What’s influencing external spend right now?
With the working year in full swing, various market factors influence how corporate legal teams allocate precious budgets to various providers. Here, we chat with several general counsel about what can be done to anticipate business needs pertaining to spending.
As has long been the case, “doing more with less” and reducing external spend have been front of mind for law departments.
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In 2022, corporate counsel saw rates from their external providers increase, with fees in the venture capital and private equity spaces “definitely” witnessing elevated costs. Increases in external provider fees have perhaps been somewhat explained by the fact that, as research showed in September 2023, “lawyers are becoming more expensive and less productive”, with Australian firms weathering softening demand and rising expenses while also seeing declining productivity as headcount increases were outpacing demand growth. This said, there have also been accounts of downward pressure on rates from external providers, as noted in August.
Which direction rates head in 2024 – with inflation now at its lowest level in two years – remains to be seen. In conversation with Lawyers Weekly, a number of general counsel discussed what rates might do in the coming months and how best their teams can anticipate market trends.
External legal spend, Tabcorp group GC Ivana Kovacevic explained, is always largely dependent on the nature of expected work, and her business – which operates in the wagering and entertainment experience spaces – expects fees to remain steady.
According to Pro-Invest Group general counsel Anthony Ursino, external legal fees are “likely to be slower in the first half of 2024 as deal flow remains subdued”, however, he added, “this is likely to pick up in the second half of 2024, as we expect deal flow to accelerate”.
“Once deal flow resumes, it is likely to be a quick rebound, which will place pressure on external law firms. On the litigious side, while the market is softer, the spend is likely to remain consistent/higher as defendants are generally not motivated to settle and look to ‘buy time’ by delaying settlements,” he outlined.
REA Group general counsel of financial services Scott Stierli had a similar view, telling Lawyers Weekly that as the flow of work remains subdued, “legal service providers will be less eager to push through substantial increases in their fees and will be keen to look to provide value through alternative billing solutions such as fixed fee or include success or performance incentives”.
Legal leaders will need to take the opportunity, he suggested, “to engage with their providers to obtain the best value from their relationships”.
“There will be lots of opportunity to ensure your external spend goes further and consider less traditional engagement methods to drive more value,” Mr Stierli said.
Another GC, who preferred to remain anonymous, noted that while he and his team members are “fairly light users of external firms/counsel”, when his department does seek advice or assistance from such providers, the quantum of spend is not necessarily the first consideration.
“While fees are a consideration, other factors such as expertise in law, ensuring the external adviser understands our business,” the GC explained.
“Culture and what outcome we want to achieve, and how best to achieve it, will ultimately ensure we are getting the best value for money.”
This sentiment rings particularly true as inflation and the cost-of-living crisis continue to bite Australians and with competition for work as fierce as ever.
Looking ahead, Ms Kovacevic posited, there is “much that in-house leaders can do” to prepare for and respond to business needs that involve external legal spend.
This includes, she listed, “investing time in running a tender to select panel law firms with more favourable fee structures, as well as looking at opportunities within your own legal teams to create efficiencies and improve processes, which involves an analysis of your data, legal operations, and the best use of technology, including the responsible use of legal AI”.