Articles Posted in Cost Disciplines in Legal

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The Point

A judge’s ruling last week* illustrates which of the above two alternatives is better for the client company.

The court, after reviewing a law firm’s bill in a bankruptcy case, found that AmLaw 100 firm Pillsbury Winthrop Shaw Pittman LLP** had overcharged its debtor client by about $1 million. On a $6.3 million bill†.

Lessons for a client company engaging a law firm:

1. Define the task and sub-tasks before work begins, to maximize the likelihood that the lawyers will understand exactly what you want — and that you will be able to make them accountable for following your wishes.

2. Identify by name or by experience-level which attorney will do what part of the task, to assure promised quality of representation, and to avoid paying partners and other senior attorneys for simple tasks.

3. Make your legal costs predictable by agreeing on the total fee in advance rather than agreeing to pay by the hour (perhaps with a bonus formula based on results). Continue reading

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The Point

When should your business pay the exorbitant prices of a major law firm?

When you need the full attention of the best attorney available for the task presented.

But something else is happening.

The data say that in 2022 corporate clients were paying proportionately more for the total hours of junior lawyers, and getting less attention from their most proficient, experienced colleagues.

How did that happen? The data indicate that law firms “mitigated individual attorney rate increases by adjusting staff mix.” What does that even mean? Apparently it means the appearance of cost control on law firm charges by making less use of higher capability (higher priced) partners, while making more use of lower capability (lower priced) associates. Continue reading

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The Point

From the tenth consecutive year of LexisNexis CounselLink® 2023 Trends Report: In-depth Perspective on Rising Outside Counsel Billing Rates:

1. Law firm lawyer and paralegal (“timekeeper”) rates increased in 2022 at the highest levels since CounselLink first produced the Trends Report, in 2013, with the average partner rate increasing 4.5% (relative to 3.4% last year and 3.5% the year before).

2. These record-high average rates of hourly rate increases were higher than in the previous year “in all tiers of law firms and in all practice areas“.

3. Keeping track of the proliferation of lawyers that outside counsel assign to a matter is a big challenge in managing outside counsel — the finding: “High numbers of billers are performing minimal work on matters.”

4. Alternative fee arrangements (AFAs / capped charges with related terms on success fees, etc.), if they were used, would be the chief antidote to the prevailing billable hour: but only an average of 12.4% of matters made use of AFAs last year. No growth from previous years. Continue reading

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The Point

1. Historically, matters handled by law firms have comprised well over 50% of corporate Legal’s expenditures (Wolters Kluwer LegalVIEW Insights February 2023).

2. Though the vast majority (71%) of corporate clients want their outside law firms to create and manage to budgets on the matters they handle, only a distinct minority (29%) report that their law firms actually do so. (Minding the Gaps: Are You Getting What You Need from Outside Counsel? Thompson Hine 2023.)

3. Despite in-house counsels’ “demands” for budgets on law firm matters, in the form of so-called “outside counsel guidelines“, this disconnect has persisted for years.

4. Therefore, it’s up to CEOs, CFOs, and other P&L-minded executives to fix this problem. By leveraging their companies’ purchasing power, to get the budgetary discipline their law firms mostly refuse to provide, and that their in-house lawyers won’t enforce. Continue reading

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The Point

Over the past four decades, the constant law department refrain, in response to rising costs, has been: “bring more work in-house” (see here, here, and here). Swap out on-demand law firm specialists who charge (high) fees, for full-time in-house generalists who receive (lower) salaries and benefits.

This “cost-saving” method hasn’t worked — a consistent 50 to 60% of law function spending has long consisted of payments to law firms (see here). And, excepting the 2008 to 2009 Great Recession, companies’ legal spending has consistently spiraled upward.

This Matters 

Most industries charge more per unit for purchases made in small numbers, or only occasionally, than they charge for purchases made in bulk, or on a regular basis. But the waste that the legal profession’s hourly billing business model builds into law firm charges multiplies any variable cost premium to grossly excessive extremes.

