With Litigation Costs Rising, Bringing Work In-House Is Favored Strategy
Under relentless pressure to improve operational efficiencies, corporate law leaders are evolving their approach to the litigation response process. A key area of focus for many is to lower outside counsel expenses.
In fact, bringing more work in-house was the most commonly cited strategy in a new report by the Association of Corporate Counsel and Everlaw. Fifty-nine percent of respondents in the survey of associate, general, and corporate counsel, chief legal officers, legal operations professionals and others, said they’re looking to move more litigation work in-house to contain costs. A close second, at 52%, was rebalancing the work that goes to law firms and other outside services providers.
The report, “The State of Corporate Litigation Today” captures insights from more than 200 in-house counsel and legal operations professionals describing outside counsel selection priorities, preferred litigation workflow tools, the most common cost containment strategies, and how litigation needs are expected to change over time.
Recalibrating the work handled internally and through outside counsel is even more important as many U.S. corporations report an upswing in litigation and related costs over the last year.
Thirty-one percent of departments said their company’s litigation increased over the past year, 46% say matter times are increasing, and the majority of litigation matters will cost over $100,000. Though the amount and cost of litigation varies widely, respondents in biotech, energy, and construction report some of the highest litigation costs over the last year. Meanwhile, biotech, energy, and financial services have seen some of the highest outside counsel rates.
With costs rising on many fronts, including the highest inflation rates in decades, in-house legal leaders are in a stronger position to make the case for strategic investments in modern technologies that can support the work of their teams.
To that point, the report shows that modernizing legal work flows is very much top of mind.
Though relatively few teams leverage technology as a means to control litigation costs now (depending on company size), an overwhelming majority anticipates the role of new technology to grow in the near term. Those who follow through will drive efficiencies through automation and artificial intelligence, and other modern tools that can help in-house legal teams do more with less.
Litigation Volume Is Rising With Some Industries Feeling More Heat
About a third of corporate law department respondents said that their companies are experiencing a higher volume of litigation over the last year. Legal professionals in construction (67%), biotech/pharma (56%), and financial services (38%) were the most likely to report an increase.
About a third (27%) of respondents also saw an increase in regulatory matters, and 22% said that the number of internal investigations had increased compared to the previous year.
Only a minority of participants reported that the legal department handled fewer matters than the year before, and the overall number of legal matters stayed the same for most.
Litigation Is Taking Longer to Resolve
What’s more, nearly half the respondents (46%) said that the average amount of time that a typical litigation matter lasts is on the rise. While an equal amount of respondents said that litigation timelines have remained the same, only 8% of respondents said that the typical litigation matter is decreasing in time.
Legal professionals in biotech/pharma (88%), insurance (83%), and construction (67%) were the most likely to see increased average litigation times.
When deciding whether to settle a matter, the overall cost of defending or prosecuting a matter is key, and longer-running matters mean higher costs. Handling matters in-house and strategic use of technology can positively impact both timelines and costs, leading to better overall outcomes.
Antitrust and Class Actions Tend to Last Longest
Digging deeper into the amount of time various types of litigation matters last shows a wide range of timelines. On average, the majority of participants reported that litigation related to labor and employment, fraud and misrepresentation, and breaches of contract lasted up to two years.
On the other hand, antitrust and class action lawsuits typically run the longest, with the majority of legal professionals reporting an average length of two or more years for both types – and 44% indicating an average of three years or more for class actions and 60% reporting that timeline for antitrust. These litigation types also tend to be passed on to outside counsel.
The Majority of Litigation Matters Now Cost More than $100K
The cost of a typical litigation matter varies widely across company size and industry. However, in-house legal professionals in biotech/pharma (56%), construction (50%), and energy (43%) reported the highest costs.
Overall, one in four participants reported average costs of more than $200,000 for each litigation matter that the department handles, with the average increasing with company size.
A plurality of 39% of organizations with a revenue under $100 million spend an average of less than $50,000 for each litigation matter while 33% of larger companies that exceed $1 billion spend more than $200,000 on average on litigation.
3 Industries Draw Highest Outside Counsel Rates
Nearly half of all departments surveyed (48%) reported that the average rate for outside counsel services related to litigation exceeded $400 per hour, and 30% said they spend on average between $300 and $400 in hourly rates. Only 4% of respondents reported spending less than $200 per hour on average.
Not surprisingly, financial services, biotech, and energy corporate legal professionals were the most likely to report higher outside counsel rates. The types of litigation matters most commonly seen in these highly regulated industries are also those with the highest rates of outside spend, including breach of fiduciary duty, securities litigation, patent disputes, and environmental matters.
Regardless of the industry focus, corporate legal teams can better predict and control outside counsel spend using technology such as e-billing tools, and make decisions about their risk profile and litigation strategy more swiftly with analytics tools.
Taking Charge by Moving Litigation In-House
The most commonly cited strategy employed by corporate legal teams to control litigation costs is to move more work in-house (59%), followed by better balancing the work that goes to firms and managed services providers (52%). About a third also said that they use alternative fee arrangements with outside counsel (35%).
Surprisingly, given the known time- and cost- saving benefits of analytics and automation, only 19% said they use data reduction strategies, including early case assessment and data culling, and just 12% said they leverage technology or artificial intelligence to contain litigation costs. Even fewer specify preferred technology to their outside counsel (9%) and engage ediscovery counsel separately (6%).
With an overwhelming majority of respondents simultaneously acknowledging the growing importance of modern technology and its impact on team efficiency and effectiveness, these numbers are bound to increase in the next year or two as more in-house teams integrate technology into their workflows.
Viewing Technology as Increasingly Important
Introducing new technology is increasingly on the radar for in-house legal: the vast majority of respondents (85%) said that corporate legal professionals need to understand new technology and its impact on legal work and operations.
The survey also reveals two indicators of the role technology will play in the future: 56% said they expect their department’s technology needs to increase a year from now and nearly a half say that the top skill needed for the next generation of corporate legal professionals is the ability to adopt new technology.
Up Next: Empowering In-House Teams for Productivity
Reducing litigation risks and costs is a high priority for corporate law departments. The go-to solution for the majority of respondents is bringing more cases in-house while recalibrating the types and amounts of work going to outside firms and vendors. These two methods outpaced the use of alternative fee arrangements with outside counsel.
The survey finds that is especially true for the energy industry, in which corporate legal professionals report the highest litigation costs, including higher outside counsel rates. Unsurprisingly, the energy sector is also the most likely (83%) to bring more work in-house. Healthcare and insurance companies were the second most likely to move more litigation in-house.
As internal workloads grow, however, the next step for corporate legal leaders will be enabling their teams to work more efficiently. In-house adoption of new technologies has historically been slow for a variety of reasons. With the majority of in-house legal professionals anticipating their technology needs will grow in the coming year, key indicators point to a more technology-enabled future for corporate legal.
Download your copy of the “The State of Corporate Litigation Today” report today to get the full report on in-house legal technology needs and plans, the business risk assessment driving litigation responses, the top considerations for selecting outside litigation counsel, and more.
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