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[Author: Branden DeMass]
As written in Corporate counsel Earlier this month, despite increasing financial pressure to ‘do more with less,’ law firm leaders remained hesitant to negotiate outside counsel rates. That, along with the number of law firms that have increased in the wake of COVID, seems impossible to keep in line (not to mention reduce) outside counsel spending. However, hard evidence shows that there are many simple ways to reduce costs for law firms—and provide data to help drive down law firm rates.
Recent reports confirm that most law firms are dealing with a third of the work, budgets, and expenses of outside counsel. This fall, two-thirds of law firms are dealing with higher pressures and 60% will face funding freezes or cuts. This time last year, outside counsel’s rate increases were 10.8%. With law firms spending nearly half of their budgets on outside counsel, the financial impact is significant.
The good news is that every way to spend money abroad can save you money. For international coffee sales, over US$1M in savings over two years. For a global technology company, that’s $900K in debt in one year. With annual corporate spending on outside counsel averaging $42M, it’s hard to ignore.
Savings come from many sources. These include improving credit processes to ensure compliance with external auditor guidelines, spotting and remedying incorrect, inaccurate, or incomplete credit entries, and early detection in terms of statutory spending, before the budget results are strong. (As we’ve discussed before on this blog, improving credit performance helps strengthen relationships between law firms and their outside counsel.)
Other useful activities include:
- Eliminating differences in credit rates. For a variety of reasons, some law firms charge different rates for the same (or nearly identical) work. Identifying these factors can help you save money.
- Setting the same rate for each timekeeper. Savings can also occur when a law enforcement agency decides that a timekeeper costs only one time.
- Enforcing discount rates. Especially in legal departments with decentralized practices without an easy way to compile credit information, large payments can go unfulfilled. Taking a human perspective on legal expenses means that the law firm does not charge more than necessary.
- Decreasing rate structures to improve management and save time. Not all savings come directly from the law firm’s rate. By eliminating rate structures (for a single company, over 200 to just six!), the legal department’s eBilling processes will be more efficient and less time consuming. This allows lawyers to spend more time on more valuable work.
- Promoting a Rate Management Program with external consultants. That program includes organizing rate negotiations, setting rate benchmarks and metrics, and creating a standard framework for assessing future rate hikes. By taking a consistent approach to reviewing corporate rate hike attempts, law enforcement can respond evenly and confidently to stand up against rates.
- Compare cases and legal service providers on a cost-effective basis. Law firms should always look at their business case list to resubmit to a higher-cost provider (ie, one with similar expertise, similar work results, and lower rates than the provider that living). Clarifying (and reinvestigating) issues with employees (and rehiring employees) properly will help control costs and increase profits in the long run. Whenever the legal department has many of the same features (eg, advertising responses, updating employment contracts, using standard NDAs, etc.), the savings are huge.
There is no magic bullet to fix the ‘perfect storm’ of law firms dealing with workloads, expenses, and outside counsel rates. But the multifaceted approach pays off big, and the savings are sustainable over time with many different types of outside consulting. Especially in today’s environment, don’t wait for the fees of outside consultants.
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