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A Gartner Inc. survey of 140 in-house legal departments found that the most cost-effective legal departments devoted almost twice as much of their budgets to training as their higher-cost peers.

The most cost-effective legal departments spent 2.04% of their in-house budget on training and development compared to higher-cost departments that spent only 1.04% on training. The researchers concluded that investing in training helped increase productivity while not increasing head count and led to a decrease in spending on expert or outside support.

The most cost-effective legal departments made efforts to continuously strengthen their in-house capabilities, the survey found, and invested more in lawyer training and development. They also assigned more work in-house and standardized work processes using tools and templates. 

The 2018 Gartner State of the Legal Function survey examined features of cost-effective legal departments whose spending was in the lowest quartile of their peer group "while managing a similar volume and portfolio of work," to the higher-cost departments, the research group said in a news release.

The survey found that cost-effective legal departments also devoted nearly 8% more of their total budgets to in-house staff salaries, training, information technology systems and software compared with their higher-cost peers. 

Michael Mayfield, research director in Gartner's legal and compliance practice, said in a statement, "legal departments have a tendency to hand off complex work to outside counsel, but organizations can achieve significant cost savings by bringing this work in house." He added, "the rate for an in-house attorney is likely going to be significantly less than what outside counsel will bill." 

More cost-effective legal departments spent 54.9% of their legal budget in-house, compared to 47.2% for higher-cost departments, the survey found. Mayfield said bringing complex and strategic legal work inside also can improve the quality of services because in-house lawyers are more familiar with business operations. 

But James Wilber, a principal of Altman Weil Inc., a management consulting firm to legal organizations, said in an interview Thursday that while many legal matters can be handled internally, the matter of using outside firms is more complex.

"Although I have long held that for legal work that can and should be handled internally, it certainly can be managed in a well-managed law department. That doesn't mean it will be well-managed and necessarily lower cost. There is a lot that goes into it." 

Gartner found that 63% of in-house legal work is routine or can be standardized, and that cost-effective legal departments "employ a high level of standardization" by creating self-service tools for business clients and using templates for routine matters. Cost-effective departments also hired dedicated legal operations specialists.

"In order to take advantage of the cost savings by bringing work in-house, general counsel also needs to invest in the right areas to equip their teams to be successful," Mayfield said. "This is most clearly on display when looking at the differential in training spend between cost-effective legal departments and their higher-cost peers." 

Law firm expenses made up 93.5% of a legal department's outside spending, according to Gartner, a publicly traded research and advisory company.

More cost-effective departments used outside counsel mainly to work on critical matters, while relying on alternative legal service providers and non-lawyer staff for less risky activities where appropriate, the survey found.

Cost-effective legal departments spent more than 6% of outside dollars on alternative legal service providers, compared with the higher-cost legal departments, who spent less than 2% on alternative providers. Alternative legal service providers were mainly used for e-discovery, contract management and document review and other high-volume but less complex tasks. 

After controlling for such variables as industry, work volume and revenue, the survey found that lower-cost legal departments used 55% fewer outside firms than the median.

Lower-cost legal departments used an average of 14 outside firms versus 31 for the higher-cost legal departments. Gartner researchers said having fewer firms lowers the amount of resources needed to manage the outside law firms.

Altman Weil's Wilber said: "Certainly a lot of companies have lowered the number of outside firms they work with, and assigned to a smaller number of firms and asked for bigger discounts but just the number of firms isn't determinative. Are they right for the work in question and are they working as a partner? It's a much more complicated set of topics than the survey draws pretty bold conclusions about."