The number of attorneys you need for a rapid contract review can bump the overall expenses related to the project. What about guidance? Without project management staff, you’ll need direct involvement from legal leaders or the C-Suite, which can quickly spike the cost.
If there is a particularly tight timeline or an ongoing need for reviews, your organization might consider investing in contract analysis software. Depending on the degree of functionality and scalability necessary, your business might pay between $600 and $2,000 per month. What started off as a more cost-effective solution can escalate, barely contributing to legal cost controls.
ALSPs
How do ALSPs compare to in-house or outside counsel expenses? The amount varies across providers, but it’s key that any partner you choose lives up to the following criteria:
- Workforce Scalability: Does your ALSP have access to a team of attorneys at a moment’s notice? The right partner will cultivate relationships with attorneys, treating them as valued collaborators, to keep them highly qualified legal experts on demand.
- Project Management Methodology: The success of any contract review project is going to depend on top-down guidance. Over the years, we’ve learned the importance of having onshore project management professionals to ensure prompt and responsive communication from day to day.
- AI/ML Powered Technology: The platform your contract analysis team uses should contribute to not only the speed but the quality of the insights you receive. Though a customized product can add some upfront expenses, the right contract review platform can also mitigate the risks of analysis errors in the long run.
Not every potential partner is going to be able to provide the same level of bespoke service, quality, or accuracy in contract review. If they can’t, the degree of cost savings might not be enough of a boon to justify the investment.
However, the Legalpeople team delivers all those qualities while also offering an economical option to the above contract analysis solutions. On average, our solutions are [insert cost savings]% lower than in-house or outside counsel alternatives as well as more accurate than dirt-cheap ALSPs.
With those savings, you can alleviate the cost control pressure from the C-Suite while supercharging your legal transformation.