Legal spend management is software that checks each line of a law firm's invoice against the client company's billing rules, and disputes the lines that break those rules. It is also called legal bill review. It is a part of enterprise legal management (ELM) software, the system that a company's legal department runs on.
This work matters most in the United States. There, large companies pay outside law firms by the hour, and lawyers record their time in units of six minutes, a tenth of an hour. This way of charging is explained in billable hours. A big lawsuit can produce invoices with hundreds of lines every month.
Each company writes its billing rules into a document called its outside counsel guidelines. The rules say, for example: do not lump several tasks into one time entry, because the client cannot then see how long each task took (this is called block billing); bill no more than 0.1 hours for reading a short email; send only one lawyer to a routine call; and bill travel time at half the normal rate. The law firm accepts these rules when it takes the work.
Consider the legal department of an insurance company in the United States that receives a monthly invoice of $184,000 from a law firm. The invoice has 620 lines. The firm sends it in a standard electronic format, in which each line carries the lawyer's name, the date, the hours, the rate and a code for the kind of task. So the software can read every line. Before AI, an employee in the legal operations team checked such invoices by hand, or only checked a sample.
The software now checks every line. It flags 41 lines worth $12,600 in all. Eight are block-billed entries. Three associates billed for the same one-hour call. One lawyer billed a full hour for reading a two-line email. Travel was billed at the full rate. An AI model also reads the description of each task. It notices, for instance, that a junior lawyer billed for research on a question that the firm had already answered in an earlier month.
A person in the legal operations team reviews the 41 flags. She accepts 35 of them and drops 6, because those six tasks were approved in advance. The company cuts $11,200 from the invoice and pays $172,800. The firm can appeal any cut, with reasons. The AI only suggests cuts, and a person decides on each one. This arrangement is called human in the loop. The approved invoice then goes to accounts payable automation for payment.
In India, many companies pay their outside lawyers a fixed fee for each hearing or each stage of a case, rather than by the hour. Line-by-line review is less common there, but the same software checks fixed-fee bills against agreed rates.