So, to an extent not true of most other industries, the legal industry offers corporate law functions no economically viable way to manage their variable costs — at least when it comes to sourcing help from lawyers. Continue reading

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The Point

In a recent post, this blog covered the FisherBroyles law firm, which recently won acclaim for becoming one of the 200 highest revenue U.S. law firms (“AmLaw 200”). It has no offices, no associates, and no secretaries—what partner James Fisher calls, “the headwinds of profitability.”

As to “no associates”, since its inception 20 years ago, FisherBroyles has guaranteed that everyone it designates as a “lawyer” or “attorney” on a client company’s bill (whose work that bill describes as “legal services” or “legal advice”), is a fully-qualified attorney of at least 7 years experience — more typically 15 to 25 years experience practicing law.

This Matters

This is not true of the traditional U.S. law firm.

Whose hourly billing business model relies on adding more recent law graduates to pump up total charges for the work of mature, accomplished attorneys. Continue reading

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The Point

Factor is a prominent “alternative legal services provider”, or “law company”. That means it offers technology and workflow process professionals to support delivery of legal services; but, unlike a law firm, it has no attorneys who offer legal advice directly to clients. In June Factor announced a “Legal Transaction Optimization” service to automate routine transaction tasks for law firms that do complex corporate deal work:

“By unbundling transactional tasks from legal advice, law firm juniors billing at high rates are replaced with tech-enabled teams specialized in producing better output.”

This Matters

1. Factor’s service costs a lot less than what law firms have been charging for these transactional tasks (50% less in a recent reported deal).

2. Factor’s technology-enabled, automated process is likely to be more accurate than junior lawyers’ manual efforts at due diligence, document assembly, and other repetitive, error-prone tasks (for instance, see here). Continue reading

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The Point

Earlier this month several top U.S. law firms announced that they’d be paying 2021 law graduates $200,000 per year (Wall Street Journal: “Entry-Level Lawyers Are Now Making $200,000 a Year”).

Whether the law firms account for this as overhead (very unlikely), or pay for it by charging clients for the time of such novices (much more likely), client companies will shoulder the bill for this largess.

This Matters

Any U.S. law graduate will attest to the reality that a freshly minted law graduate — without any experience in or training for actual practice — is unqualified to perform as an attorney.

As the founders of AmLaw 200 firm FisherBroyles have described it (before this month’s announcement of $200,000 a year salaries), assigning such unseasoned individuals to perform legal tasks for clients, and then charging clients hundreds of dollars per hour for their work, amounts to, “the $180,000 a year associate being trained on the client’s time“.

Continue reading

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The Point

This year FisherBroyles became the first virtual law firm to be included in the AmLaw 200 — The American Lawyer’s yearly ranking of the 200 largest U.S. law firms.

What’s distinctive about this law firm: Its business model removes two key items of overhead from all of its client bills: (1) lease payments for lawyers’ offices, and (2) payments to junior attorneys to “assist” partners with their work for clients.

This Matters

FisherBroyles’ logic:

1. What you need from a law firm is the best lawyer you can find for the type of problem you’ve got.

2. A fancy office doesn’t advance that goal. Neither does addition of junior attorneys shoehorned alongside that best-lawyer-you-can-find to bulk-up the total bill.

3. Pay that best-lawyer-you-can-find handsomely — but ruthlessly avoid overhead that doesn’t add value. Continue reading

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The Point

“Law department leaders report that one out of every five in-house [lawyer] hours is currently spent on low-complexity, repetitive or routine tasks, with 87% confirming that their department spends too much time on these tasks.” 2021 EY (Ernst & Young) Law Survey.

In Legal, as in any other corporate function, aligning talent with the work to be done is a task for a proven manager. Lawyers in-house and in law firms are not trained in this, and they’re not good at it.

This Matters

The corporate law function’s largest expense category is lawyer pay, so squandering 20% of costly in-house counsel time on “low-complexity, repetitive or routine tasks” is a major, self-inflicted setback to Legal’s mission.

Allocating complex work to expensive talent — and routine work to automated processes or to cheaper talent — is Management 101. It’s second nature to businesspeople. And the other corporate functions like finance, IT, or marketing have successfully done this for years. Not so, Legal. Continue reading

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