Cutting Costs: The Law Department Business Case for Improving Contracting
In a previous post, I discussed the IACCM’s finding that, in some cases, more than 40% of legal department costs are associated with bid and contracting work.
What then might a business case for automation look like? Below is a quick, back-of-the-napkin calculation.
- Company X does US $10Bn in annual revenues.
- Total legal spend is 0.3% of revenue, or $30M p/a. (According to Rees Morrison, while actual TLS/Rev varies greatly within and across industries, 0.3% is a typical ratio)
- 40% of TLS – $12M p/a – supports contracting. (As per the IACCM finding.)
The question then is, how much can that $12M realistically be reduced? I would suggest that a 10% (i.e. $1.2M) annual reduction should easily be achievable for the majority of organizations that have not yet focused serious effort on streamlining their contracting processes.
To be sure, it will cost money to realize the potential benefits. But, even over a 3 year time horizon, I would expect a very strong return on investment.
- Your mileage may vary: the above assumptions are, by definition, highly generalized. I’m simply trying to provide an example so you can decide whether it’s worth gathering specific data to analyze your own situation.
- The calculation excludes other potential benefits of document assembly such as reduced risk, faster cycle times, and improved client service, all of which strengthen the business case.
Let us know your experiences with contracting improvement in the comments below.