ANALYSIS: AI to Help In-House Counsel Manage Spend, Fees in 2024

Controlling and reducing legal spend is a top priority for in-house legal departments. Yet many struggle with this task because of limited budgets, scarce resources, and high-volume workloads. This leaves many in-house attorneys burned out and the department having to rely on outsourcing work to law firms, which, given the ever-rising rates of working with outside counsel, ultimately increases their spend. But many are looking to artificial intelligence (AI) to help them cut costs and increase efficiency.

Some legal departments have already started implementing AI into their workflows by buying, or even building, their own generative AI tools, according to the latest Bloomberg Law survey data.

Implementation of this technology will help corporate legal departments better manage their budgets in 2024 by comfortably retaining more work in-house. This will, in turn, allow them to be more selective in the work they outsource, and give them more leverage to structure their fees under alternative fee arrangements (AFAs) for work that is sent to outside counsel.

Current State of Outsourcing

In Bloomberg Law’s most recent Legal Ops and Tech Survey, conducted in January, respondents were asked to answer questions about how much and what type of work they outsource (for in-house attorneys) or the work they receive from corporate clients (for law firm attorneys), and about how much of this work is performed under alternative fee arrangements.

Much Work Is Being Outsourced...

Eighty-five percent of in-house attorneys reported that they outsource at least some of their work, and more than one-third (38%) said that at least half of their work is sent outside the department.

In-house attorneys who outsource legal work were also asked to identify the type of work or legal services, and how much of that specific work or service, they outsource. Three types of legal services—due diligence, eDiscovery, and legal writing—stood out as the most common to be outsourced.

Additionally, 50% of in-house attorneys who outsource legal work also reported that half or more of their document review, data analysis, and legal research tasks are handled by an outside provider.

The survey additionally revealed that legal departments heavily rely on outside law firms when deciding who should handle the work they are outsourcing. Eighty-seven percent of in-house respondents who outsource legal work indicated outside law firms are receiving work from their department.

…But Little Handled Under AFAs

Both in-house and law firm attorneys were also asked to report how much of their work is handled under alternative fee arrangements—commonly referred to as AFAs or, more recently, “value-based billing.” Generally, an AFA refers to any sort of billing structure that relies on something other than the traditional billable hour.

Less than one-quarter of attorney work is handled under these types of agreements. However, recent Bloomberg Law data suggest those figures will increase in 2024, thanks to generative AI.

AI Usage Opens Attorneys’ Eyes to Billing Benefits

In Bloomberg Law’s most recent 2023 State of Practice Survey, both in-house and law firm lawyers said that generative AI will help reduce their reliance on outside counsel.

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The responses from law firm attorneys and in-house counsel were fairly closely aligned. The greater variance occurred between attorneys who reported they had used generative AI compared to those who have not.

In-house attorneys who have used generative AI were more than twice as likely as those who haven’t used it to report that generative AI will decrease the amount of work that in-house legal departments will send to outside counsel. (36% and 15%, respectively). For law firm lawyers, 32% of AI-acquainted respondents said generative AI would decrease the work they receive from in-house clients, compared to only 16% of those who have not used generative AI.

A similar split was noticed between AI-acquainted and AI-unacquainted attorneys in their responses to how generative AI would impact use of AFAs. More in-house (32%) and law firm attorneys (28%) who have used generative AI reported that the technology will increase the use of AFAs than those who have not spent time with the tech (13% and 18%, respectively).

These results show that attorneys familiar with generative AI foresee an AI-driven decrease in the amount of work that legal departments will need to outsource. When asked separately, they also stated a foreseeable an increase in their usage of AFAs. While these are not necessarily causally linked, the fact that in-house and law firm attorneys are on the same page about both outsourcing and AFAs is a further indication that the workload and billing relationship between the two groups is likely to change in the coming year.

Less Task Outsourcing, More Fee Negotiating

Increased efficiency and cost reduction were top legal operations goals for in-house lawyers in 2023, and many corporate legal professionals recognize that keeping matters in-house is a primary strategy for accomplishing these goals. The survey data showcases that in-house attorneys with familiarity with AI technology are seeing how it may be beneficial to the legal services they provide, allowing them to change their day-to-day workflow and to outsource less of their tasks.

In fact, some in-house legal departments are already using generative AI to assist in a number of tasks they commonly outsource—such as legal research, document review, and due diligence—according to Bloomberg Law survey data. And so far, in-house legal departments are generally outpacing law firms when it comes to keeping up with artificial intelligence updates, giving them even more of an edge on keeping their work internal.

By being able to retain more matters internally with the help of generative AI, corporate legal teams would be able to be more selective in the matters they choose to send to outside counsel, thus giving them leverage to negotiate for alternative fee structures in their business dealings.

Ultimately, generative AI will give in-house counsel the ability to better manage their budgets in 2024, specifically as it relates to outside counsel spending—as long as they depart from tradition and get on board with the technology.

Access additional analyses from our Bloomberg Law 2024 series here, covering trends in Litigation, Transactions & Contracts, Artificial Intelligence, Regulatory & Compliance, and the Practice of Law.

Bloomberg Law subscribers can find additional content related to Artificial Intelligence on our In Focus: Artificial Intelligence (AI) and AI Legal Issues Toolkit pages. Subscribers can also find content related to in-house budget and legal spend management, including practical guidance, workflow tools, surveys, and more on our Legal Operations, Outside Legal Services, and Legal Department Management & Optimization pages.

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