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When contracting with outside law firms for legal services, in-house counsel at companies, cities and non-profit organizations are always keeping an eye on costs and the bottom line.
But growing rate increases over the last several years have them turning to alternative legal services, hiring more in-house staff and using artificial intelligence to control their costs.
This year alone, average outside billing rates for January through June rose 4.8% over the same period in 2023, according to the LexisNexis CounselLink Trends Report. That’s not as high as the 5.4%, increase recorded in 2023, but it is the second highest jump recorded since the industry report first came out in 2013.
An Oct. 4 Wall Street Journal article on soaring billing rates at the nation’s largest law firms cited a National Association of Legal Analysis report that found lawyers billed between $500 to more than to more than $1,300 per hour in 2023. However, hourly rates can run $2,500 or more for the most sought-after attorneys, the Journal reported.
Nicole Lamb-Hale, vice president, chief legal officer and corporate secretary at Columbus-based Cummins Inc., said the company still uses outside law firms for legal services, both locally and around the world.
While Cummins is not aggressively hiring more in-house attorneys, it has started using a national alternative legal service provider for some of its contracted legal work.
With it being a global and legally complex company, Cummins still uses outside counsel for a majority of its legal issues, relying on a panel of law firms with which it has three-year contracts with locked-in rates.
But Lamb-Hale said the company has also turned to Axiom, a national alternative legal service provider that advertises its services as up to 50% less than national law firms.
She acknowledged that the cost savings to Cummins has been “significant,” since the company first started using Axiom on a pilot basis.
“We found, to-date, the quality is good,” Lamb-Hale said.
Analyzing billing rates
There is not a universal approach to how companies handle in-house work versus contracting for outside legal services.
Lea Ann King, Toyota Material Handling, Inc.’s vice president of legal affairs and general counsel, said the Columbus-based company is always re-evaluating its outside counsel relationships to identify which firms are “true partners.”.
King said this means outside firms are proactively communicating any rate increases with Toyota at a time that coincides with the company’s budgeting cycle (versus just their calendar year).
“They are not just ‘passing along’ enormous rate increases. We have e-billing software that will flag and automatically reduce any rates that exceed what we have approved. If you try to submit a bill with a rate exceeding the approved, chances are we will short-pay the bill and re-evaluate our relationship,” King said in an email to Indiana Lawyer.
King said the reality is law firm rates have outpaced the company’s budgets.
She said that has forced her to get creative.
One way is that Toyota, like Cummins, has expanded its work with Axiom, which bills itself as an alternative legal services provider.
King said Axiom provides flexible in-house legal talent and law firm services for in-house law departments for a fraction of the cost of outside firms.
“Because the attorneys we’ve worked with are highly experienced former in-house attorneys themselves, the work product and ease of working with them has been outstanding,” King said.
King added that Toyota is continually using its e-billing data to identify tipping points where the external spend justifies adding another lawyer on staff to result in cost savings for the legal department.
Kynedi Grier, a spokesperson with Eskenazi Health, said the health care provider’s in-house counsel team always tries to do as much work with its staff attorneys as possible.
“This approach has not changed,” Grier said.
AI also being used to cut outside counsel costs
The LexisNexis report concludes that general counsels “have had enough” of the rising rates and are pushing back and negotiating harder with firms and/or are moving work to firms with lower rates and lower rate increases.
In-house counsel across the U.S. are also looking at artificial intelligence as a way to cut costs.
The Association of Corporate Counsel released a report in October, “Gen AI and Future Corporate Legal Work: How Ready Are In-house Teams?,” that found that 58% of legal departments expect a reduced reliance on outside legal service providers, specifically due to GenAI.
The ACC noted that this has more than doubled since a similar 2023 survey, where 25% of respondents said they would cut the number of law firms they work with in the next year, with the top reason cited by 79% being to increase cost effectiveness.
“The rapid pace of GenAI’s integration into corporate legal departments and the significant impact it is making is remarkable,” said Veta Richardson, ACC president & CEO, in a news release. “The snapshot this comprehensive survey provides of GenAI’s use in legal departments helps illustrate the magnitude of its effect on budgets, operations, and staff.”
Axiom lists AI as one area it can assist firms with as well.
Whether it’s AI, adding in-house staff, contracting with alternative service providers or just taking on more work in-house, in-house counsel will continue to look at ways to save money, even while maintaining relationships with outside law firms.
Lamb-Hale said the use of an alternative legal services provider has proven useful for some tasks that don’t require an extensive investment.
“What I find is the quality has been consistent. It’s a tool I intend to keep using,” Lamb-Hale said.•
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