A new report by the Association of Corporate Counsel has found that 42% of in-house legal departments are facing cost-cutting mandates, and 58% of legal departments are seeing rates from outside law firms rising.

“Squeezing general counsel resources while at the same time expanding their remit is unlikely to be sustainable for the long term,” Veta T. Richardson, ACC's president & CEO, said in a press release, notes Legal Dive. “Improving operational efficiency and investing in new technology will help, but it remains unclear if those efforts will be enough.”

So will AI be the stopgap? Well, maybe. One day. For now, AI tools can only help with basic, rote legal tasks. A report by Thomson Reuters, however, found that 40% of general counsels expect an increase in outside counsel spending, though that may be a result of increasing rates.

In response to these rising rates, in-house legal departments are "introducing stricter guidelines for the use of outside counsel and implementing structured annual rate review processes," says Legal Dive. "Many in-house teams are also examining whether to increase their use of regional and boutique firms, which typically charge less per hour than larger outfits."

To be strategic with which firms to use and when so as to reduce outside legal bills, Brightflag, an e-billing platform, recommends analyzing case matters for risk and complexity. “Matters that are both high risk and high complexity can continue to be instructed to Am Law 100 firms, while other matters can go to regional firms, alternative providers, or be resourced with internal staff.”

But things aren't slowing down. According to Thomson Reuters, “Worked rates, the negotiated rates clients agree to pay to law firms for particular matters, have risen at a relatively dramatic pace over the past five years. The past two years, in particular, have seen the pace of worked rate growth begin to rival figures from before the GFC of the late-2000s.”

THE VERDICT:

As economic conditions continue to change, and industries like Tech and Entertainment roll out layoffs and other budget-pinching measures, its a wise time to reevaluate your organization's legal workflow. Determine which of your matters need to be handled in-house, and which can be sent to outside counsel, whether to AmLaw 100 firms or smaller firms (and even individually contracted attorneys). Developing a prudent and streamlined strategy today will only help navigate future uncertainties will keeping costs tight.

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