As Summer Temps Rise, the Need to Cut Costs Heats Up

budget cuts

The Buying Legal Council recently published results from their July “question of the week” survey, an update to an earlier survey distributed in April. The question, “how does your organization handle COVID-19,” is capturing a powerful trend: even as lockdowns are easing, the need to reduce costs is intensifying.

Law department leaders are deploying a variety of tactics to quickly and radically reduce costs, with the strategies generally fitting into 3 groupings:

  • Hard cuts – to staff, to non-essential programs, and to vendor rates
  • Delays – to payments, or to non-essential work
  • Doing Work Differently – using alternative legal services providers (ALSPs), and insourcing work

COVID-19 has created an unprecedented situation where all cost cutting options are now on the table, especially those that can quickly bring relief to a legal department that is under significant cost pressures.  See chart below from Buying Legal Council:

buying legal council

Although all cost cutting measures should be considered in crisis, it is important to weigh the mid- and long-term effects of the strategy.  In reviewing the cost savings tactics noted by survey respondents, Epiq believes:

Hard Cuts are sometimes necessary, but run the risk of cutting too deep, or alienating relationships.  For example, a rate reduction during a crisis could become a rate increase once economic conditions improve and negotiation power shifts.  Instead, legal departments should consider this an opportunity to analyze the total cost of ownership of the work being performed. This approach can deliver the same cost reduction effects as a rate cut, but achieves it in a collaborative and sustainable manner.

Delaying Work can shine a light on work that truly is non-essential, which can become a source of permanent savings. However, legal departments that push out important but not time sensitive work run the risk of either causing a business disruption or, eventually, creating a time bomb of work that will come due in Q4.  If a legal department has also reduced headcount, that excess work will come due at a time when the department is still short-staffed.

We love to see that organizations are seeking ways to work differently. Organizations shifting more responsibility to ALSPs, and identifying insource opportunities through alternative resourcing or captive support are achieving their goals without deploying drastic measures. At Epiq, we see these solutions as efficient, smart, and safer alternatives to hard cuts or delaying work. Leveraging an ALSP to support those creative solutions provides a solid foundation for an organization to safely flex smaller during times of crisis, and be well prepared to scale up quickly once the work comes due.

It will be interesting to see how the market continues to evolve in August and October as the ripple effects of COVID-19 continue to spread. Headcount and payment delays have already begun to decline.  Will this trend continue or reverse as government subsidies run out?  Staffing and ALSP support is accelerating, will this trend accelerate even more as work comes due if hiring remains frozen?  We look forward to Buying Legal’s next market survey for answers to these questions.

By Peter Eilhauer, Managing Director Legal Spend Solutions.  Peter brings over 16 years of experience working with corporate legal departments and law firms to radically reduce costs, analyze data, and optimize their legal businesses.

Filed under: covid-19

The contents of this article are intended to convey general information only and not to provide legal advice or opinions.

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