Why Are External Legal Costs Not a KPI?
As a part of my role at LawyerlinQ, I’ve had discussions with over a hundred General Counsel (GCs) regarding the procurement of attorney services. In this blog series, I’ll share my learnings from these conversations. This second blog I will address the question of why reducing external legal costs is not a KPI in Dutch legal departments.
How important are legal costs for GCs, anyway?
Most GCs consider it their responsibility to control and, where possible, reduce external legal costs. However, it is not always a top priority in their overall list of responsibilities.
When engaging a law firm, trust plays a decisive role for GCs. The trust is not only based on existing relationships with the firm and its partners but also on the firm’s reputation. The stronger the relationships and the higher the reputation of the firm, the less likely the average GC is to make costs an issue. In addition, not all GCs can decide themselves with which firms they work. Often, company executives themselves have a significant say in this.
Why are legal costs not a KPI?
There are a number of reasons why reducing external legal costs is not a KPI for most GCs. The top 3 reasons I heard are:
The emergence of external legal costs is unpredictable: This is of course true to a certain extent. You don't have control over actions by counterparties, regulators, etc. But is it really true that there is no way to estimate at all? Procedures, claims, and problems seem to come out of thin air, but a large part of the legal work can be easily derived from the operation or follows from the business plans of the company.
The amount of costs in cases is difficult to estimate: This is also only partly true. The fact that external costs are difficult to budget is mainly because clients do not demand from firms to give fixed prices. With the current state of technology, you can state that law firms that claim they cannot estimate the cost of a case do not have their business data in order, or do not have enough experience with that type of matter.
Legal costs are a relatively small item of the total costs: It is true that legal costs are often a relatively small item on the total costs of a project or transaction. But they are substantial on the total costs of the legal department. Every euro you save on external advisors can be better spent elsewhere.
No KPI, but ambition
Despite the fact that there is no KPI associated with external legal costs, you see the ambition to reduce costs growing among more and more GCs. This is of course made easier by the rise of specialized legal procurement technology, but I think it also comes from the fact that it is a good way to free up the budget for other improvements in the legal operation.
Do you also have the ambition to reduce external legal costs and want to know how to do it? We are happy to help you further.
